MOSt Advisor Monthly Markets Newsletter

June 2018

Key Highlights
In This Issue
• Market Outlook for the month  Sharp fall in Mid & Small caps
• Investment Ideas  RBI hikes rate after a gap of four and half years
• Technical & Derivatives Outlook  Q4 result season a mixed bag
• Commodities Market Outlook
Dear Investor,
• Model Advisory Portfolios
May was characterized by sharp fall in Mid and small cap
• PMS
stocks. While Nifty managed to end the month on a flatish
Global Market note (after a strong 6.2% rally in April), Midcap Index was
down 6.8% in May. Even on a trailing 12 month basis,
Index 31-May-18 MoM (%) YoY(%)
MidCap returns at 8% is lower than Nifty's 12%.
Sensex 35,322 0.5 13.4
Political news flow (Karnataka Elections outcome, by-polls in last week of May)
Nifty 10,736 0.0 11.6
coupled with concerns on crude and currency kept the markets on the edge. Earnings
FTSE 7,678 2.3 2.1
season concluded without much flutter. In May, while DII inflows were INR15,055
Dow 24,416 1.0 16.2
crore, FII selling continued and stood at INR12,360 crore. Macro picture is brightening
Nasdaq 7,442 5.3 20.1 at the margin with continued uptick in GDP growth (7.7% growth in 4QFY18) led
Hang Sang 30,469 -1.1 18.7 by government spending and revival in investments.
In 4QFY18 earnings, Nifty aggregate sales grew 15.5% YoY, EBITDA grew 13.1% and
Economic Pulse PAT grew 5.1%. Overall we maintain our FY19E/20E Nifty EPS estimates at INR 579/
693, with an underlying 27% growth in Nifty profits led by Banks.
Key Indicators Current Mth Pre. Mth
RBI in its second bimonthly policy review for FY19, raised the key policy repo rate
IIP 4.4% 7.1%
by 25 bps to 6.25%. This was the first rate hike by the central bank since 2014.
CPI 4.58% 4.28%
However, it maintained its stance on liquidity at 'neutral'. RBI also revised its forecast
10 Year Yield 7.82% 7.76%
on consumer inflation for 1HFY19 to 4.8%-4.9% (earlier 4.4%-4.7%) and for 2HFY19
USD/ INR 67.41 66.66
to 4.7% from 4.4% earlier.
Crude ($) 77.59 75.17
The elevated valuations (~19x one-year forward) coupled with challenging macros
Gold (10 gms) 31,026 31,033
and busy political calendar is likely to keep the index range-bound in 2018. Amidst
this challenging environment, we continue to prefer quality stocks coupled with
earnings visibility. We have long-standing positive view on Consumption recovery
Thought for the month theme for CY18, with preference for Rural Consumption. The corporate commentary
from the 4QFY18 earnings season reaffirms our view of accelerated value migration
If you want to own stocks for in favor of private financials, Consumption recovery and Delayed private capex revival.
the long-term, monitoring Prediction of third consecutive year of normal monsoon, expectations of higher MSP,
fluctuations constantly expansion of DBT schemes, and a busy election calendar should ensure a supportive
is a very, very and conducive backdrop for rural consumption. We continue to prefer large-caps over
bad idea. midcaps, given the recently moderated but still a sharp valuation premium of midcaps
vs.large-caps.
Siddhartha Khemka
Vice President- Head - Retail Research

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Equity Investment Ideas

MOSt Advisor Monthly Markets Newsletter

Must Act

June 2018

Investment Ideas √ HDFC Bank is the largest private sector bank with asset size of INR6.6tn and market
share of ~5% in deposits and loans respectively.
√ HDFC Bank has been consistently gaining market share across most products in the retail
HDFC Bank
segment and appears well poised to maintain this traction.
CMP*: INR 2,139 √ We expect HDFC Bank to record 23% loan book CAGR and 21% PAT CAGR over FY18-
Target: INR 2,400 20E, with RoA/RoE of 1.8%/16.7% in FY20E.
BUY √ While margins may contract slightly due to intensifying competition, its robust fee in-
come profile and strong control on operating leverage will continue driving a steady
improvement in the return ratios.

√ RBL's 4QFY18 PAT rose 37% YoY to INR1.78b. NII grew 42% YoY to INR5b, led by 37%
YoY advances growth and 48bp YoY NIM expansion to 3.98%. RBL Bank
√ With a diverse product portfolio, no legacy issues, highly capable management and a low CMP*: INR 516
market share, we expect RBL to report industry leading loan CAGR of 35% over FY18-20.
Target: INR 650
√ We expect stable/improving margins due to changing loan mix toward high-yielding loans, BUY
a sharp fall in cost of bulk deposits, and an improvement in the CD ratio. Strong balance
sheet growth is expected to drive operating leverage.

