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Recovery Fund

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NFO Period: 9th March to 23rd March 2015

This product is suitable for investors who are seeking*


Long term wealth creation solution
A close ended equity fund that aims to provide capital
appreciation by investing in equity and equity related securities
that are likely to benefit from recovery in the Indian economy.

HIGH RISK
(BROWN)

*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
Note - Risk may be represented as:
(BLUE) investors understand that
their principal will be at low risk

(YELLOW) investors understand that


their principal will be at medium risk

(BROWN) investors understand that


their principal will be at high risk

Economic Recovery and Markets


Current trend on recovery trajectory
Opportunities in the Current Market

India lagging An opportunity


ICICI Prudential India Recovery Fund Series 1

Economic Recovery and Markets

Economic Recovery and Markets


GDP Growth and CNX Nifty - 1992-97
Nifty

GDP%

1,200

CNX Nifty

GDP Growth

1,100

1,000

900

800

Nifty Returns - 188% on


absolute basis

700

1995

1996

1997

5.4
11.2
3.9
8.1
6.2

Mgf

Manufacturing

Ser

Services

THTC Trade, Hotels, Transport and Communication

400
1994

5.6
6.9
9.9
13.4
8.1

Industry

1993

5.7
7.4
5.8
10
7.5

Ind

500

1992

3.1
8.6
11
16
9.5

Agriculture, Forestry & Fishing

1991

Mgf Ser THTC FIRB

AFF

600

300

Real
AFF Ind
GDP
1993 5.3
6.7 3.2
1994 5.7
3.3 5.5
1995 6.4
4.7 9.2
1996 7.4 -0.7 11
1997 7.8
9.9 6.4
in % terms
Year

FIRB

Financing, Insurance, Real Estate and Business


Services

"Industry" (led by manufacturing), and "services" (led by trade, transport and communication) were
driving the growth, while agriculture was mixed.
Source: UBS Securities

Economic Recovery and Markets


GDP Growth and CNX Nifty 2003-08
Nifty
4,500

CNX Nifty

4,000
3,500

3,000
2,500
2,000
1,500

Nifty Returns - 319% on


absolute basis

1,000
500

0
2002

2003

2004

2005

2006

Real
Year
AFF Ind Mgf Ser THTC FIRB
GDP%
GDP
12 2003 3.9 -6.6 7.2 6.9 6.7
8.3
7.2
2004 8
9
7.3 6.3 7.9 11.2
5.3
10
2005 7.1
0.2 9.8 7.4 8.3
9.5
7.7
2006 9.5
5.1 9.7 10 11
12
12.6
8
2007 9.6
4.2 12 14 10 11.6
14
6
2008 9.3
5.8 9.7 10 10 10.9
12
in % terms
4
AFF

Agriculture, Forestry & Fishing

Ind

Industry

Mgf

Manufacturing

0
2007

Ser

Services

THTC Trade, Hotels, Transport and Communication


FIRB

Financing, Insurance, Real Estate and Business


Services

In the 2003-08, "industry" did well led by manufacturing, while services growth improvement was
led more by financing and real estate.
Source: UBS Securities

Current trend on recovery trajectory

Current trend on recovery


trajectory
We believe that India is moving from a vicious to a virtuous economic cycle
Higher
Inflation

Lower
Inflation

Supply
Constraints

Higher
Interest
Rates

Better Supply
Response

Lower Interest
Rates

No further
Investment

Depressed
Demand

Higher
Investment

Higher
Demand

Lower
Capacity
Utilization

Better
Capacity
Utilization

Current trend on recovery


trajectory

Economic
Indicators

Business
sentiment
improvement

Reforms

Investment
Recovery

Economic Indicators
Indicator

November
2012

November
2013

Now

WPI (%)

7.2

7.5

-0.39

CPI (%)

9.9

11.6

5.11

CAD as % of GDP

-4.7

-1.7

-1.7 to 2

Fiscal Deficit as % of GDP

4.9

4.6

4.1 (E)*

Oil Prices ($/bbl)

110

112

60

G-Sec Yield (%)

8.22

8.74

7.70

Credit Growth (%)

14

14

11

GDP (%) Old

4.6

5.2

5.3

--

7.5

7.8

-1.01

-1.30

1.70

GDP (%) - Rebased


Index of Industrial Production. (%)

Source: Bloomberg; CAD Current Account Deficit; GDP Gross Domestic Product; WPI Wholesale Price Index; CPI Consumer
Price Index; * Estimate as per Union Budget 2015; Now refers to as per latest available data as on 31st January 2015

Reforms undertaken by the


Government
Defence

The five Defence Acquisition Council meetings


since August 2014 have cleared INR1.4trillion of
projects.

