A monthly investment update Issue: February, 2016 Vol : 31

K NOWL E DGE P OWE R . WE ALT H E NHANC E R

For private circulation only

SHAM’S SUGGESTS

earn save invest

S imple, Mini Investments regularly

I ntelligent, Benifit from the power of compounding

Practical, Link to your Financial Goals

“SIP it up ”

Dear Investor,

It was a turbulent start to 2016 as renewed instability in the Chinese equity market and a further deterioration in the oil price saw global stockmarkets post steep negative returns. In bond markets, perceived safe havens rallied with Treasury, gilt and Bund yields declining.

Emerging markets lagged their developed counterparts. It is important to distinguish between India and other EMs. Let us look at our peers in BRICS, Brazil has slipped into one of the worst recessions in recent times; Russia is reeling under a severe currency crash and second

consecutive year of severe reces-sion; China is going through a sharp slowdown: South. Africa is reeling under currency crash and economic stagnation. In this bleak scenario, India with her strong macros stands out. India is already the fastest growing large economy in the world and India's macros are in a sweet spot.

Read inside the report from experts, what lies ahead in year 2016.

Thanking you,Best Regards,

Krishnan Ramachandran ,CEO

Editorial

INTERVIEW EXCERPTSINVESTMENT IDEAS

Power Grid is India's largest power transmission utility which transfers almost half of all power generated in India. Power Grid is responsible for inter-state trans-mission and its tariffs are regulat-ed by the Central Electricity Regu-latory commission which entitles it to a regulated return of 15.5% until Mar 2019.

Raising capitalization assump-tions as execution improves: After a strong execution in FY15 (capitalisation Growing 37%) Power Grid had a tepid H1FY16 due to a delay in one of its HVDC (High Voltage Direct Current) lines, which finally comes through in Q3FY16.

BSE CODE: 532898NSE CODE: POWERGRIDBloomberg CODE: PWGR:IN

BUY

Rating as per Large Cap

12 month investment period

CMP Rs139

TARGET Rs185

RETURN 33%

Geojit BNP Paribas Research

POWER GRID CORPORATION OF INDIA LTD

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Power

INVESTMENT IDEAS

Q3FY16, mainly driven by capitalisation of Rs82.07bn worth Bishwanath - Chariyali - Agra 800kV HVDC transmission line. With this, Power Grid has completed power transmission projects worth Rs268bn in 9MFY16, which is well ahead of our FY16 capitalisation estimate of Rs240bn.

Recently, management guided that capitalisation could cross Rs280bn in FY16 (grow 29% YoY) and targeting another Rs280bn capitalisation in FY17. Based on this, we raise our capitalisation estimate for FY16 to Rs280bn from Rs240bn and for FY17/18 to Rs240bn/Rs240bn from Rs225.5bn/Rs226bn respec-tively.

Power Grid capitalized assets worth a record Rs172bn in

SMOOTH SAILING IN ROUGH WATERS...

INTERVIEW EXCERPTSINVESTMENT IDEAS Geojit BNP Paribas Research

For full report and disclaimer click here http://goo.gl/2uBb82

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A defensive stock in a volatile market: We believe Power Grid is a safe haven in volatile market given regulated returns, solid growth prospects on a clear capex plan and improving ROE driven by improved execution. Power grid was well on track to achieve its capex plan of Rs1.1tn in FY13-17. Also management confirmed that Power Grid has tied up a capex plan of Rs1.25tn over FY18-22, which provides good medium- term earnings growth visibility.

ROE improvement and discom reform could drive rerating: We expect Power Grid to re-rate on improved investor sentiment in anticipation of ROE improvement from improving execution and government progress in discom reform under Project UDAY. Project wins over the Rs1.25tn already lined up for FY18-22 could drive upside to our estimates.

Catalysts to our Call: We expect higher capitalization from better execution leading to improving ROE, increased visibility of growth prospects and progress by the government on its reforms

for discoms (Project UDAY ) to drive a re-rating of the stock. Upside could come from project wins over the Rs1.25tn already lined up for FY18-22.

Risks to our call: Slowing project execution resulting in lower ROE, aggressive capex leading to equity dilution, cuts in planned capex leading to slower earnings growth and weaker unregulated revenue from consultancy and telecom. Any potential divestment of the government‟s stake would be a short term sentiment overhang, in our view.

