ICICI Magajine June11

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From the Managing Directors desk

On an average, on a monthly basis, ICICIdirect helps close to 10,000 of our customers articulate and plan for their life goals. These range from planning for their childrens future to their own retirement. But one goal that is invariably high on the list of priority is to buy a home. It is by far one of the most sought after acquisitions and a sentimental one at that. A report by Mckinsey Global Institute on the urbanization of India mirrors this sentiment. According to the report, by 2030, $1.2 trillion of capital investment will have to be made to meet the infrastructure demand from Indian cities. About 700-900 million square metres of commercial and residential space needs to be built to satisfy the growing demand from the developing urban areas. The report further projects that over the next 20 years the demand for affordable housing may rise to 38 million units. So housing and investment in the sector is indeed an area of growth. Buying a home entails one of the largest investments one makes in his lifetime and as such it becomes very important to get it right. Taking a cue from what we have seen our customers articulate and the queries we otherwise receive, this issue of ICICIdirect Money Manager is focused on helping you buy that home. Its best to start the process by really evaluating the need to buy. Taking a house on rent gives more flexibility and one should evaluate renting with buying, especially if your job involves transfers. However, given the inflation in land and cost of construction, it is advisable to buy one house from a retirement planning perspective. If you do decide to buy one, make sure that the following factors are at the top of your mind. Look at a house you can afford, evaluate how your finances hold up after the new outflows in terms of EMI, maintenance charges, etc. Stretching your
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finances is quite natural, especially since owning a house is a matter of pride. It is however best to avoid over stretching and err on the side of affordability. Housing is an illiquid investment and it is a good practice to actually write down the complete calculation on your cash flows with a few scenarios like increase in interest rates (in case you plan to take a loan). It is worthwhile to include the tax benefits that accrue if the house is taken on loan. A home loan taken after some groundwork is always a good vehicle to create a sound asset in the long term. While evaluating a home loan, make sure you get the best deal. Check for interest rates and other charges like processing fee and prepayment penalties. The area and the type of house you want to buy is always a personal decision but keep in mind the locality and the amenities that are around or are slated to come up, this will decide the future appreciation in the value of the property. And finally, where it is your hard earned money at work it always pays to be safe than be sorry. Make sure that all the legal formalities are clear. Take services of professionals to make sure that your transaction is safeguarded. Now having bought that house, ensure that the house is insured. The house should be covered for any damage in case of calamities and also insured for the EMI payments. All these will ensure that your dream house remains so in your pursuit to fulfill your life goals. Through our website www.icicidirect.com and this magazine we want to make an earnest attempt to partner with you in setting and achieving your financial goals. Do walk into any of your Neighbourhood Financial Superstore and talk to us.
ICICIdirect Money Manager
June 2011
EDITORIAL
One of the most exciting moments that individuals or families go through in life is the joy and satisfaction of buying a house. While it is one of the largest financial commitments that we make there is also a whole lot of emotions involved in the process. Our Flavour of the Month for this issue of ICICIdirect Money Manager will serve as a compendium on the elements that one needs to keep in mind before buying that home. What I would like to touch upon here is the emotional elements of that process. There is no doubt that emotions are one of the key elements that drives the home buying process. It is an integral part. The important part is to not let emotions cloud taking a sound financial decision. The entire buying process has to be backed with facts, analysis and evaluation before you make a move. You would be investing a substantial sum of money and will also have regular outflows in terms of EMI for years. Make sure you take time to gather the information you need to make an informed and justified decision about the home you purchase. This will ensure the soundness of your investment, even after the emotions have waned. In this issue we also feature an exclusive interview with Mr. Sachin Khandelwal, MD & CEO, ICICI Home Finance Company Limited for his views on the real estate segment. I am sure this issue will help give you an all-round view on things to look for while buying your house. Do write in with your feedback at : moneymanager@icicisecurities.com
Editor & Publisher Coordinating Editor Editorial Board Editorial Team : : : : Abhishake Mathur (CFP CM) Zam Jose Pankaj Pandey, Sameer Chavan Amit Gupta, Azeem Ahmad, Dharmesh Shah, Gulzar Maniyar, Nitin Kunte, Purnendu Jha, Sachin Jain, Shaboo Razdan, Sheetal Ashar, Varun Shah, Viraj Gandhi
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COnTEnTs
From the Managing Directors desk ....................................................1 Editorial ..................................................................................................2 Contents .................................................................................................3 news ......................................................................................................4 Markets round-up ..................................................................................5 Technical Outlook ..................................................................................9 Derivatives View ..................................................................................11 Top Pick - Jet Airways and TCs Limited ...........................................13 sector analysis ....................................................................................16 Analysts of ICICIdirect.com Research from Banking, Infra and pharma sectors share their views Flavour of the Month - House purchase ...........................................21 Before you plan your dream home, you must understand that there are various aspects you must look into Tte--tte ...........................................................................................27 Interview with Sachin Khandelwal, SGM, ICICI Housing Finance Company Ltd. Query Corner........................................................................................29 Financial Planning ................................................................................30 Case study of a working professional who has one child Knowledge Base - Moving Averages ................................................33 Investing Tips - Effect of compounding ............................................37 Mutual Fund Fact sheet - Balanced funds .........................................38 Equity Model portfolio ........................................................................46 Quiz .......................................................................................................52 Customer solution ..............................................................................53 Glossary................................................................................................54
Important: All the contents of ICICIdirect Money Manager are the exclusive property of ICICI securities Ltd. no article, either in whole or in part, may be published circulated or distributed through any medium without the express consent of ICICI securities Ltd. ICICIdirect Money Manager
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June 2011
nEWs
small savings get panels booster A committee headed by RBI deputy governor, Ms Shyamala Gopinath, on June 8 recommended a hike in interest on the post office savings account from 3.5 percent to four percent. The committee has also recommended an upward revision of the ceiling on annual subscriptions in public provident fund (PPF) from the current ` 70,000 to ` 1 lakh. The committees recommendations come as a shot in the arm for the small investors. It has asked for discontinuation of Kisan Vikas Patra (KVP). The report was presented to the finance minister, Mr Pranab Mukherjee, on June 8. The RBI in its last credit policy review had increased the interest rates on banks saving deposits from 3.5 percent to 4 percent due to the high inflation in the economy. The Gopinath committee has recommended the benchmarking of interest rates on other small savings schemes to rates of government securities of similar maturity. As per the formula suggested by the committee returns for the PPF would improve to 8.2 percent from 8 percent. Courtesy: Deccan Chronicle sEBI allows market makers for equity derivatives Market regulator Securities and Exchange Board of India on June 2 allowed stock exchanges to appoint market makers in the derivatives segment. These market makers, appointed and incentivised in a transparent manner, can operate for a maximum of six months. The move will help Bombay Stock Exchange, which has been trying to prop up its near-zero market share in futures and options. BSE has been pushing for this for two years. The new guidelines allow exchanges to increase liquidity in a transparent manner. This is how globally deep and liquid financial markets are created, said Sayee Srinivasan, head-product strategy, Bombay Stock Exchange. It will also help new exchanges like United Stock Exchange and MCX Stock Exchange get a headstart as and when they launch equity derivative products. Courtesy: Business Standard Disney eyes higher stake in UTV software, may delist company Mickey Mouse wants to consolidate his grip over his Indian joint venture partner UTV Software Communication. According to three independent sources in the know, Walt Disney Company the US headquartered entertainment giant and creator of iconic toons like Mickey Mouse and Donald Duck is looking at raising its stake in the company. Sources said the move is likely to trigger the eventual delisting of the stock from the Indian exchanges as well. Disney currently owns 50.4 percent in the media firm through its subsidiary Walt Disney Company Southeast Asia. The Indian promoters, led by Rohinton (Ronnie) Screwvala have a 19.8 percent stake, which is held by different entities like Unliazer Exports and Management Consultants Ltd, Unilazer Hong Kong Ltd and by Screwvala in his personal capacity. Courtesy: Business Standard
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MARKETs ROUnD-UP Markets to remain in a range

Global markets Us In May, Dow Jones, Nasdaq and S&P corrected by 1.9 percent, 1 percent and 1.2 percent respectively. Initially the data from US (economic + corporate earnings) were encouraging. Some of them were durable goods orders (surged by 2.5 percent in March following a revised 0.7 percent increase in February), the Consumer confidence index (rose to 65.4 in April from an upwardly revised 63.8 in March), and new home sales (rose 11.1 percent to an annual rate of 300,000 units in March from the revised February rate of 270,000 units). Auto major Ford, 3M, UPS, IBM Corporation, Apple, Insurance giant Travelers, Dell posted strong earnings. However, towards the end of May, data from US showed economic recovery is not taking shape as expected by the policymakers. A separate report released by the US Commerce department shows that the pace of US GDP growth in the first quarter remains at 1.8 percent (annualised), unICICIdirect Money Manager
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Markets across the globe commenced May 2011 on a negative note. Negative data from the US towards the end of the month (slower private sector job growth, rising unemployment, rising consumer prices) enabled profit booking in US markets, the first negative return in calendar year 2011. Markets across the globe were under pressure except for Hang Seng (which remained flat in May). For Indian markets, lacklustre Q4 FY11 earnings (no positive surprises), food inflation greater than 8 percent throughout the month and monetary tightening by RBI (hiked Reverse repo, Repo by 50 bps in policy review) provided enough reasons for FII to turn net sellers in May. Core industries grew 7.4 percent in March. The core sector comprises crude oil, coal, electricity, petroleum refinery, finished (carbon) steel which has 26.7 percent weight in IIP IIP for . March came in at 7.3 percent (Street estimates: 3.6 percent). Crude oil (Nymex) declined by 9.5 percent in May on continued unrest in the MENA (Middle East-North African) region.
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MARKETs ROUnD-UP
2900 2850 2800 2750 2700 2650
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Nikkie Index
12900 12800 12700 12600 12500 12400 12300 12200 12100
Source: ICICIdirect.com Research, Bloomberg

4150 4100 4050 4000 3950 3900 3850 3800 3750
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Dow Jones Index
CAC 40 Index
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changed from the last quarter. Payroll processor Automatic Data Processing indicated a slowdown in pace of private sector job growth in April. At the same time, the Labor Department informed that the unemployment rate unexpectedly rose to 9 percent in April from 8.8 percent in March. The trade deficit widened to $48.2 billion in March from a revised $45.4 billion in February, which is expected to hurt the pace of GDP growth. National Association of Realtors released a report which indicates an unexpected decrease in existing home sales in the month of April. On the economic front, a report published by commerce department indicates that housing starts fell 10.6 percent to an annual rate of 523,000 units in April from the revised March estimate of 585,000 units. A report released by US Labour department showed that consumer prices up 3.2 percent YoY, the fastest annual growth since October 2008.
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Nasdaq Index

1380 1360 1340 1320 1300 1280
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S&P 500 Index

6200 6000 5800 5600 5400 5200 5000
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FTSE Index