Railways

Dedicated Freight Corridor promises to be a


game changer for improving the
competitiveness of Indian manufacturing.

Ports

Plans to create port capacity of around 3200


Million Metric Tonnes by 2020.

Make in India

Several large sized projects earlier reserved for


Buy Global category have been shifted to
Make and Buy Indian category

Goods and Sales Tax

Introduced in parliament in December; political


consensus exists

Source: Motilal Oswal Securities * Refer Appendix for details on reforms undertaken by Government

Investment Commitments

Vibrant Gujarat investment


commitments cross $400 bn.
Bengal Global Business Summit $38bn in investment proposals.

China made $20 billion investment


commitments over five years
across various sectors.

Japan pledges to invest $35


billion in India in next 5 years.

US plans for $4 billion investment


in India.

Source: UBS Securities

Business sentiment
improvement
Purchasing Managers Index

RBI industrial outlook


Index

Index

55

65

50
45

60

40
55

35
30

50

25
20

45

15
10
Nov-14

Jun-14

Jan-14

Aug-13

Mar-13

Oct-12

May-12

Dec-11

Jul-11

Feb-11

Sep-10

Apr-10

Nov-09

PMI - manufacturing

PMI - services

5
Dec-06
May-07
Oct-07
Mar-08
Aug-08
Jan-09
Jun-09
Nov-09
Apr-10
Sep-10
Feb-11
Jul-11
Dec-11
May-12
Oct-12
Mar-13
Aug-13
Jan-14
Jun-14
Nov-14

PMI - composite

Jun-09

Jan-09

Aug-08

Mar-08

Oct-07

May-07

Dec-06

40

Overall Business Situation


Production

Financial Situation

The purchasing managers' index (PMI), has been above 50 (denoting expansion), driven
more by manufacturing recently, though the services index has also been robust.
Source: UBS Securities

Investment Recovery
Stage 1
2014

Stage 2

2015E

2016E

Stage 3

2017E

2018E

2019E

Power BTG
Short cycle
Industrial capex
Smart cities
Infra ordering
pickup, DFC
Policy
announcements

Infrastructure capex
acceleration

Non linear drivers


Defence, High speed rails
T&D pickup

Policy implementation phase

River cleaning

Railway, mining capex


Pipeline build up

Renewable, metro

Source: Barclays; The above graph depicts a 3 stage bottom-up cyclical model
DFC - Dedicated Freight Corridor; BTG - Boiler-Turbine-Generator, T&D Transmission and Distribution

Investment Recovery
Early signs of Capex Revival
90

9
8

80

70

60

50

40

30

20

10

0
Dec 05

Jun 07

Dec 08

Jun 10

Dec 11

Jun 13

New Investment Projects (Rs tn)

New Capex announcement is up 3


times on year on year basis and is at
a 5 year high.
Source: Jefferies

Dec 14

0
Dec 05

Jun 07

Dec 08

Jun 10

Dec 11

Jun 13

Dec 14

Project completion rate (%)

Project completion rate has started


seeing some uptick.

Investment Recovery
Projects cleared by CCI
No. of projects
Chemicals & Fertilizers - Chemicals/Petrochemicals
Chemicals and Fertilizers - Fertilizers
Civil Aviation
Coal
Commerce and Industry - Commerce
Commerce and Industry-DIPP
Mines
Petroleum and Natural Gas
Pow er
Railw ays
Road Transport and Highw ays
Shipping
Steel
Textiles
Urban Development
Grand Total

Pending
1
3
0
50
6
16
5
32
86
16
24
11
45
0
3
298

Cleared
0
0
2
29
2
4
3
17
99
9
13
8
6
1
0
193

Total
1
3
2
79
8
20
8
49
185
25
37
19
51
1
3
491

The Cabinet Committee on Investments (CCI) has cleared a lot of stuck projects 190+
projects, worth Rs6.5 trillion (over 5% of GDP), out of the 491 accepted for consideration.
Source: UBS Securities