Valuation: We maintain our BUY rating on the stock with revised target price of Rs185 from our previous target price of Rs176. We raised our target price by 5% on higher earnings estimates and as we roll over our valuation base from Sep-17 to Dec-17. We see Power Grid's ROE improving on better execution aided by increased government support and we find valuations attractive (FY17E P/E of 9.2x) and expect strong capex to drive a 20% EPS CAGR over FY16E-18E

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FUND WATCH

Liquid Funds

ELSS

Large Cap Equity Funds

Midcap Equity Funds

Small Cap Equity Funds

Monthly Income Plan

# Absolute returns are shown in case of Equity Index funds, Equity Funds,Balanced Funds, Fund of Funds for the period less than one-year

Indian Fund performanceAs on 18.02.2016 5 YRS

Return

3YRS1YRS6 Mnth3 Mnth1 Mnth

SBI BlueChip Fund-Reg

Franklin India Bluechip Fund

Birla SL Top 100 Fund

DSPBR Focus 25 Fund-Reg

-1.39 -5.39 -11.55

-0.88 -6.56 -13.99

-2.48 -6.71 -14.16

-2.45 -9.18 -18.01

-8.59 16.26 13.44

-11.54 10.60 8.89

-13.93 14.63 11.90

-14.27 12.28 8.71

SBI Magnum MidCap Fund-Reg

Kotak Emerging Equity Scheme

Sundaram Select Midcap

HDFC Mid-Cap Opportunities Fund

-2.30 -7.31 -12.53

-2.19 -9.68 -15.47

-2.79 -9.52 -17.31

-2.85 -9.29 -16.52

-2.71 28.07 20.66

-9.39 21.59 16.69

-9.67 24.02 16.20

-9.69 23.16 18.20

DSPBR Micro-Cap Fund-Reg

Reliance Small Cap Fund

-4.94 -10.42 -13.81

-5.43 -12.95 -13.45

-2.94 32.49 20.97

-7.80 31.92 19.59

Tata Dividend Yield Fund

ICICI Pru Value Discovery Fund

-1.74 -7.99 -13.75

-2.42 -10.81 -15.88

-11.92 12.65 10.65

-12.90 21.82 16.64

Sundaram MIP-Aggr Plan -0.23 -0.95 -0.89 3.53 9.52 8.57

DSPBR Tax Saver Fund-Reg -3.57 -8.31 -15.62 -11.70 16.03 11.93

HDFC Liquid Fund 7.51 7.52 7.66 8.23 8.87 9.01

FUND WATCH

NEW FUND OFFERS

International Fund performanceReturn

5 YRS3YRS2YRS1YRS6 Mth3 Mth1 Mth

Equity Schemes

As on 18.02.2016

Closed-end

Closed-end

Closed-end

Closed-end

Fund Name Opening Date Type

Closing Date

“Disclaimer : Investments in equity, commodity, currency, futures & options are subject to market risk, please read the risk disclosure document before investing. Past performance does not guarantee returns in the future.”

To Invest NowCall the experts

Dubai: Tel: +971 4 3060900Abu Dhabi: Tel: +971 2 4125000 Sharjah: Tel: +971 6 5932000 Al Ain: Tel: +971 3 7648100

Barjeel Geojit

16-Feb

16-Feb

17-Feb

26-Feb

1-Mar

1-Mar

2-Mar

11-Mar

Franklin U.S. Opportunities -1.1 -14 -17 -12 -4.1 26.8 34.3

Reliance Dual Advantage Fixed Tenure Fund IX - Plan A

Sundaram Hybrid Fund - Series O - Regular Plan

SBI Dual Advantage Fund - Series XIV - Regular Plan

Birla Sun Life Capital Protection Oriented Fund - Series 30

INTERVIEW EXCERPTS2016 YEAR AHEAD Sundaram Mutual

The current rout in the markets has been led by global risk off trade as investors pull out money from equities (more so from emerging markets) and look for safer heaven. With oil prices coming down sharply, some of the countries are now having to deal with fiscal deficit and are now forced to dip into their sovereign wealth funds to fund such deficits. This is leading to significant redemption with some of the global investment firms. Further, developed world is still facing with slowdown as lower oil prices result in defla-tion. Geo-political issues are further adding to uncertainty leading to a heady cocktail of fear and volatility. Consequently, Indian markets has also witnessed collateral damage exacerbated by accelerated bad loan provisions by banks. Beyond doubt, fundamentals of Indian economy are still one of the most superior ones, if not the best. With twin deficits under control, India is well positioned to withstand any

external shocks. The market has

now re-traced entire gains since

the new government took office, implying that we have under-gone both time correction as well as price correction. This has brought market valuations at long-term average. We find this trinity of attracting valuations, low expectations and fear in the market enormously tempting.