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DAX Index

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24000 23600 23200 22800 22400 22000
MARKETs ROUnD-UP
18800 18600 18400 18200 18000 17800 17600 17400
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HANG SENG
SENSEX

2950 2900 2850 2800 2750 2700 2650 2600 2550

5600 5550 5500 5450 5400 5350 5300 5250 5200
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Shanghai Index
NIFTY
Other markets During the end of May, Fitch ratings lowered its credit ratings on Greece to B+ from BB+ citing the scale of the countrys challenge in securing solvency while S&P revised downward its outlook for Italys credit ratings to negative from stable. In midMay, China hiked the reserve requirement for banks by 50 bps after inflation figure came in 5.3 percent. In May, FTSE, German DAX, French CAC lost 1.5 percent, 3.5 percent and 2.5 percent respectively. The Hang Seng remained flat gaining 0.2 percent in May 2011. The Shanghai SSEC declined by 5.8 percent making it the worst performing index for the second month in a row while Japan Nikkei lost 3.1 percent.
Domestic markets In May 2011, FIIs were net sellers to the tune of ` 5,158 crore. MFs and insurance companies bought shares worth ` 435 crore and ` 3,658 crore respectively. For May 2011, Sensex and Nifty lost 2.5 percent and 2.6 percent, respectively. The CNX Midcap was flat, losing 0.68 percent, while BSE Small Cap Index lost 4.4 percent on a monthly basis. BSE FMCG and Healthcare outperformed the broader markets and delivered 3.16 percent and 2.16 percent returns respectively, while BSE Auto, Power and Metals were key underperformers in May 2011. The top gainers from Sensex components were Hero Honda (9.52 percent), Hindustan Unilever (8.43 percent) and DLF
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are holding on to it for the nearterm. A brief correction in crude prices will be positive for the Indian economy and markets should react positively to this situation. In the near-term, so long as Nifty holds on to 5,4005,450 zone, we can expect it to test the higher end of the range at 5,650-5,700. On other hand, breaking 5,400 will intensify selling pressure and the markets can again test the recent lows of 5,200. We expect more stock-specific activity and markets will trade within a range.
31-May-11 Change (%) 12,569.8 1,345.2 2,835.3 5,990.0 7,293.7 4,006.9 9,693.7 23,684.1 -1.9 -1.2 -1.0 -1.5 -3.1 -2.5 -3.1 0.2 -5.8 -2.6 -2.5
(5.27 percent) while companies that lost ground were SBI (14.63 percent), Reliance Infrastructure (13.85 percent), Tata Motors (11.07 percent). From CNX Midcap Index, Britannia (15.27 percent), Titan (12.51 percent) and Marico (9.74 percent) led the gainers. On the other hand, Anant Raj Inds (20.24 percent), Piramal Healthcare (19.92 percent) and Jindal Saw (18.83 percent) were on the losing end. Outlook Nifty broke the intermediate trading range of 5,400-5,600 and tested sub-5,200 levels in May. The support of 5,200 is critical and looks like markets
Indices UsA markets Dow Jones S&P 500 Nasdaq European markets UK FTSE German DAX French CAC Asian markets Japan Nikkei Hong Kong Hangseng
2-May-11 12,807.4 1,361.2 2,864.1 6,082.9 7,527.6 4,108.8 10,004.2 23,633.3
Shangai SSEC 2,911.5 2,743.5 Domestic markets BSE Sensex 18,998.0 18,503.3 NSE Nifty 5,701.3 5,560.2 Content source: ICICIdirect.com Research
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TECHnICAL OUTLOOK Index likely to trade range-bound

Monthly chart of Sensex displayed a Bear candle for May 2011 with lower shadow indicating supportive effort near March lows. Structurally, index remains in a bear trend as it continues to form lower peaks and troughs on weekly charts. More recently, Sensex has formed potential higher bottom at 17,786 which will be confirmed only if index makes higher top above 19811 levels. After bouncing from March 2011 lows, index is displaying hesitance at 200 day EMA (18,677). It will require showing strength above 18,677 to trigger further upsides towards 19,000-19,150 levels where the current up-move is expected to exhaust (basis Fibonacci price projections). On the flip side, index, has a strong support in the vicinity of 17,790-17,295, lows of March 2011 and Feb 2011 respectively. Only a weekly close below these levels will open further downsides towards 16,800 levels which is low of May 2010. Amongst oscillators, monthly MACD (Moving average conICICIdirect Money Manager
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sensex: 18503 / nifty: 5560 Flashback Indian equity benchmarks edged lower amid growing concerns over spiraling inflation, political uncertainties on the domestic front and weak global cues. BSE Sensex and NSE Nifty ended lower over 3 percent for the month. Sensex closed at 18,503, down 633 points while Nifty settled with a loss of 190 points at 5,560. Broader indices also came under bear attack as BSE M-cap and S-cap indices lost 2.6 percent and 5.5 percent respectively. On the sectoral front, Auto (-6.6 percent), Metals (-4.8 percent) and Oil & gas (-4.1 percent) and Banking (-4.1 percent) were key draggers while FMCG (+2.7 percent) and Healthcare (+2.6 percent) outperformed the benchmarks. Technical outlook Sensex continued its southbound journey early on, testing lows of 17,786 before moving higher post-expiry of the May series of derivative contracts. Indices traded with negative bias for the entire month of May 2011.
June 2011
TECHnICAL OUTLOOK
portunity for investors in the near future. In a nut shell, we expect index to trade in a range of 17,30018,800 for a while. However, a panic fall from current levels towards 17,300-16,800, if any, will throw good buying opportunities for investors. Key supports for Sensex are 17,790 and 17,295 while resistance is at 18,677 and 19,150 levels.
vergence divergence) continues to remain below its signal line (0) and indicates negative bias in the medium term. We, however, wish to draw attention towards some seasonal pattern observed in the Indian markets. Over the past decade, index has shown a tendency to hit the yearly bottoms during the second quarter in eight out of ten cases. Keeping this in mind, a panic sell-off if any can create a good buying op-
Content source: ICICIdirect.com Research
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DERIVATIVEs VIEW June series may remain less volatile

ade it has shown the movement of more than 10 percent (close to close basis) and in the last 7 years, the average directional movement was just -1 percent. Swings in the June series were observed in the range of 6-18 percent between month high and month low. Most of the time, it shows marginally lower directional movement compared to May series. Since Nifty has shown a directional move of about 5 percent in the May series, we can expect another range-bound movement in June as well. It suggests the broad range for Nifty in June could be 5300-5800. Rollover snapshot nifty lacks rollover, stocks rolls inline Nifty rolls were observed at 59.73 percent, lower than 3M average of 66 percent while market-wide rollover observed at 84.65 percent, in line with its 3M average of 85 percent Sectorally, the Telecom and Infrastructure space observed the highest rollover of positions while Pharma and Automobile stocks witnessed lower rolls.
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June series index futures started with 20.8 million shares which is the lowest open interest (OI) since inception of the January series. Significantly lower rolls into index futures were the primary reason for such lower OI. Prima-facie, it seems like reduced spread for the short roll has kept away the short positions from being rolled. On the options front, Nifty Call options did not witness any major accumulation, suggesting immediate resistances. Most of the ATM and OTM strikes had approximately 30 lakh shares in OI across the strikes. At the same time, the highest accumulation at Put option was seen at 5300 strike. Implied Volatility (IV) trend continues to be muted. The IV trend suggests expectations of range-bound movement in the June series. Major directional movement during the series may not be witnessed. Directional trend for June series No directional trend followed in June. However, volatility seems to cool down in June with respect to May. Only twice in the last dec-
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DERIVATIVEs VIEW
At the same time, DLF and Hindustan Uniliver are also starting the series with noteworthy open interest for June series. The prevailing negative roll cost for these stocks indicates bearish sentiments to prevail in the near- to midterm. Cement majors like ACC and Ambuja Cement also saw negative roll cost for June series which was observed in the last few settlements as well.
% OI left
Roll Cost (BPS)
Index heavyweights like Reliance (81 percent), Infosys (80 percent), TCS (77 percent), SBI (78 percent) and Tata Steel (87 percent) saw marginally better than average rollover into June series. Stock specific rollover activities were on a higher side while index rollover was quite low in comparison to their three-month average figures. The activity indicates expectations of stock-specific movement instead of broader market movement. OI build-up in current and mid series
OI (in millions) 5,500 5,475 5,450 5,425 5,400 5,375 5,350 5,325 5,300
sectoral rollovers
High Rollover Rollover % Transport 90.70 Textile 90.10 Telecom 89.59 Infrastructure 88.75 Sugar 88.02 sector Low Rollover sector Pharma Automobile Banking Finance Cement Rollover % 71.32 72.39 79.07 81.64 82.32
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sectoral highlights Banking heavyweights like HDFC Bank and SBI are incepting the series with significantly higher open interest. Moreover, index heavyweights like Bharti and ONGC are also observing major open interest already accumulated in the June series with positive roll cost, suggesting long bias maintained in these stocks.
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20.8
stock rollovers
High Rollover stock Rollover % CARN 94.90 JSWSTEEL 91.93 RECLTD 91.69 GMRINFRA 91.25 SCI 91.21 Low Rollover Rollover % PFC 41.69 RANBAXY 54.78 FEDERALBNK 55.47 CIPLA 56.46 TATAPOWDER 61.68 stock
Money Manager
June 2011
TOP PICK JET AIRWAys (JETAIR)
Company Background Jet Airways (India) Ltd (JAL), Indias largest private sector airline with a domestic market share of 24.9 percent, began its operation in May 1993. The company strengthened its position in the aviation sector by acquiring Air Sahara (rechristened as JetLite, the all-economy, no-frills service) in April 2007. At present, JAL operates 116 aircraft (Jet:97, Jetlite:19), which flies to more than 61 destinations in India and abroad. In May 2009, JAL launched Jet Airways Konnect (JAK), an all-economy service, by utilising the idle business class capacity of the parent company, Jet Airways (JA). JetLite operates predominantly on the domestic routes Investment rationale Jet Airways, Indias largest airline company by market share, has not only benefited from a rebounce of domestic passengers but also the company is witnessing healthy traction in international routes through improved code share agreements with various international airline companies and focused customer services. With no major capacity additions lined up over the next 2 years by other major airline companies on account of streched balancesheets, we expect load factors to remain healthy at an average rate of over 75 percent during our forecast period FY11-13E and expect Jets revenue CAGR of 16 percent during the same period. We have assumed average crude prices to be $100 per barrel for FY12/FY13 that in turn
will help the company improve its margins going forward. The BandraKurla Complex land deal and aircraft sale and leaseback transactions are also the key things on the companys radar to reduce their debt burden after the recent high court ruling in the Jet-Sahara case. In Q4FY11, Jet Airways (JAL) reported consolidated revenues of `3,660.9 crore, which was marginally lower than our expectations (I-direct estimate: `3,770.7 crore) on account of a higher-than-expected drop in yields in the LCC segment (JetLite). However, international operations that account for 52 percent of total revenues outperformed with revenues in this segment growing 18.1 percent YoY due to strong demand. During the quarter, fuel costs rose sharply by over 53 percent YoY to `1,524 crore. That led to a sharp decline in operating margins. It declined by 1,444 bps to a mere 1.3 percent. As a result, the company reported a net loss of `200 crore as against net profit of `224.8 crore last year. Valuation We expect revenue CAGR of 16 percent during FY11-13E, as demand will continue to outpace supply growth on healthy pax traffic. The stock has corrected about 45 percent in the past 4/5 months due to the concern on rising jet fuel prices which in turn resulted from the recent disruption in production of sweet crude in Libya. With demand continuing to remain healthy, we believe any potential fall in oil prices will improve the ICICIdirect Money Manager
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companys profitability significantly. At the CMP of `446, the stock is trading at 10.2x and 5.1x its FY12E and FY13E EV/EBITDA, respectively. FY09 Net sales EBITDA Net Profit EPS (`) PE (x) Price to Book (x) RoNW (%) RoCE(%) 13,078 -859 -961 -111 NA 2.5 -30.3 -10.0
We have assigned a BUY rating to the stock with a target price of `520 (i.e. valuing the stock at 5.5x FY13E EBITDA). FY10 11,876 1,062 -420 -49 NA 2.2 -21.4 0.5 FY11 14,523 1,576 -86 -10 NA 2.3 -5.1 4.3 FY12E 16,849 1,639 222 26 17.4 2.0 12.6 4.8 FY13E 19,705 2,739 1,023 119 3.4 1.3 42.2 13.4
TATA COnsULTAnCy sERVICEs (TCs)