Opportunities in the Current Market

Opportunities in the Current


Market
Planned capex by Public Sector Units over next 2-3 years (Rs. bn)
Companies
Power Grid Corporation of India
NTPC Ltd
Coal India
Steel Authority of India
Oil and Natural Gas Corporation
Oil India
GAIL
Bharat Petroleum Corporation Limited
Indian Oil Corporation
Hindustan Petroleum Corporation Limited
Petronet LNG Ltd

FY15

FY16

FY17

210
1107
50

210
50
150

313
10
24
80
150
61
15

315
22
35
55
150
75
13

351
16
35
30
44
30
8

Aggregate cash balance in India corporates (ex financials) is Rs4.7trillion


With huge capex plans and cash balance, Indian corporates are likely to go through
the expansion phase over the coming years.
Source: UBS Securities; The slide is to demonstrate the Capital expenditure and expansion planned by some of the Public Sector
Undertakings. This data has been obtained from independent source. The data is to illustrate the growth opportunities available.
Stocks/Companies may be part of the portfolio of schemes of ICICI Prudential Mutual Fund. All or any schemes may or may not
invest in the stocks stated. It is necessary to undertake research and consult financial advisor before investing.

Opportunities in the Current


Market
Capital Goods
140%

Post election rally

120%

10
9

-60%

Sector performance yoy

Nov-14

-40%
Nov-13

Nov-12

-20%

Nov-11

Nov-10

0%

Nov-09

Nov-08

20%

Nov-07

Nov-06

40%

Nov-05

Nov-04

60%

Nov-03

Nov-02

80%

Nov-01

Nov-00

100%

Repo rate (RHS %)

Capital Goods sector performance and Repo rate have correlation.


Rate easing is in general positive for the sector as it helps boost returns for
asset companies.
Source: Barclays

Opportunities in the Current


Market
Banks
Credit Growth (%)

Nominal GDP Growth (%) - RHS

0.0
FY14

0.0
FY13

5.0
FY12

5.0
FY11

10.0

FY10

10.0

FY09

15.0

FY08

15.0

FY07

20.0

FY06

20.0

FY05

25.0

FY04

25.0

FY03

30.0

FY02

30.0

FY01

35.0

FY00

35.0

Recovery in the economy can fuel the credit growth of the banking sector
which may lead to increase in NIMs.
Between 2004-08, credit growth of banking sector was way above the GDP
growth.
Source: Motilal Oswal; NIMs Net Interest Margins

India lagging An opportunity

Population with no access to


electricity
Indonesia

35.5

India

33.7

Philippines

10.3

Thailand

0.7

Malaysia

0.6

China

0.6

(%)

10

15

20

25

30

35

40

Around 34% of India's population have no access to electricity


Power requirement in India is expected to increase in the future, which is likely to
boost margins of power generation companies
Source: CLSA

Power generation capacity per


capita
Australia

2,454

Singapore

1,946

Japan

1,810

China

1,785

Taiwan

1,744

Korea

1,607

Malaysia

901

China

851

Thailand

493

India

180

Philippines

170

Indonesia

(W per capita)

121
0

500

1,000

1,500

2,000

2,500

Indias power generation per capita is at 180 w per capita as compared to 2454 w
per capita for Australia.
Source: CLSA; w per capita watt per capita

Population without access to


safe water
India

68.0

Philippines

40.0

Indonesia

37.0

Thailand

37.0

China

35.0

Taiwan

2.2

Korea

2.2

Malaysia

(%)

0.4
0

10

20

30

40

50

60

70

80

68% of Indias population do not have access to safe water


With rural growth expected to increase, companies engaged in water management
and purification may see their margins expand
Source: CLSA

Population with no access to


sanitation facilities
India

66.0

Indonesia

46.0

China

36.0

Philippines

26.0

Thailand

4.0

(%)
Malaysia

4.0
0

10

20

30

40

50

60

70

With government's thrust on housing for all by 2022, companies engaged in


sanitation related product manufacturing are likely to benefit.
Source: CLSA

Roads that are paved


Singapore

100

China

100

Thailand

98.5

Taiwan

94.9

Japan

80.6

Malaysia

80.4

South

79.7

China

60.2

Indonesia

57

India

50.8

Australia

44.6

Philippines

30.3
0

Source: CLSA

(%)

10

20

30

40

50

60

70

80

90

100

ICICI Prudential India Recovery Fund Series 1

26

About the Fund


A 3.5 years close ended equity fund that aims to provide capital
appreciation by :

Investing in high conviction stocks.