√ Reliance Industries, is India's largest private sector entity. Over the years, RIL has grown
through backward integration in energy chain (textiles, petchem, refining and E&P) and
Reliance Industries is now moving into new areas like organized retail and Telecom. It operates one of the
CMP*: INR 921 largest refining capacity at a single location and is the largest producer of polyester fibre
and yarn.
Target: INR 1,150
√ RIL's 4QFY18 standalone EBITDA increased 19% YoY to INR134b and PAT rose 7% YoY
BUY to INR87b. Petchem drives standalone profitability. Consolidated PAT stood at INR361b,
+20.9% YoY led by contribution from RJio.
√ On FY20E basis, the stock trades at 13.3x P/E and EV/EBITDA of 8.5x.

√ Bajaj Auto is a leading manufacturer of two-wheelers (~88% of volumes) and three-

wheelers (~12% of volumes). It is the market leader in three-wheelers, and is the second Bajaj Auto
largest player in motorcycles and enjoys leadership in the premium segment. It is also the
largest exporter of two-wheelers and three wheelers (~41% of its volumes). CMP*: INR 2,750
√ We believe Bajaj Auto is back on the growth path, driven by (a) regulatory changes in key Target: INR 3,450
domestic passenger 3W states, (b) filling up of product gaps in domestic motorcycle BUY
portfolio, (c) stability in key export markets and ramp-up in new markets driving exports.
√ We expect volumes/ Revenue/ PAT CAGR of 8.7%/10.6%/12.6% over FY18-20E.
Data as on 31st May 2018

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Technical & Derivatives Outlook

MOSt Advisor Monthly Markets Newsletter

Markets & Our Recommendations

June 2018

Technical & Derivatives Outlook

Technical Outlook
Nifty Weekly
√ Nifty index took support near to 10420 and witnessed a sharp bounce from lows
and ended the volatile May month above 10700 zones. Index managed to hold its
losing ground even after worries of rising Crude, Metals, Bond yields and a weak
INR. Nifty closed on a flattish note with the marginal loss of only 3 points at 10736
zones. It has formed a long legged lower shadow candle on Monthly scale which
implies that the decline is being bought and follow up is required at higher levels.
Banking index rose 5.58%, followed by the Oil & Gas index while on the losing front
Consumer Durable and Realty index fell down. Nifty started the month on a positive
note and meaningful buying interest was seen only on decline post its correction of
Karnataka election result. Now Nifty is holding above 10620 zones and hovering
near to 10700 zones which is 61.80% retracement of the entire down leg from
Nifty Daily
11171 (Feb’18 high) to 9951 (March 2018 Low). As long as it holds above 10620
levels, it can extend its gains towards 10888 then 10929-10950 zone. RSI is entered
in to overbought zone which suggests that prices can stretch higher in the short
term but decline would offer a better risk - reward ratio. A decisive hold below
10550 could signals a change in trend for weakness towards 10420 then 10333,
until then it can remain positive to range bound in the short term perspective.
Strategy
Strategy- Overall trend is positive as decline is being bought. As long as it holds
above 10620 levels, it can extend its gains towards 10888 then 10929-10950
zones. On the lower side 10620 and 10550 are likely to act as a support.

Derivative Strategy

Nifty - SHORT STRANGLE - Jun’18 Expiry

View : range bound in broader trading range
SELL 1 LOT OF 10200 PUT @ 26
SELL 1 LOT OF 11100 CALL @ 24

Net Premium received : 50 points

Keep stop loss of net premium of 100 points (risk of 50 points)
Max reward : 50 points
Rationale:
√ Index has got stuck in a broader trading range in between 10420 to 10929 zones in May series
√ It has multiple medium term supports at 10550, 10420 and 10333 which are going to hold its decline
√ May series high of 10929 and psychological 11000 zones could continue to act as a major hurdle
√ Maximum Put OI is at 10500 and Call OI is at 11000 also suggests the same trading range
√ Thus, suggesting a Short Strangle strategy to get the benefit of time decay and decline in volatility

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√ MOSt Advisor Monthly Markets Newsletter