Company Background Established in 1968, TCS is one of the oldest and largest, both in terms of revenue and employees, information technology companies in India. The company offers a range of IT outsourcing, infrastructure, business process outsourcing, engineering and consulting services. Primary operating segments include banking, financial services & insurance, manufacturing, retail & distribution and telecom. In FY11, the company earned revenues of ` 37,325 crore ($8.2 billion), net profit of ` 8,683 crore ($1.9 billion) and employed about 200,000 people. Investment Rationale TCS revenue and volume growth continues to outperform its peers, driven by scale and efficiency. The company added 70,000 people in 14
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FY11 with some of them not yet billable and has given an initial FY12 hiring guidance of 60,000. This suggests good demand traction with healthy visibility on qualified pipeline. Further, non-linear initiative such as iON (cloud based solution for small & medium businesses), platform BPO and financial products could help sustain revenue growth momentum and operating margins. Finally, TCS appears cohesive, aggressive and reinvigorate unit with the current CEO N Chandra who is just 48 years old while official retirement age at TCS is 65 years, which implies minimal churn/stable management at the top In Q4FY11, TCS reported 4.7 percent US$ and 5.1 percent rupee revenue growth in a seasonally weak quarter led by 2.9 percent volume growth. Q4FY11 revenues grew 31.3 percent YoY to ` 10,157 crore with 52 bps
Money Manager
June 2011
TOP PICK
rupee revenue growth of 20.9 percent CAGR and 18.9 percent CAGR over FY10-FY13E period. Further, we expect earnings to grow at 19.5 percent CAGR during the same period. Thus, we value TCS at ` 1,320 i.e. at 22x FY13E EPS estimate of ` 60. Key risks to investments include material economic weakness in developed geographies and significant exchange rate volatility which can impact revenue growth and operating margins. FY10 30,027.9 8,678.8 6,872.6 35.1 32.6 12.2 37.4 42.2 FY11 37,324.5 11,189.3 8,682.8 44.4 25.8 9.2 35.7 41.6 FY12E 44,142.2 12,658.6 10,157.0 51.9 22.0 7.1 32.4 36.8 FY13E 50,478.4 14,470.5 11,740.6 60.0 19.1 5.6 32.6 36.9
YoY improvement in EBIT margins to 28 percent as against 27.5 percent in Q4FY10. Though the company does not provide guidance, it expects to maintain FY12 operating margins in a narrow band relative to FY11 levels. Noticeably, despite raising our FY12E EPS estimate by 6 percent to ` 51.9 (` 49 earlier) post-Q4FY11 earnings, we are about 2 percent conservative relative to consensus at ` 52.7. Valuation We expect TCS to report US$ and (` crore) Net sales EBITDA Net profit EPS (`) PE (x) Price to Book (x) RoNW (%) RoCE(%) FY09 27,813.3 7,178.0 5,171.6 26.4 43.3 14.4 33.2 39.6
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VIEW POInT sector analysis
Analysts of ICICIdirect.com Research and who are experts of three sectors Kajal Gandhi of the banking sector, Deepak Purswani of infrastructure sector and siddhant Khandekar of pharmaceutical sector share their views and outlook for the respective industries.
Banking
Banking stocks have corrected since the last 6 months. What are the major reasons? There is a haze of high inflation ruling at greater than 8 percent, consistently leading to tighter RBI policy actions. Continuous rate hikes by RBI and initially deposit costs rising for banks have resulted in negative outlook being built for banks net interest margins (NIM). Saving deposits rate hike of 50 bps will also affect margins. Rising operating costs on account of pension and gratuity provisions that banks are required to make has been the trend in Q4FY11 numbers for most banks, particularly SBI where we saw NPA and pension provisions put together had wiped out the entire quarters profit. Slippages have risen for many large banks like SBI, BoB, and hence concerns on asset quality for PSU
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banks continued. Power and infra exposures of banks are under the scanner. How is the industry growth happening currently? Indian banking industrys non-food credit continued its healthy growth momentum and grew by 22.08 percent (year-on-year) as on May 20, 2011. Its aggregate deposits growth too improved marginally to 17.4 percent. The incremental CD ratio, however, is still relatively high at 91.44 percent. RBI has indicated its full-year credit growth target at 19 percent and deposits at 17 percent and we expect the same to be achievable unless the economy slows down substantially. yields are rising means pressure of MTM on bond portfolios of banks, correct? Currently 10-year G-Sec yield has risen sharply from 8 percent to 8.3 percent within 2 months and this will lead to public sector banks like SBI,
Money Manager
June 2011
VIEW POInT
public sector banks as slippages and employee provisions are expected to keep profit growth lower than 20 percent. However, private banks can remain in flavour for the next couple of quarters. We recommend accumulating large caps like HDFC Bank, SBI at dips. Among mid-caps, Federal Bank can be looked at. There was also slowdown in irrigation in the AP region due to the ensuing Telangana issues and other pending clearances. And then the projects across the verticals also faced delays due to environmental and land acquisition issues. So if we look at the sector as a whole, there have been challenges across the board which led to the stocks underperformance over the last one year. so how do we see the path ahead for the infrastructure sector? There is plethora of opportunities available in this sector with infrastructure spending as a percentage of GDP expected to increase from nearly 7 percent currently to about 9 percent at the end of the XII Five Year plan. At the same time, private participation is expected to increase from 37 percent
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PNB, Oriental Bank of Commerce, Indian Overseas Bank to have material hit on their profits as their AFS portfolios are 20-25 percent of SLR with higher maturity profile. Bank stocks are available at cheap valuations. What is your recommendation? Currently, we are cautious on What has been the key reason for the underperformance of infrastructure stocks over the last one year? Infrastructure sector has lagged behind the benchmark indices over the last one year mainly due to execution delays that the sector suffered due to multifold reasons across verticals. Looking at the issues that popped up in different verticals in the last year, the road segment saw disappointment on the NHAI awarding front where only about 5,000 km were awarded as against the initial target of 9,000 km. Then concerns loomed large over gas supply cut and coal availability issues for new power projects. The airport developers too faced the uncertainty over the lack of clarity in the AERA guidelines for revenues and then over ADF collection.
Infrastructure
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VIEW POInT
With so many challenges, can one consider exposure towards infrastructure stocks? The infrastructure sector has been surrounded by concerns and challenges stated above but if you look at the valuations, these concerns seem to be priced in at the current levels. If we look at the current valuations, most of the infrastructure stocks are trading at the lower band of their historical one year forward valuation matrix. For example, if we look at players like GVK Power, it is currently trading at 0.9x P/B which is lower than its historical range of 3.1x to 1.3x. So if we are looking at a larger investment horizon of 18-24 months, the sector definitely becomes attractive given the present valuation. We believe that policy reforms will be seen across verticals going ahead, giving respite to the concerns over execution since the last one year. One can consider exposure towards the sector with a longer horizon at the current levels.
to 50 percent during the same period, indicating growing role for private players. But delays in policy reforms have been a major letdown leading to execution delays and cost overruns. However, government initiatives in recent times have been encouraging and we can clearly see the intent of policy reforms. For example, government, in the 2011-12 Budget, has indicated setting up of dedicated infrastructure debt fund which will be a major boost in terms of funding for public-private partnership projects. If we look at the road segment, there have been major reforms such as BK Chaturvedi Committee report implementation, the reforms in awarding process and increasing clarity in terms of targets. So we do see a kick in the reform albeit at slower pace, but definitely a positive sign for the sector. Moreover, we would also see the infrastructure companies getting a breather in H2FY11 with benign interest rates if there is some respite in inflation.
Pharmaceuticals
Discuss the Q4Fy11 numbers in a nut shell. Majority of pharma companies have reported betterthan-expected sales growth in
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Q4FY11 albeit some pressure on the margins. The new product launches in both developing and developed countries drove the sales growth. In-
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June 2011
VIEW POInT
in the US market due to launch of a few exclusivity products and niche products. However, pharma companies are facing delays in getting approvals from the USFDA due to increase in ANDAs filings by generic players across the globe in general and Indian players in particular. Only those Indian players that own big product baskets and a large number of ANDA filing will continue to perform strongly in the US market. In the January-March quarter, Indian players received approval for more than 40 ANDAs. CRAMs players saw some revival. Is it sustainable? We have seen revival in the performance of CRAMS players after almost 8-9 quarters. The recovery seems to be confined to Contract Manufacturing Organisations (CMO) than Contract Research Organisations (CRO). Till now, the recovery was visible only for companies to large MNCs, where the re-stocking has just started. During the quarter, we have seen good growth from players like Divis Laboratories and Piramal Healthcare while Dishman Pharma and Jubilant Life Sciences continued to disappoint. We believe overall CRAMS business will take at
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crease in crude oil prices and spurt in employee cost put pressure on margins. In the last two years, many players have also expanded their field force, causing higher employee cost and other promotional activities. Was there a slowdown in the domestic markets visible in some numbers? The Indian pharmaceutical industry has grown approximately 15-16 percent in FY11. We have seen some slow down in the third and fourth quarters due to lower growth in acute therapies. In the second half of FY11, the DCGI imposed price cuts for more than 50 drugs; majority of them were acute therapy drugs. Also, increase in competition resulted into lower growth rates in acute therapies. However, chronic therapies like diabetes, CNS & CVS are growing above market rate, at about 18-20 percent. Going ahead, we expect domestic pharma to grow at about 14-15 percent p.a. driven by strong chronic growth, incremental field force and rural foray. How was the performance in the Us generics market? Indian generic players have reported strong set of numbers
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VIEW POInT
more buyers than sellers in the domestic market and majority of promoters are reluctant to dilute their stake, resulting in higher valuations. However, we believe the industry has to consolidate on account of stricter regulatory norms as many small and medium players will be unable to cope up with this and may be willing to sell their stake or entire business. How good are the opportunities coming out of Japan? Japan, being the second largest pharma market ($80 billion), poses good opportunity especially after the recent Indo-Japan deal and the decision of the Japanese government to increase generic penetration from the current about 9 percent to approximately 25 percent by 2013-14. This will benefit Indian companies Lupin, Cadila and Ranbaxy.
least couple of quarters to recover fully. What will be the impact of withdrawal DEPB scheme on the pharma industry? Barring a few exceptions like Dr Reddys and Torrent Pharma, the impact will not be significant as majority of pharma companies are getting export incentives through various schemes like duty-drawbacks, deemed exports, etc, beside DEBP benefits. share your views on increased M&A activities in the global and Indian pharma space? The global Pharma industry is in consolidation mode since the last few years. This was on the back of many factors like drying R&D pipeline, impending patent cliff and increased competition. We believe M&As to increase going ahead. For the Indian pharma industry, we have seen 4-5 sizeable M&As in the last 2-3 years. There are
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Money Manager
June 2011
FLAVOUR OF THE MOnTH Hitting a home run
A dream home is what most of us desire. Before we plan to acquire this property, you must understand that there are various aspects you must look into before going in for this investment. Here are the factors that you should be aware of before you make that significant decision. Buying a home is the biggest purchase in ones life for most Indians. Naturally there are a lot of complications and you have to find your way out with utmost care to ensure that you strike the best deal. The things start with a need of a separate shelter, which arises out of triggers such as need for privacy, migration and mental peace. Rent or buy This is probably the first step most have to climb up before they end up owning a nice home. Unfortunately, there is no simple answer to this question. If you do not have a clear idea of what kind of house to buy or you do not have funds for down payment better to rent. If you are in a job where transfers are inevitable, it is better to stay in a rented accommodation. Needless to say, if you cannot afford buying a house better rent one. But if you know you have come across a house in which you plan staying for the next 20 years or you can afford to pay the home loan factoring in the possible rise in interest rates, it is the time you buy a home. If you are of the opinion that the property prices are going to rise, better buy a home for yourself. There are rent or buy calculators available on various websites, which help you calculate the impact of renting and buying over a long tenure of say 20 years. These calculators allow you to assess options such as renting a property and buying a property after you assume the long-term interest rates, long-term property prices trend and long-term rent trends. In some cases, it also factors in the benefits on the tax front and opportunity costs. But you should appreciate the fact that the number games are based on long-term assumptions. In a real estate market which is inevitably a long-term asset market, things change over a period of time. Human abilities have their own limitations when it comes to foreseeing how things will unICICIdirect Money Manager
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FLAVOUR OF THE MOnTH