Don’t let the markets’ whim shake yourinvestment resolve

“The time to buy

is when there's

blood in the

streets” Baron Rothschild

Chart 1: India Market indices – NIFTY / BSE MIDCAP / BSE SMALL CAP

Indian markets have retraced all the gains that they made since the new Government came to power. Nifty is back to 6950levels, about 1% below 14th May 2014. However, the midcap and small cap indices are still 26% and 22% positive (see below).

We say, Buy India

Sundaram MutualINTERVIEW EXCERPTS

India’s macro fundamentals are much better than what they were a couple of years ago. This is clearly reflected in the fact that our currency has been a relative outperformer among an Emerg-ing Markets (EM) pack of 25 countries. Our GDP growth has improved to above 7% while the Emerging economies aggregate 4% and the Developed world under 2%. Soft commodity prices come as a blessing for India that greatly helps cushion India’s growth transition.

Lower input costs further help the accommodative monetary stance of the RBI, improving the domestic investment outlook. RBI continues to be supportive of growth while the Government’s commitment to spur the infrastructure investment cycle is already reflecting in the current fiscal spends. The new Govt. has been laying the foundations for the road to sustainable growth through broader reforms & efficient administration. We have already entered the next business cycle and the soft commodity prices, especially oil, is visibly translating into fiscal comfort and business confidence on margins.

Near term challenges to growth primarily stemmed from the second consecutive poor monsoon season as well as weak export performance. Also, the combination of continuing fiscal consolidation, the corporate sector’s excess capacity, high indebtedness amongst the commodity producers and the banking sector’s linkages to it, limited the scope for a sharp uptick in near term headline

earnings growth. However, a detailed analysis shows corporate earnings (ex-commodities and global cyclicals) improving at a healthy pace. The current quarter results have been a lot better with lower downgrades to future corporate earnings. The earnings growth should be more visible in FY17 when the impact of fiscal boost to public spend and private consumption percolates down to the broader economy.

Every bull market is interspersed with both time and value correc-tions while reasons could be varied. Currently the growth concerns in many emerging economies and fund redemptions triggered by low oil & energy prices have impacted markets. January started with muted outflows from EM equity and debt, but progressing into the month, the outflows accelerated before stabilising by the end of the month. January’15 saw EM bond outflows to the tune of $4bn. and equity outflows of around $9.4bn. India too saw a net equity FII outflow of $1.7 bn.

The increased fear of some event risk in terms of huge losses / defaults around the exposure to the oil / commodity assets is playing high. As seen below equity markets started moving down together as sentiment weakened and this fear took over. Differentiation amongst various countries has been largely ignored as always when global uncertainty increases. We expect the Central Banks to continue to support growth recovery and allay the concerns.

2016 YEAR AHEAD

India stands out purely on its macro

Sundaram Mutual

Chart 2: Global Equity Indices vs Nifty

INTERVIEW EXCERPTS2016 YEAR AHEAD

While shorter term global issues may increase the volatility in markets, we believe that the long term support for our markets lie in domestic savings. Softer inflation and better growth will gradually lead to a shift in the saving pattern of Indian house-holds from physical to financial

India stands taller with the twin deficits well contained, inflation well under control, bottomed out growth, a relatively stable curren-cy and a committed political leadership. Every point of volatili-ty would be an opportunity to buy India. The recent correction in the markets underlines the same.

with a sharp bias towards equity. This coupled with increase in pension and PPF flows into equities augur well for the Indian equity markets.With the correction in our equity markets, the market valuation has considerably softened and moved below long term averages.

This would get louder in the coming quarters and a stable rupee would give comfort to the inflows. Investors who have used the corrections to increase expo-sure to equities have benefited in the long run as history suggests. We continue to remain positive on our equity markets with a medium to long term outlook.

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