Commodities & Currency Outlook

Markets & Our Recommendations

June 2018

Commodities & Currency Outlook

Currency
√ Rupee has garnered a lot of attention over the last few months as it's on a sharp depreciation spree, backed by a sharp surge in global crude
oil prices and strength in the dollar against its major crosses. Last month, rupee fell to the lowest level since November 2016, and the currency
was weighed down primarily on back of sharp rise in crude oil prices. Crude rallied to the highest level since 2014, after US decided to impose
sanction on Iran. Renewed sanctions would make it much harder for Iran to sell its oil abroad or use the international banking system. Trump
has long denounced the deal as a narrow and short-sighted windfall for Tehran, and chafed at its failure to address Iran's missile program or
military activity in the Middle East. But at the end of the month, rise in crude was restricted after reports that Saudi Arabia and Russia have
discussed raising OPEC and non-OPEC oil production by some 1mbpd to make up potential supply shortfalls from Venezuela and Iran.
√ India's growth in Q4 stood at an impressive 7.7% compared to 7.2% in the previous quarter beating all estimates. For the financial year ending
March,2018 growth number stood at 6.7% compared to 7.1% in the previous financial year. Fiscal deficit in the year ended March 2018 was
at 3.53% of GDP - in line with the revised estimates. Overall, volatility for rupee was curbed by the RBI, who has been consistently intervening
in the market. Some erosion of FX reserves suggests the RBI sold dollar at higher levels to cap any major move for the currency. FX reserves after
a hitting a high of $426.08 billion earlier last month currently stands at $412.8 billion, down by over $13billion.
√ Dollar continued to rally against its major crosses for the second successive month, with gains of over 2% since the start of the year. The
currency has been supported on lower levels as most economic numbers released from the US have been better than expectation, and at the
same time talks between US and China on trade moved forward. There are expectation that China has offered U.S. President Donald Trump a
package of proposed purchases of American goods and other measures aimed at reducing the U.S. trade deficit. But at this point it will be early
to guess on what would be quantum on which restriction would be levied. Volatility for the dollar in first half of the month could be lower
ahead of important FOMC policy statement, where expectation of raising rates and a hawkish commentary could extend gains for the dollar.
√ In other Forex pairs, Euro fell to the lowest in six months on back of political uncertainty in Italy and raised questions over 'Will Italy stay in the
Euro bloc?'. Despite the Five Star movement not being able to form a government in March after six long weeks of discussion, it just managed
to form one last week with a right wing party. But rejection by the president on appointment of finance minister, Savona (anti Euro), raised the
prospect of more political turmoil in Italy. With no foreseeable future for a working government, Italy has no option left but to call for a snap
election that could be as early as August or September. In this month, Italy will remain in focus and market participants will also be keeping an
eye on the ECB policy statement to further gauge a view on the currency.
√ Pound too was weighed down following broad strength in the dollar against its major crosses and after Bank of England in its policy statement
held rates unchanged. Comments from the BoE governor suggest that the central bank has taken a step back and as the BoE governor said he
wanted to be sure the economy was recovering from a slow start to the year before it raised borrowing costs again. Most market participants
expect that the BoE would either consider September or November to raise rates. Until then the central bank will have enough time to gauge
the Brexit situation as well as other economic numbers.
√ Japanese Yen continued to be one of the biggest gainers amongst other major currencies and political uncertainty in Italy and geopolitical
tensions in Syria supported the currency. From Japan, in the last one month, most economic numbers released have been in line with
expectation and no major impact of the same has been seen on currency. In this month, from Japan, focus will be only on BoJ policy statement,
but importantly any surprises by US President could trigger fresh buying for the currency.

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MOSt Multi Cap , MOSt Smart

MOSt Advisor
Monthly Markets Newsletter
Build a Portfolio

June 2018

MOSt Multi Cap

For Whom : Long Term Investors We are recommending a MULTI-CAP approach with the
Investment Duration : One year and above following characteristics:
Risk Profile : Moderate Investors
√ Corpus requirement of INR 10 Lakhs
Scrip CMP Wtg. Sectoral Allocation √ 40-50% in Large-cap and 50-60% in Mid-cap
HDFC Bank 2,111 10%
Bajaj Auto 2,897 10% √ 15 companies to invest at maximum, 10 minimum
Reliance Ind. 931 10% √ Large-cap stocks are suitable for SIP investments as well
L&T 1,372 10%
Yes Bank 343 10%
√ Adheres to our QGLP philosophy
HDFC Standard LiFe 489 5%
NMDC 115 5%
Havells 539 5%
Shriram Trans. 1,459 5%
In : Reliance Industries, L&T, Shriram
Mahindra CIE 240 5% Transport
Future Consumer 57 5% Out : Zee Ent, Ramco Cement,
Nilkamal 1,689 5% Bharat Electronics, Granules
KEI 482 5%
Repco Home Fin. 591 5%
Cash 5%
Total 100%
Data as on 1st June 2018