ment (EMI) works out to be ` 949 for ` 1 lakh borrowed. Assume he earns a monthly salary of ` 80,000. 40 percent of this monthly salary is ` 32,000. Let us further assume he is paying ` 3,000 per month for repayment of a personal loan. Hence the bank will account for that too. Now he is left with ` 29,000 (` 32,000 minus ` 3,000). Divide this by ` 949, the EMI amount for ` 1 lakh, and he arrives at 30.55 ` 30.55 lakh is the amount he can borrow as home loan. If the interest rate climbs to 10.25 percent, he can borrow ` 29.53 lakh. If the rate remains unchanged but the term of the loan is halved to 10 years, he can borrow ` 22.17 lakh. Other things remaining constant, if the rate goes up, the loan you can raise falls. If the loan term is reduced, other things remaining constant, your loan raising capacity falls. Here the bank funds up to 85 percent of the value of the property. First, Satish has to make the down payment and then the bank brings in their contribution. For example, if he is looking at a property worth ` 50 lakh, the bank will offer him a loan of ` 42.5 lakh (at 85 percent of the property value). But here we have seen
fold after 5, 10, 15 or 20 years. This is especially true in India where there is less information available on the real estate market and the sector is plagued with lack of transparency. That makes many prefer to buy a home. Buying a second home can have an element of retirement planning. This property can be used to generate income post retirement by either selling it or through rent. Paying for a home As asset prices rise, especially in the urban areas, the homes are going beyond the reach of most buyers. An obvious outcome of this situation is that many prefer to go in for a home loan. A home loan taken after some groundwork is always a good vehicle to create a sound asset in the long term. Let us look at how to go about taking a home loan. The first step is to do some homework before you approach a bank. Let us understand this with an example. Satish, a young executive, wants to go in for a home loan. A bank will typically lend him 40 to 50 percent of his monthly income. At 9.75 percent rate of interest for a 20-year term, equated monthly instal22
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While shopping for a home loan do your homework well. Check the terms and conditions and know the interest rate and other charges like processing fee and prepayment penalties. If you are a self-employed professional or a businessman many banks will charge you a higher rate of interest for the home loan in comparison to a government servant. But there is a way out to save on the interest costs. Ask for a home loan linked to a current account. These home loans charge higher interest rates, but charge you on daily reducing balance basis. If you have a home loan outstanding of ` 40 lakh, and you maintain a current account balance of ` 25 lakh, you will be charged an interest for ` 15 lakh for that period. This leads to great savings on the interest front. But go in for such loans if and only if you are in a business where you are maintaining large sums in the current account. A fortnight spent meeting bankers is worth the effort as you end up saving at least a few thousands on the longterm commitment. If possible, approach bankers in group. This way banks get a largesized business at one go and
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the maximum Satish can borrow is ` 30.55 lakh. Here he can consider adding a co-borrower the best would be to include his working wife. The co-borrower not only shares the ownership of the house but also brings in the much needed income support for the loan. But note that most banks are not comfortable offering loans to siblings since there is a high possibility of a dispute over the ownership of property in the future. Keep your latest salary slip ready while approaching the bank. Some banks do insist on last three years income tax return filings. Be it the case of borrowing on individuals capacity or borrowing together, always keep in mind the rate of interest that you have used now is floating rate of interest and may go up in future. Over the last five years, the rate of interest has moved up by 5-6 percentage points. It can be pinching. For example, at 7.5 percent for 20year term ` 805 is the EMI for every ` 1 lakh borrowed. But if the rate climbs to ` 12 percent the borrower has to pay ` 1,101 per month, other things remaining the same. So better keep some headroom for yourself.
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into the picture at this stage. You have to better identify your needs clearly. The locality in which you prefer to stay and the size of the house also needs to be clearly decided before you go shopping. The size of the house has got two aspects. First is the area when the seller quotes area in square feet, it is better to confirm if he is talking about carpet area, built-up area or super built-up area. Note: carpet area is the one you actually enjoy whereas the super built-up area includes the area occupied by common spaces and staircase, etc. It is safe to assume that the super builtup area is at least 25 percent more than the carpet area. Second aspect of size of house is the number of rooms. Many a times, developers talk about a two bedroom hall kitchen flat, where a small passage makes the second bed room. It is better to have a look at the sample flat or at least ask for an approved design. The cost of the house does not end with the simple calculation area in square feet multiplied by the price per square feet. You have to additionally pay for society charges, stamp duty registration and brokerage if any and in some
you get the necessary discounts. It makes sense to get a pre-approved loan before you go out searching for the house. After you decide on the house, the bank will then do its due diligence on the house and then disburse the loan. This saves on time and offers you some peace of mind when you are at a negotiation table with a seller. Tax benefit Though the tax break is a byproduct of a home loan, it is all the more important as it brings down the cost of the home loan. For example, if you are paying interest of ` 100,000 per annum and you are in the highest tax slab, the same is deducted from your taxable income and your effective interest payout falls to ` 70,000 as you need not pay tax on ` 1 lakh of income. If you go in for a home loan now, an interest payment up to ` 1.5 lakh is deductible from the gross salary. For the principal repayment you get a tax shelter up to ` 1 lakh under section 80 C in a financial year. In case of a joint home loan application, both the co-borrowers can enjoy tax break. Getting the right house A lot of subjectivity comes
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June 2011

es the title of the asset and its status, in terms of any encumbrances. The builder should have commencement certificate. It is issued by the local authorities, such as Municipal Corporation, which permits the builder to begin construction only after the authorities are satisfied that all necessary approvals are in place. If you are buying a flat in a to be launched project do insist on a copy of the commencement certificate. If you are buying a flat in an existing building which is being modified and the flat is a part of such extended or modified part of the building, the builder needs to get a separate approval for the same. In such cases you should always ask for a copy of approved revised building plan. The approvals sought by the builder for the old structure do not count. With tight liquidity in financial markets, the builders are finding it difficult to fund their working capital requirements. In such cases, more number of builders is opting for funding wherein they mortgage their property. There is nothing wrong in this. The problem starts when a buyer buys into one of the flat in such a
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cases 3-5 year maintenance deposits. If you are buying a resale house, better inspect the house twice, as there is a possibility of a major repair expenditure waiting for the new buyer. Once you decide on purchasing a flat, there is another more important business legal documentation waiting for you. Finally, buying a house is a matter of pride and sometimes the emotional quotient can get the better of us. Make sure you can actually afford the house you are buying and that you do not stretch yourself too far. What to check Many find it one of the least important and the most time consuming part of a transaction. But it is in your interest to stick to the rule, to avoid any problems with your ownership and smooth enjoyment of your ownership rights of the house. First among all the legal formalities is clear title. The builder should have a litigation-free ownership of land. The same should not have any encumbrances and should be capable of being transferred in the name of new buyers. The same can be verified by employing a lawyer for a fee. The lawyer will then come out with a search report that establish-
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tificate carries the specification of the property (flat number, building number, name of the project, etc) and further vacates its charge on the flat subject to the condition that the buyer makes all the payments in the escrow account. If you are of the opinion that the legal by-lanes to your dream home are far too complicated for you, better get an expert hand for your assistance. The cheapest way to get an expert on your side is to go in for a home loan. When the home loan company extends a home loan to you for purchase of a property, it does the necessary legal background check. This is just one more benefit of a home loan that enables you to acquire your dream home and brings you some tax break. So when are you buying your peace of mind the much coveted place full of love and affection your home?
project. If the builder defaults in future on the repayment of the loan, the bank simply takes over the project. In that case, the bank can make the buyer of the home vacate the house, to sell it to recover the money lent to the builder. Here the buyer of such a flat faces trouble for no mistake on his part. The best way to deal with this is to keep your eyes open while dealing with the builder. If the builder asks for a cheque in favour of the builders name (or sellers name) and a bank account number with bank name, it is a clear sign of the flat is mortgaged with the bank. Generally, banks put up a condition where the builder has to deposit all the sale proceeds in an escrow account opened with the lender bank. But do not worry. You can ask the builder to arrange for a No objection certificate from the bank. The bank issues such certificate at no cost. The cer-
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June 2011
Tte--tte
Good time to invest for long-term investors

Real estate is an asset class that most Indians will prefer to own. It occupies a significant portion of your investment portfolio. Hence it is necessary to be aware of the trends shown by this asset class. sachin Khandelwal, MD & CEO, ICICI Home Finance Company, shares his views on the real estate scenario in India. What are your views on real estate as an investment avenue when compared with other options? Real estate is a significant portion of investments for most Indian HNI customers now, given the continuing demandsupply gap for residential and the fact that the ticket size is very large. It is even the largest asset class for a large portion of these clients, since most markets have delivered significant capital appreciation over the last decade in India. From a returns equation, it is a very good asset class in India, for a 5-year horizon. It can yield 1215 percent returns over a minimum 4-year horizon. For shortterm investments, it is purely speculative and one needs to be careful. What are factors that one should keep in mind while approaching real estate as an investment option? The most critical factor to be kept in mind is the location.
sachin Khandelwal, MD & CEO ICICI Home Finance Company
This would mean not just the geographical area within the city, but factors like proximity to business districts and commercial areas are important. From a property point of view, the pedigree, reputation and past track record of the builder is a must to be checked before investing. Another key factor is the entry price, since buying the same property at two different points in time could give varying yields. From an ability to rent or resale, the transportation access and social infrastructure (shopping,
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Tte--tte all, then the corrections will be marginal only in some pockets of some markets. For commercial real estate, it is better since currently most markets are at a price point which are approximately 30-40 percent lower than the peak rates of 2007. And Q4 of 2010 saw more than 11 million sq ft absorption in commercial against a quarterly average of 8 million sq ft over the last year. Is residential or commercial property a better option for an individual looking to create a future stream of income from real estate? For residential property, the returns will depend on the area, its current occupancy levels and development in that area. Residential gives capital appreciation which is usually more than in commercial property; however, the yields in commercial are superior. If one is looking for a long-term holding then rental returns in India are approximately 3 percent for residential and 6-7 percent for commercial real estate. Commercial has the downside of coming with a higher ticket, but lower capital appreciation. Hence one should ideally keep a balance, if possible, between both.
schools and hospitals) available or coming up in that area are also to be kept in mind while investing, since this will decide the future appreciation of a property. We hear that the number of overall transactions have dropped in the recent past. What is the reason? The key reason is that most builders in large markets are still holding onto the prices, even though some markets have seen significant appreciation in the past two years. While clients are expecting discounts which are not coming that easily and with the increase in interest rates, there is more bargaining leading to a wait-and-watch phase in a lot of areas. However, there is a drop in Q1 of 2011 as compared with Q4 of 2010 (which has a traditional festive demand skew in India), but the same data when compared with Q1 of 2010 is actually showing an increase. Is this a good time to invest in? What does drop in overall transactions mean for individuals who are looking to buy now? For investors with a long-term view (at least 4-5 years), it is still a good time to invest. If at
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June 2011
Query Corner
career normally have this query. While it is the duty of an employer to deduct tax from the income paid to you, it is your duty to file your tax return every year. You can file tax return with the data provided by your employer in Form 16. From Assessment Year 201112, you need to file tax return if your annual taxable income is below ` 5 lakh; your Form 16 will suffice. Q I own an independent house at Chennai. The current market value of my house (including land) is around ` 1.5 crore. I am planning to insure my house. How much should I ideally cover it for? - Sharath Kumar A The structure of any house is always covered based on the reinstatement value, and not on the market value. Also, there is no cover provided for the land. Reinstatement value refers to the cost incurred to reconstruct the home if it is damaged. Sum insured is calculated by multiplying the built-up area of your home with the construction rate per sq. feet. For example, if the builtup area of your home is 1,000 sq. feet and the construction rate is ` 800 per sq. feet, the sum insured for your home structure is ` 8 lakh.
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Consolidate your holdings in one place for easy tracking

Q I have invested into a lot of mutual fund schemes over the past 5 years. I have been maintaining all these folios in physical format for all these years. But now I find it very difficult to track all these manually. Is there a way out to manage it more efficiently? - Pradeep Kulkarni A Most of the investors carry the concern raised by you. Some investors have been using spreadsheets like MS Excel to maintain the folio details. There are also a lot of websites which provide access for you to update your portfolio with them without any fee. If you are an ICICIdirect.com customer, you can transfer all your physical mutual fund holdings into online by submitting an application, along with the required documents. And from there on, you can start tracking, redeeming, purchasing online. Q I started my career 2 years ago. My employer deducts tax from my salary every month and also provides me Form 16 at the end of the financial year. I was under the impression that this is sufficient. But one of my friends told me that I need to file my tax return also, apart from this. Is that so? A People - Smita Nair starting their
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FInAnCIAL PLAnnInG Plan early for your young child
nikhil Ketkar, aged 34, lives in Mumbai. He is a professional. He has a daughter nisha aged 5. nikhil had been managing his familys finances and he wants to fine tune the same to incorporate his financial goals. He approached ICICIdirect through ICICIdirect Money Manager to create a financial plan that would help secure his familys financial future. Nikhils financial details: Annual household income Annual household expense Expenses break up Household expenses Holiday & entertainment expenses Educational expenses Vehicle maintenance expenses Other expenses Home Loan EMI Car Loan EMI ` 1.8 lakh ` 70,000 ` 1 lakh ` 25,000 ` 50,000 ` 6.36 lakh ` 1.56 lakh ` 20 lakh ` 12.17 lakh Real estate investment Equity holding Vehicle Home content value Alternate assets Saving bank account ` 1.5 crore ` 4 lakh ` 3.75 lakh ` 1 lakh ` 3 lakh ` 2 lakh
Outstanding liabilities details Nikhil has two liabilities at present in the form of housing loan and car loan. His total outstanding liability is ` 46 lakh. Home loan outstanding Car loan outstanding ` 45 lakh ` 1 lakh
Investment details Nikhil annually invests ` 1.8 lakh in mutual funds in the form of Systematic Investment Plan (SIP). In addition to this, he makes an annual payment of ` 20,000 towards insurance premium for Term Plan. Asset details Total asset value of the Ketkar family is ` 16,375,000.
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Financial ratios saving ratio: The savings ratio assesses the adequacy of your savings to meet your life goals and future requirements. It is advisable to save 20 percent of the income in order to be financially healthy. Nikhil is currently saving at a healthy 39 percent. Liquidity ratio: This ratio assesses the ability to meet short-term cash requirements in the event of emergencies
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FInAnCIAL PLAnnInG
which amounts to ` 16 lakh in present value. Factoring in any increase in the cost over the next 3 years, he will need ` 21 lakh for his downpayment. To accumulate this amount it advisable to invest ` 51,000 monthly or ` 5.9 lakh annually. This amount can be well supported by the annual surplus. Child goal Nikhil is very focused towards his daughters future. He wants to plan her education at one of the best institutes. nishas education Nikhil estimates that he will need ` 50 lakh for Nishas education in todays cost. He has planned these goals and has ` 1.5 lakh already invested that gives him an annual return of 15 percent. Nisha is currently 5 years old; her graduation will start at the age of 19. She will require ` 1.36 crore for her education after 14 years (assuming rise in cost of education and the future value of his current investments). To save up for this goal, Nikhil should continue to invest ` 33,000 per month or ` 4.2 lakh per annum. Since the goal is long term he can consider equity as an investment route and start an SIP in Mutual Funds.
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and opportunities. Generally, the higher the value of the ratio, the larger is the margin of safety that an individual possesses to cover short-term debts. It is advisable to maintain liquidity of 15 percent. Debt ratio: This ratio evaluates debt burden and checks whether one still has a margin of safety or not. Debt repayment should not take more than 45 percent of ones income. Family goals Nikhil has a few goals which he wants to fulfill in future. Nikhil wants to buy a second house and to ensure a better future to his family. He wants to provide the best education to his daughter, Nisha. He is planning to send her abroad for the same. Nikhil wants to improve his standard of living after his retirement. Lets look at his financial goals. General goals Buying a house One of Nikhils goals is to buy a house costing ` 80 lakh in 3 years. Nikhil will have to take a home loan to part-fund this purchase. However, he will also have to make a down payment of about 20 percent
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Taking into account his current annual savings and estimated rise in income, he has sufficient surplus to plan for his goals. He should remain disciplined in his investments and regularly monitor the progress. Insurance and protection Nikhil has a term insurance policy of ` 40 lakh. Ideally, insurance cover should be seven to eight times of the annual income. Since Nikhils annual income is ` 20 lakh, the suggested insurance cover is ` 1.4 crore. Considering the dependent daughter whose education and other expense is his responsibility in addition to his existing liabilities, he should top-up his term cover by another ` 1 crore. Health insurance Nikhil has not taken a medical policy for himself and his family. But medical emergencies are unpredictable and considering the rise in cost of medical expenses, it is suggested that he should take a floater medical policy. Financial planning is not a one-time activity. He should continuously monitor his financial plan and check for the progress of his goals.
Retirement planning Nikhil is conscious that he needs to plan now for his retirement at the age of 50. His current investment towards this is his Provident Fund contribution in which he has accumulated ` 3 lakh and an investment of ` 4 lakh in equity. He has the advantage of time and must seriously start planning and making the right investments towards his retirement. As a first step, he has outlined what expenses will increase and what will decrease postretirement. Nikhils estimate of his annual expenses post-retirement in todays cost is ` 4.75 lakh. If we factor in inflation, his annual expenses at the time of retirement (50 years) will rise to ` 14 lakh. To maintain his familys desired lifestyle and fulfill his post-retirement requirements, Nikhil will need to build a corpus of ` 2.63 crore. To accumulate the corpus, Nikhil needs to invest ` 27,000 per month in addition to his current investments. Since the goal is long term he can consider equity as investment route and start an SIP in Mutual Funds. This will ensure a desired lifestyle for 30 years after his retirement.
If you would like us to help you create a financial plan FREE of cost for your family, please register on www.icicidirect.com or email your request to moneymanager@icicisecurities.com 32
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Money Manager
June 2011
KnOWLEDGE BAsE strong trading tool: Moving averages
Continuing from where we left in the May 2011 edition of ICICIdirect Money Manager, lets look at another trading tool which is again used by a sizable number of traders on a day to day basis. Let us remember one thing explicitly; larger the following of the indicator greater is the impact by that indicator and vice versa. Moving averages enjoy a decent share of following from the trader community thus making it quite a strong indicator to bank upon. Let us look at the moving averages in detail and try and understand how we can benefit out of it in terms of trading better. Moving averages MA (Moving average) is the mathematical result which is calculated by averaging a number of past data points. When we say past, it means we use historical numbers and use them to form the moving averages and finally use the moving averages to predict the follow-up movement in the price. Common types of moving averages A few commonly used moving averages by the market participants are as follows:
About the author:
Hitesh Sidhwani, BE, MBA, has more than 10 years of rich experience in stock markets and over the years has mastered the art of scientifically tracking markets. Hitesh has entrepreneurial interests in IT & Software and also passion for teaching. He is associated with ICICIdirect Institute as an expert faculty.
20 DMA / 20 sMA (20 days moving average or 20 days simple moving average) It is a simple average of the daily closing prices of a stock/index for the past 20 days (Days here are the working days for the exchange) 50 DMA / 50 sMA (50 days moving average or 50 days simple moving average) It is a simple average of the daily closing prices of a stock/index for the past 50 days 100 DMA / 100 sMA (100 days moving average or 100 days simple moving average)
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KnOWLEDGE BAsE
stance, if the market price falls below the 20DMA and after the fall the markets gather momentum to rise then the same 20DMA which was supporting the market from not falling will act as the resistance and will not let the market to cross itself so easily. 4. A very strong perception in the market, more the number of days to calculate the moving average, stronger is the support/resistance. For instance, 200 DMA/SMA is stronger support/resistance as compared to 100DMA/SMA, 50DMA/SMA & 20DMA/ SMA and vice versa. 5. The short term traders focus a lot on 2 moving averages which are 20DMA/ SMA and 50DMA/SMA. 6. Also, remember the rule, more the following by market participants for a particular indicator stronger is the visible impact of that indicator. Let us try and understand the above points with an illustration. Below is the chart for Nifty and it has been respecting the 20DMA average decently, lets dig deeper.
It is a simple average of the daily closing prices of a stock/index for the past 100 days 200 DMA / 200 sMA (200 days moving average or 200 days simple moving average) It is a simple average of the daily closing prices of a stock/index for the past 200 days A few points to consider when looking at the moving averages 1. Moving averages act as support and resistance points for the stock/index price movement. For instance, if the price currently is trading above the 20DMA then 20DMA will act as the support for the prices and will not let the prices to fall below 20DMA easily. 2. If let us say 20DMA is broken on the down side then 50DMA will act as the next support, breaching it on the lower side will let the market take support at 100DMA and then at 200DMA. 3. Also, a very important point to consider is that once the support is broken then it starts acting as a resistance and vice versa. For in34
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Money Manager
June 2011
KnOWLEDGE BAsE
proaching 20DMA, sell the stock/index and wait for it to fall and buy back lower. Thus following the principle of buying when low and selling when high (irrespective of buying first or selling first). Going further, if we see that the moment the prices cross the 20DMA from below (at the upward pointing arrow) and rises then it is a bullish signal. After this crossover the 20DMA acts as a support line. This is confirmed with the circles marked with S. Nifty took support at four instances exactly on the 20DMA line. So here the strategy should have been to Buy on dips, means the moment the prices are approaching 20DMA, go long on stock/ index and wait for the rise to exit. A 200DMA is considered to be a very strong support or resistance. Moving average crossovers When the moving averages cross each other they assign a meaning to the market movement. Moving average crossovers are considered as good entry and exit points into the trade. A few points to consider before we touch upon the illustration:
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The smooth line on the chart is the 20DMA line and the rough line (with lot of ups and downs) is the Nifty movement line and the bars are the volume indicators. Observe the downwards pointing arrow to the extreme left of the chart; this was the time when the Nifty prices crossed the 20DMA line from above and sunk below, the moment the cross happens it is a bearish signal. If you observe the Circles marked R, where the points were the 20DMA resisted the Nifty from going further up and the moment there was a touch to this line the market fell. You would appreciate that the moment the 20DMA is breached from above, it is acting as resistance going forward and continues to do so for a considerable time. Strategy here should have been to Sell on Rises, means the moment prices are ap-
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KnOWLEDGE BAsE
gressive rise could be utilized to go long and earn some quick money, so 20DMA crossing 50DMA from below is a signal to enter a long position.
1. Whenever a lower DMA crosses the higher DMA from above it is a bearish signal, usually after the crossover there is an aggressive down move. 2. Whenever a lower DMA crosses the higher DMA from below it is bullish signal, usually after the crossover there is an aggressive up move. Let us look at an illustration: The chart we saw above we use the same chart but here we are considering 20 as well as 50DMA for understanding crossovers. If we observe in the chart moment 20DMA is Crossing 50DMA from above there is aggressive fall in the market, this aggressive fall could be utilized to go short and earn a few quick bucks, so 20DMA crossing 50DMA is a signal to enter a short position. Also, if we observe 20DMA crossing 50DMA from below there is an aggressive rise in the market, this ag-
Hence we can safely assume that trading with the help of moving averages delivers few nice opportunities to trade and moreover they also give a fair understanding of the market movement most of the times. Above all, few words of caution: Successful trading requires a lot of other parameters which are to be followed apart from Moving Averages; this is just the beginning, keep following this space for more inputs on successful trading. Till then, happy trading.
Disclaimer: The views expressed in this article by the author(s) are theirs alone, and do not necessarily reflect the views of I-Sec or any employee thereof. I-Sec makes no representations as to accuracy, completeness, currentness, suitability, or validity of any information contained therein and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising therefrom. 36
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Money Manager
June 2011
InVEsTInG TIPs Power of compounding