MOSt Smart - Techno Funda Ideas (Newly introduced Product)

Investment characteristics:

√ Objective: To deliver returns from Opportunities based on Techno Funda in Strong fundamental stocks
√ For whom: Traders looking for momentum delivery based short term ideas
√ Risk Profile: Moderate to High
√ Corpus requirement: Rs 3 lakhs
√ Mode: Delivery based transaction (Cash)
√ Product Profile: 2 to 3 ideas, Allocation of Rs 1 Lakh on each trade
√ Stock Selection : From MOSL coverage Universe
√ Return Objective: Target Return of 4-6%, with stop loss minimum 2% and maximum 3%
√ Exit Criteria : Minimum gain of 3% or on stop loss or on time lapse
√ Holding Period: Upto 2 weeks (or upto 10 trading sessions)

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MOSt Advisor
Monthly Markets Newsletter
MOSt PMS

June 2018

MOSt PMS

Performance since inception

√ LargeCap PMS:- VALUE STRATEGY- An amount of 1cr. Invested in March 2003 is worth Rs.26.30 cr. (compounded return of 24.01%)

√ MultiCap PMS:- NTDOP STRATEGY- Amount of 1 cr. Invested in December 2007 is worth Rs.5.86 cr. (compounded return of 18.36%)

√ MultiCap PMS:- ASK IEP STRATEGY- Amount of 1 cr. Invested in January 2010 is worth Rs.4.91 cr. (compounded return of 21%)

√ Mid & Small Cap PMS:- MOAMC IOP- Amount of 1 cr. Invested in January 2010 is worth Rs.3.33 cr. (compounded return of 15.63%)

Latest Performance of all OUR PMS (Portfolio Management Services) strategies. (As on 31st May, 2018)

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MOSt Advisor Monthly Markets Newsletter

Sundaram Multi Cap Fund- Series I

June 2018

Sundaram Multi Cap Fund- Series I

(NFO Period 8th June to 22nd June, 2018)

Sundaram Multi Cap Fund- Series I is a 5 year closed ended fund with Multicap portfolio offering investment opportunity across the cap curve.
Fund has a filter based bottom ups approach and investment process of staying with high growth businesses with consistent value creation for
shareholders.

Why Multi-Cap ?
With the market correction, overvalued mid and small cap is corrected creating scope of growth in both large and mid-small cap stocks making
multi cap investment a better options, also with SEBI guidelines making clear line for large, mid and small cap - multi cap funds can give exposure
to entire market and gives fund manager space to choose as per the stock fundamentals instead of market cap.

Fund Details
√ Tenure - 5 Years
√ Fund manager - Mr. S Krishnakumar
√ Benchmark - S&P BSE 500 Index

About Fund Manager

Mr. S Krishnakumar has experience of 20 years of which the latest thirteen years relate to the equity markets. Currently, He manages the multi
and mid cap funds at Sundaram Mutual Fund. In open ended he manages Sundaram Large and Mid-Cap Fund, Sundaram Mid Cap Fund and
Sundaram Small Cap Fund, in close ended he manages Sundaram Select Micro Cap Series and Sundaram Select Small Cap Series.

Product Strategy
√ Fund to follow below process for selecting stock
o The starting universe is the top 1000 stocks in India by market capitalization
o To this universe, various quantitative, qualitative and valuation filters are applied to arrive at the final portfolio
o Replacement of stocks failing in quantitative filters during subsequent reviews/special circumstances

Why Sundaram Multi Cap Fund- Series I

This Fund is based on theme that India is emerging stronger than before:

√ Inflation remains elevated but is expected to remain under control.

√ The budget has shown a well appreciated restraint in a pre-election year with very modest expenditure growth.
√ Current account deficit is set to rise into the next fiscal on the back of increased domestic growth, reflecting in higher non-oil-non-gold imports.
√ Consumption will continue to remain the driver for India
√ With the elections in mind, the budget continues to lay emphasis on Rural and Roads
√ Global growth will provide a supportive environment for Indian exports

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responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees
free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring
Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id: na@motilaloswal.com, Contact No.:022-38281085.
Registration details of group entities.: Motilal Oswal Securities Ltd. (MOSL): INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412 . AMFI: ARN 17397.
Investment Adviser: INA000007100. IRDA Corporate Agent - CA0541. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal
Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Insurance,
Bond, NCDs and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private
Equity Investment Advisors Pvt. Ltd. offers Private Equity products