The power of compounding was said to be deemed the eighth wonder of the world - or so the story goes - by Albert Einstein. Lets learn this with a simple example. Consider, you have `100 and you invest it @10 percent. Interest (`) 10.00 11.00 12.10 13.31 14.64 61.05 Total amount (`) 110.00 121.00 133.10 146.41 161.05
When the earnings from an asset are reinvested in order to generate their own earnings, we say compounding has taken place. In other words, compounding refers to generating earnings from previous earnings. Time After 1 year After 2 years After 3 years After 4 years After 5 years Total Compound Interest earned
Principal (`) 100.00 110.00 121.00 133.10 146.41
Had you invested the same amount at a simple interest of 10 percent for 5 years, you would get only `50 as interest. The difference is because compounding reinvests the amount earned in order to generate more earnings which is otherwise ignored. One can benefit more from the power of compounding by starting early and staying invested for a long duration of time. The more time you stay invested and leave the corpus to grow, the more will be the compounding effect. Early start leads to a secure future There are two individuals A and B.
Both want to retire at 55. Now A who is 30 years old starts investing ` 3,000 per month at 12 percent whereas B waits for a few years and starts at the age of 35. He invests a higher amount of ` 5,000 per month at the same rate of return. You can see from the table below the difference in the corpus they accumulate at 55. In spite of investing a higher amount, B ends up accumulating a lesser corpus in comparison to A. This is because of an early start and the power of compounding.
A Current age (years) Retirement age (years) Monthly investment (`) Rate of return (%) Corpus accumulated (`) 30 55 3,000 12 5,106,620
B 35 55 5,000 12 4,599,287
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June 2011
FUnD CARD HDFC Prudence Fund

Worst Return(%) Month Quarter year Period 27/09/08 to 27/10/08 02/09/08 to 02/12/08 20/11/07 to 20/11/08 Period 14/01/200608/01/2008 08/01/200809/03/2009 09/03/200906/01/2010 Fund Benchmark -25.8 -25.1 -31.2 -44.9 -27.6 -39.2
Fund Objective Aims to provide periodic returns and capital appreciation over a long period of time, from a judicious mix of equity and debt investments, with the aim to prevent/minimise any capital erosion. Key Information nAV as on June 01, 2011 Inception Date Fund Manager Minimum Investment Lumpsum SIP Expense Ratio (%) Exit Load (%) AUM (` Crore) as on April 30, 2011 Benchmark 5,000.0 0.0 1.8 1.0 6,125.0 Crisil Balance Fund Index 2010 220.1 2009 174.3 2008 2007 2006 94.3 162.9 113.8 214.3 February 1, 1994 Prashant Jain
Market Cycle Returns Market Phase Bull Phase Bear Phase Bull Phase Returns (%) 89.7 -50.7 118.8
Dividend History Date Mar-18-2011 Mar-19-2010 Mar-20-2009 Feb-22-2008 Feb-22-2007 Mar-04-2006 Risk Parameters Standard Deviation (%) Beta Sharpe ratio R Squared Alpha (%) 12.8 0.9 0.1 0.9 11.1 Dividend (%) 35.00 35.00 25.00 50.00 50.00 50.00
Calendar year-wise Performance NAV as Dec 31 (`) Return 26.3 84.8 -42.1 43.2 33.3 (%) Bench13.6 48.7 -34.4 36.8 25.2 mark (%) Net As- 5964.6 3418.3 1929.9 3511.8 2207.0 sets (` Cr) Best Return (%) Month Quarter year Period 28/04/09 to 28/05/09 10/03/09 to 10/06/09 11/03/09 to 11/03/10 Fund Benchmark 28.3 18.0 70.7 122.7 48.9 60.9
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FUnD CARD
Top 10 Holdings 112.0 38.0 13.7 Tata Consultancy Services Bank Of Baroda Coal India Titan Industries 2.5 % 51.3 20.1 9.3 % 72.9 20.3 6.8 % 5.0 4.4 4.0 3.8 ONGC Page Industries Top 10 sectors Bank - Public IT - Software Bank - Private Pharmaceuticals & Drugs Refineries Oil Exploration Textile Mining & Minerals Watches & Accessories Chemicals sIP Performance
(Value if invested ` 5,000 per month (in 000))
3000
Portfolio Attributes Total Stocks Top 10 Holdings (%) Fund P/E Ratio Benchmark P/E Ratio Fund P/BV Ratio Market Capitalisation Large Mid Small Asset Allocation as on May 2011 Equity Debt Cash Top 10 Holdings Net Current Asset State Bank of India ICICI Bank Infosys Technologies Performance vs. Benchmark
% 3.7 3.0 2.9 2.9 2.2 2.1 % 8.5 7.8 6.0 5.4 4.2 3.4 3.1 2.9 2.9 2.0
11.6
20
Return%
14.6
18.6
25
19.2
2500 2000 1500
2406.4 479.8 265.4 214.9 60.6
9.5
15 10 5 0 -5
6.3
-3.2
6 Month
-3.5
1 Year
Fund Benchmark
3 Year
5 Year
1Yrs
55.8
60
500
180
3Yrs
Total Investment Fund Value
300
5Yrs
Bechmark Value
379.2
600
1000
10Yrs
Data as on June 01, 2011 Content source: ICICIdirect.com Research
1076.1
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June 2011
FUnD CARD Birla sun Life 95 Fund

Worst Return(%) Month Quarter year Period 06/03/00 to 06/04/00 26/02/00 to 26/05/00 12/04/00 to 12/04/01 Period 14/01/200608/01/2008 08/01/200809/03/2009 09/03/200906/01/2010 Fund Benchmark -24.9 -34.7 -45.0
Fund Objective The fund seeks to achieve long-term capital appreciation and current income from a balanced portfolio with a target allocation of 60% equity, 40% debt and money market securities. Key Information nAV as on June 01, 2011 Inception Date Fund Manager Minimum Investment Lumpsum SIP Expense Ratio (%) Exit Load (%) AUM (` Crore) as on March 31, 2011 Benchmark 5,000.0 0.0 2.3 1.0 391.7 Crisil Balanced Fund Index 2010 322.5 2009 2008 2007 2006 269.5 158.3 265.2 174.0 310.7 March 28, 1995 Satyabrata Mohanty
Dividend History Date May-02-2011 Oct-18-2010 Mar-15-2010 Oct-15-2009 Jun-02-2008 Mar-13-2006 Risk Parameters Standard Deviation (%) Beta Sharpe ratio R Squared Alpha (%) 12.6 0.9 0.1 0.9 7.1 Dividend (%) 65.00 75.00 70.00 70.00 50.00 25.00
Calendar year-wise Performance NAV as Dec 31 (`) Return 19.7 70.2 -40.3 52.4 28.5 (%) Bench13.6 48.7 -34.4 36.8 25.2 mark (%) Net As377.4 241.5 119.6 204.6 129.6 sets (` Cr) Best Return (%) Month Quarter year Period 04/12/99 to 04/01/00 21/11/99 to 21/02/00 11/03/09 to 11/03/10 Fund Benchmark 33.4 80.3 218.8
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FUnD CARD
Top 10 Holdings 66.0 46.0 14.6 Tata Consultancy Services S&P CNX Nifty - Futures Vijaya Bank - Certificate of Deposit Reliance Industries ICICI Bank Rallis India Top 10 sectors Bank - Private Pharmaceuticals & Drugs Refineries Bank - Public IT - Software Index Oil Exploration Electric Equipment Pesticides & Agrochemicals Diesel Engines % 4.0 3.6 3.5 3.0 2.7 2.5 % 9.1 4.8 4.6 4.4 4.0 3.6 3.0 2.9 2.5 2.3
Portfolio Attributes Total Stocks Top 10 Holdings (%) Fund P/E Ratio Benchmark P/E Ratio Fund P/BV Ratio Market Capitalisation Large Mid Small Asset Allocation as on May 2011 Equity Debt Cash Top 10 Holdings LIC Housing Finance Ltd. Debentures IDBI Bank - Certificate of Deposit 07.83% GOI 2018 ICICI Bank - Certificate of Deposit 2.6 % 77.8 13.3 2.7 % 59.8 33.4 6.8 % 9.3 5.8 4.8 4.7
Performance vs. Benchmark

13.7 12.6
20 15
Return%
sIP Performance
1874.2 439.4 243.5 214.9
16.1
11.6
9.5
2000 1800 1600 1400 1200 1000 800
6.3
5 0
-3.4
-3.5
Fund
Benchmark
200 0
1Yrs
55.8
400
60
60
180
6 Month
1 Year
3 Year
5 Year
3Yrs
300
600
5Yrs
Bechmark Value
379.2
-5
600
10Yrs
Data as on June 01, 2011 Content source: ICICIdirect.com Research ICICIdirect Money Manager
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June 2011
FUnD CARD DsP Black Rock Balanced Fund

Worst Return(%) Period Month Quarter year 4/05/06 to 14/06/06 22/02/00 to 22/05/00 07/01/08 to 07/01/09 Period 14/01/200608/01/2008 08/01/200809/03/2009 09/03/200906/01/2010 Fund -22.0 -30.7 -39.9 Benchmark -17.4 NA -36.2
Fund Objective To generate long term capital appreciation and current income from a portfolio constituting equity and equity-related securities as well as fixed income securities. Key Information nAV as on June 01, 2011 Inception Date Fund Manager Minimum Investment Lumpsum SIP Expense Ratio (%) Exit Load (%) AUM (` Crore) as on April 30, 2011 Benchmark 5,000.0 0.0 2.1 1.0 754.1 Crisil Balanced Fund Index 2007 58.2 51.3 36.8 2006 38.5 32.7 25.2 66.3 May 31, 1999 Appoorva Shah
Dividend History Date Mar-14-2011 Mar-08-2010 Dec-15-2008 Sep-24-2007 Aug-23-2006 Dec-16-2004 Risk Parameters Dividend (%) 20.00 30.00 15.00 60.00 40.00 25.00
Calendar year-wise Performance 2010 2009 2008 NAV as 68.9 59.6 36.1 Dec 31 (`) Return 15.7 65.0 -38.0 (%) Bench13.6 48.7 -34.4 mark (%) Net As799.8 680.1 422.9 sets (` Cr) Best Return (%) Period Fund Month 02/05/09 to 24.9 02/06/09 Quarter 10/03/09 to 47.6 10/06/09 year 23/04/03 to 89.6 23/04/04 42
l ICICIdirect
566.5 408.0
Benchmark 18.8 48.9 62.0
Standard Deviation (%) Beta Sharpe ratio R Squared Alpha (%)
12.5 0.9 0.1 0.9 4.3
Money Manager
June 2011
FUnD CARD
97.0 30.1 14.1 Top 10 Holdings ICICI Bank Axis Bank - Floating Rate notes Hindustan Petroleum Corporation - Bond/NCDs HDFC Bank Cairn India ONGC Top 10 sectors IT - Software Bank - Private Oil Exploration Pharmaceuticals & Drugs Finance - Housing Electric Equipment Bank - Public Refineries Mining & Minerals Engineering - Construction % 3.0 2.6 2.6 2.4 2.3 2.2 % 6.7 6.3 4.5 3.6 3.3 3.2 2.8 2.7 2.4 2.2
Portfolio Attributes Total Stocks Top 10 Holdings (%) Fund P/E Ratio Benchmark P/E Ratio Fund P/BV Ratio Market Capitalisation Large Mid Small Asset Allocation as on May 2011 Equity Debt Cash Top 10 Holdings Tata Consultancy Services Tata Motors Finance - Bonds/ NCDs LIC Housing Finance Floating Rate notes Housing Development Finance Corporation 2.2 % 58.3 25.4 5.1 % 71.6 23.5 5.0 % 3.8 3.3 3.3 3.3

20
sIP Performance
2000
16.2
10.6
11.6
1800 1600 1400 1200 1000
11
Return%
10 5 0
6.3
423.3
232.5
214.9
- 2.8
- 3.5
6 Month
1 Year
Fund Benchmark
3 Year
5 Year
200 0
1Yrs
55.8
60
60
-5
400
180
3Yrs
300
600
5Yrs
Bechmark Value
379.2
800
600
10Yrs
Data as on June 01, 2011 Content source: ICICIdirect.com Research ICICIdirect Money Manager
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9.5
15
1844.2
43
June 2011
FUnD CARD ICICI Prudential Balanced Fund

Quarter year 21/11/99 to 21/02/00 23/04/03 to 23/04/04 Period 25/03/00 to 25/04/00 22/02/00 to 22/05/00 03/12/07 to 03/12/08 Period 14/01/200608/01/2008 08/01/200809/03/2009 09/03/200906/01/2010 62.4 79.6 62.0
Fund Objective The primary investment objective of the scheme is to seek to generate long-term capital appreciation and current income from a a portfolio that is invested in equity and equityrelated securities as well as in fixed income securities. However, there can be no assurance that the investment objective of the scheme will be realized. Key Information nAV as on June 01, 2011 Inception Date Fund Manager Minimum Investment Lumpsum SIP Expense Ratio (%) Exit Load (%) AUM (` Crore) as on March 31, 2011 Benchmark 46.5 November 3, 2008 Prashant Kothari 5,000.0 1,000.0 2.3 1.0 264.0
Worst Return(%) Month Quarter year Fund Benchmark -34.6 -43.2 -46.9 -38.0
Crisil Balanced Fund Index Calendar year-wise Performance NAV as Dec 31 (`) Return 18.6 50.7 -43.8 36.6 29.4 (%) Bench13.6 48.7 -34.4 36.8 25.2 mark (%) Net 274.2 262.8 224.1 469.4 495.4 Assets (` Cr) Best Return (%) Month Period 04/12/99 to 04/01/00 Fund Benchmark 30.9 2010 47.5 2009 40.1 2008 26.6 2007 47.3 2006 34.6
Dividend History Date Aug-27-2010 Dec-24-2009 Jun-29-2009 Oct-13-2008 Mar-24-2008 Sep-17-2007 Risk Parameters Standard Deviation (%) Beta Sharpe ratio R Squared Alpha (%) 12.0 0.9 0.1 1.0 3.0 Dividend (%) 5.00 6.00 6.00 8.40 10.00 10.00
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FUnD CARD
Top 10 Holdings 41.0 41.1 7.9 Tata Consultancy Services Sundaram Finance Reliance Capital Reliance Industries 2.0 % 53.7 23.3 9.9 % 70.9 24.1 5.0 % 5.2 5.2 5.1 4.6 Oil & Natural Gas Corpn. Torrent Pharmaceuticals Top 10 sectors Bank - Public IT - Software Bank - Private Pharmaceuticals & Drugs Oil Exploration Cigarettes/Tobacco Refineries Tyres & Allied Automobile Two & Three Wheelers Telecommunication Service Provider % 3.7 3.6 3.6 3.5 3.5 3.2 % 10.1 7.3 6.4 6.2 5.3 3.8 3.5 2.9 2.7 2.7
Portfolio Attributes Total Stocks Top 10 Holdings (%) Fund P/E Ratio Benchmark P/E Ratio Fund P/BV Ratio Market Capitalisation Large Mid Small Asset Allocation as on May 2011 Equity Debt Cash Top 10 Holdings Corporation Bank Bank of India Cash & Cash Equivalent Punjab National Bank

1600
sIP Performance
1462.2 231.9 61.3
14.8
20 15
1400
10.1
11.6
1200 1000
9.5
6.3
Return%
6 Month
- 3.5
-5
-1.4
1 Year
Fund Benchmark
3 Year
5 Year
60
200
1Yrs
55.8
180
400
3Yrs
214.9
300
5Yrs
Bechmark Value
387
600
379.2
600
10
7.3
800
10Yrs
Data as on June 01, 2011 Content source: ICICIdirect.com Research
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June 2011
MODEL PORTFOLIO MODEL EQUITy PORTFOLIO
Portfolio management is an incomplete exercise without a periodic review. Every security should be subject to severe scrutiny and a case made out for its continuation or disposal. The frequency of review will depend on the size, amount involved and the kind of securities held in the portfolio. Here, we present three model portfolios viz. conservative portfolio, moderate portfolio and the aggressive portfolio. These portfolios have been designed keeping in mind various key parameters like the time horizon of investment, returns expected, the indices to which they are benchmarked, etc. We have included the intervals at which the performance of each portfolio will be reviewed.
Time horizon Expected return Benchmark Review intervals Risk return Conservative Moderate 18-24 months 12-18 months 20% 20%-30% BSE Sensex/BSE 100 BSE 500 Quarterly Low risk-Low return Quarterly Medium riskMedium return Aggressive 9-12 months >30% BSE 500 Monthly High risk High return
COnsERVATIVE PORTFOLIO
Portfolio Philosophy: The conservative portfolio is in the nature of direct equity. The ideal investment horizon is 18-24 months. The universe for selection of stocks is the BSE Sensex/Nifty and BSE 100 / BSE 500. The minimum number of sectors is five with the maximum exposure to each sector capped at 25 percent. The portfolio will include 12-15 stocks. The performance review for this portfolio will be done on a quarterly basis. Conservative Portfolio
Company name Financials Axis Bank HDFC Bank SBI Bank of Baroda Indian Overseas Bank 46
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ICICIdirect codes UTIBAN HDFBAN STABAN BANBAR INDOVE
Allocation (%) 16 3 3 4 3 3
Money Manager
June 2011
MODEL PORTFOLIO
ICICIdirect codes BHEL LARTOU BIOCON GLEPHA LUPIN APOHOS HCLTEC INFTEC TCS ITC NESIND ONGC GAIL RELIND ACC JAIASS DISHTV MARUTI TELCO EXIIND COALIN HINZIN Allocation (%) 6 3 3 13 3 3 4 3 11 4 3 4 6 3 3 9 3 3 3 6 3 3 3 3 9 4 3 2 6 3 3 15 100
Company name Engineering & Capital Goods BHEL L&T Pharma Biocon Glenmark Lupin Apollo Hospitals IT HCL Technology Infosys TCS FMCG ITC Nestle Oil & Gas and Petro Products ONGC GAIL Reliance Industries Cement/Construction/Infra ACC Jaiprakash Associates Media Dish TV Auto Maruti Tata Motors Exide Metals Coal India Hindustan Zinc Cash Grand Total
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June 2011
MODEL PORTFOLIO MODERATE PORTFOLIO
Portfolio Philosophy: The moderate portfolio is in the nature of direct equity. The ideal investment horizon is 12-15 months. The universe for selection of stocks is the BSE 500. The minimum number of sectors is five with the maximum exposure to each sector capped at 15 percent. The portfolio will include 12-15 stocks and has certain allocation to cash as well. The performance review for this portfolio will be done on a quarterly basis.
Company name Financials Axis Bank HDFC Bank SBI Bank of Baroda Indian Overseas Bank Engineering & Capital Goods BHEL L&T Pharma Biocon Glenmark Lupin Apollo Hospitals IT HCL Technology Infosys TCS 48
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ICICIdirect codes
Allocation (%) 16
UTIBAN HDFBAN STABAN BANBAR INDOVE
3 3 4 3 3 6
BHEL LARTOU
3 3 12
BIOCON GLEPHA LUPIN APOHOS
3 3 4 2 11
HCLTEC INFTEC TCS
4 3 4
Money Manager
June 2011
MODEL PORTFOLIO
ICICIdirect codes ITC NESIND ONGC GAIL RELIND JAIASS DISHTV MARUTI MAHMAH TELCO EXIIND COALIN HINZIN RENSUG Allocation (%) 6 3 3 9 3 3 3 3 3 3 3 10 3 2 3 2 6 3 3 3 3 15 100
Company name FMCG ITC Nestle Oil & Gas and Petro Products ONGC GAIL Reliance Industries Cement/Construction/Infra Jaiprakash Associates Media Dish TV Auto Maruti M&M Tata Motors Exide Metals Coal India Hindustan Zinc Others Shree Renuka Sugar Cash Grand Total
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June 2011
MODEL PORTFOLIO AGGREssIVE PORTFOLIO
Portfolio Philosophy: The agressive portfolio is in the nature of direct equity. The ideal investment horizon is 9-12 months. The universe for selection of stocks is the BSE 500. The minimum number of sectors is five with the maximum exposure to each sector capped at 15 percent. The portfolio will include 12-15 stocks and has certain allocation to cash as well. The performance review for this portfolio will be done on a monthly basis.
Company name Financials Axis Bank HDFC Bank SBI Bank of Baroda Indian Overseas Bank Engineering & Capital Goods BHEL L&T Pharma Aurbindo Pharma Glenmark Lupin Apollo Hospitals IT HCL Technology Infosys TCS FMCG ITC Nestle ITC NESIND HCLTEC INFTEC TCS AURPHA GLEPHA LUPIN APOHOS BHEL LARTOU UTIBAN HDFBAN STABAN BANBAR INDOVE ICICIdirect code Allocation 15 3 3 3 3 3 6 3 3 12 3 3 4 2 11 4 3 4 6 3 3
50
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June 2011
MODEL PORTFOLIO
ICICIdirect code ONGC GAIL RELIND DISHTV Allocation 9 3 3 3 3 3 10 MARUTI MAHMAH TELCO EXIIND 3 2 3 2 6 COALIN HINZIN 3 3 5 RENSUG INDHOT 3 2 17 100
Company name Oil & Gas and Petro Products ONGC GAIL Reliance Industries Media Dish TV Auto Maruti M&M Tata Motors Exide Metals Coal India Hindustan Zinc Others Shree Renuka Sugar Indian Hotels Cash Grand Total
note: There is no change in the portfolios since its last update and so there are no stocks in the Whats in/ Whats out section.
source: ICICIdirect.com Research
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June 2011
QUIZ TIME Ask & Tell
1. The Supreme Court of India consists of a Chief Justice and _______ number of Judges. 2. A Finance Commission is constituted every ______ years. 3. Where is the permanent Secretariat of the South Asian Association for Regional Co operation (SAARC) located? 4. The highest denomination in which currency notes are issued at present in India? 5. According to provisional figures of the 2011 Census report, what is the overall literacy rate of India? you may send in your answers to the quiz at: moneymanager@icicisecurities.com The answers will be published in the next edition of ICICIdirect Money Manager. The names of the earliest all-correct entries will be published too. So put on your thinking caps and be quick to send in your entries. Watch this space for more Answers for April 2011 quiz: 1. Budget 2. NSDL (National Securities Depository Limited) and CSDL (Central Securities Depository Limited) 3. Dividend 4. 9% payable quarterly 5. Vatican City Congratulations to the winner of the May 2011 quiz Anil Agarwal nisha srikanth Ritesh Rajput
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June 2011
CUsTOMER sOLUTIOn
Download & Read ICICIdirect Money Manager

You now have the option to download ICICIdirect Money Manager onto your computer and save it.
On the ICICIdirect Money Manager e-magazine link, you will find the Download button on the Menu panel. Click on the Download button.
A new window pops up which will guide you in downloading. You have the convenience to select and download individual pages or download the complete magazine at one go. You need to specify the location to save the files. The pages/magazine will be downloaded as zip files which can be easily extracted. Once extracted, the PDF files of the pages/magazine will be saved to the specified directory. You can then read them at your leisure or print them if you so desire. ICICIdirect Money Manager
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June 2011
GLOssARy
sents the percentage of a fund or securitys movements that can be explained by movements in a benchmark index. R-squared values range from 0 to 100. A high R-squared (between 85 and 100) indicates the funds performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesnt act much like the index. Price-Earnings (P/E) ratio It is a valuation ratio of a companys current share price compared to its per-share earnings. A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company to a utility company as each industry has much different growth prospects. Price-to-Book Value (P/BV) ratio It is a ratio used to compare a stocks market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarters book value per share. A lower P/BV ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. Open Interest It is the total number of options and/or futures contracts that are not closed or delivered on a particular day. It can also be the number of buy market orders before the stock market opens.
Alpha It is a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a funds alpha. Beta It is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. A beta of 1 indicates that the securitys price will move with the market. A beta of less than 1 means that the security will have lesser volatility than the market. sharpe ratio A ratio developed by Nobel laureate William F. Sharpe to measure riskadjusted performance. The Sharpe ratio is calculated by subtracting the risk-free from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The Sharpe ratio tells us whether a portfolios returns are due to smart investment decisions or a result of excess risk. The greater a portfolios Sharpe ratio, the better its risk-adjusted performance has been. standard deviation It is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is applied to the annual rate of return of an investment to measure the investments volatility. Higher the standard deviation, higher is the volatility. R-squared It is a statistical measure that repre54
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Money Manager

ICICI Magajine June11

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58

From the Managing Directors desk

ICICIdirect Money Manager

MARKETs ROUnD-UP Markets to remain in a range

Source: ICICIdirect.com Research, Bloomberg

Dow Jones Index

Source: ICICIdirect.com Research, Bloomberg

Source: ICICIdirect.com Research, Bloomberg

Source: ICICIdirect.com Research, Bloomberg

S&P 500 Index

Source: ICICIdirect.com Research, Bloomberg

Source: ICICIdirect.com Research, Bloomberg

Source: ICICIdirect.com Research, Bloomberg

Source: ICICIdirect.com Research, Bloomberg

Source: ICICIdirect.com Research, Bloomberg

Source: ICICIdirect.com Research, Bloomberg

Source: ICICIdirect.com Research, Bloomberg

2-May-11 12,807.4 1,361.2 2,864.1 6,082.9 7,527.6 4,108.8 10,004.2 23,633.3

TECHnICAL OUTLOOK Index likely to trade range-bound

Content source: ICICIdirect.com Research

DERIVATIVEs VIEW June series may remain less volatile

26-May Nifty Spot

TOP PICK JET AIRWAys (JETAIR)

TATA COnsULTAnCy sERVICEs (TCs)

ICICIdirect Money Manager

VIEW POInT sector analysis

FLAVOUR OF THE MOnTH Hitting a home run

FLAVOUR OF THE MOnTH

FLAVOUR OF THE MOnTH

FLAVOUR OF THE MOnTH

FLAVOUR OF THE MOnTH

FLAVOUR OF THE MOnTH

Good time to invest for long-term investors

sachin Khandelwal, MD & CEO ICICI Home Finance Company

Consolidate your holdings in one place for easy tracking

FInAnCIAL PLAnnInG Plan early for your young child

KnOWLEDGE BAsE strong trading tool: Moving averages

About the author:

InVEsTInG TIPs Power of compounding

Principal (`) 100.00 110.00 121.00 133.10 146.41

ICICIdirect Money Manager

FUnD CARD HDFC Prudence Fund

2500 2000 1500

2406.4 479.8 265.4 214.9 60.6

Data as on June 01, 2011 Content source: ICICIdirect.com Research

ICICIdirect Money Manager

FUnD CARD Birla sun Life 95 Fund

Performance vs. Benchmark

2000 1800 1600 1400 1200 1000 800

FUnD CARD DsP Black Rock Balanced Fund

Benchmark 18.8 48.9 62.0

Standard Deviation (%) Beta Sharpe ratio R Squared Alpha (%)

12.5 0.9 0.1 0.9 4.3

Performance vs. Benchmark

1800 1600 1400 1200 1000

FUnD CARD ICICI Prudential Balanced Fund

Performance vs. Benchmark

Data as on June 01, 2011 Content source: ICICIdirect.com Research

ICICIdirect Money Manager

MODEL PORTFOLIO MODEL EQUITy PORTFOLIO

ICICIdirect codes UTIBAN HDFBAN STABAN BANBAR INDOVE

ICICIdirect Money Manager