Investing across market cap
Being sector agnostic.
Declaring commensurate dividends*.

*Dividends will be declared subject to availability of distributable surplus and approval


from Trustees.

Scheme Features
Type of scheme

A Close ended equity scheme

Investment Objective

The investment objective of the Scheme is to provide capital


appreciation by investing in equity and equity related securities
that are likely to benefit from recovery in the Indian economy.
However, there can be no assurance that the investment
objective of the Scheme will be realized.
Direct Plan Dividend payout Option
Regular Plan Dividend payout Option

Options
Minimum
Amt.

Application Rs.5,000 (plus in multiple of Rs.10)

Entry & Exit Load

Not Applicable

Benchmark Index

S&P BSE 500 Index

Fund Manager*

Mrinal Singh and Rajat Chandak

*Mr. Shalya Shah for investment in ADR/GDR/ Foreign securities

Appendix
Policy

Details

Resource Allocation

Re-auction of coal blocks;


Decision and Policy Paralysis;
All other mineral allocation will follow this methodology from
Economic Revival
now

Subsidy Reforms

Diesel Deregulation - Will help bring down Government's Oil


subsidy bill.
LPG subsidy likely to be under direct cash transfer

Fiscal discipline; Economic


Revival

Direct cash transfer

Direct benefit Transfers - 75mn accounts under Jan Dhan


Yojana;
Provided 700mn Aadhar cards till date.
Government plans to link benefit transfers to these account

Controlling corruption; Fiscal


Discipline

Food

Reforms on food sector.


Work on to cut wastage and inefficiency in the food
distribution system

Control inflation

Power

Power subsidy - wastage likely to be cut through feeder


separation scheme; 7 states already working on it;
Controlling corruption; Fiscal
GOI has announced a scheme to roll out across entire
Discipline
country; likely investment of $10bn towards this, likely to cut
losses by $4-5bn per annum

Source: Jefferies; GOI- Government of India

Manifesto/Promises

Appendix
Policy

Details

Manifesto/Promises

Restructuring of PSUs

Fiscal discipline; Economic


Appointment of PSU banks managers; shutting down of smaller
Revival; Controlling
PSUs which make huge losses
corruption

FDI in Defence

49% FDI through approval route

Strengthen defence sector

FDI in Railways

100% FDI in Railways infrastructure

Develop Railways

FDI in Construction

100% FDI in construction

Smart cities

Gas price hike

Increased to $5.6 from $4.2

Decision and Policy Paralysis

Smart Cities

Develop 100 smart cities to cater to growing urban population


in India

Urban development - Smart


Cities

REITs

Housing development and


REITS will allow easy pooling of investments in real estate and
Improving Physical
infrastructure spaces.
infrastructure

Clean Ganga Initiative

With 25% of Indian population living on Ganga banks, benefits


Environment
from a clean Ganga river could be multi-pronged.

GST

Introduced in parliament in December; political consensus


exists

Tax reforms

Source: Jefferies; GST Goods and Sales Tax; FDI Foreign Direct Investment; REIT Real Estate Investment Trusts

Mutual Fund investments are subject to market risks, read all scheme related documents
carefully.
In the preparation of the material contained in this document, the AMC has used information that is publicly available, including
information developed in-house. Some of the material used in the document may have been obtained from members/persons
other than the AMC and/or its affiliates and which may have been made available to the AMC and/or to its affiliates. Information
gathered and material used in this document is believed to be from reliable sources. The AMC however does not warrant the
accuracy, reasonableness and / or completeness of any information. We have included statements in this document, which
contain words, or phrases such as will, expect, should, believe and similar expressions or variations of such expressions,
that are forward looking statements. Actual results may differ materially from those suggested by the forward looking
statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to market
risks, general economic and political conditions in India and other countries globally, which have an impact on our services and /
or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign
exchange rates, equity prices or other rates or prices etc.
The AMC (including its affiliates), the Mutual Fund, the trust and any of its officers, directors, personnel and employees, shall not
liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential,
as also any loss of profit in any way arising from the use of this material in any manner. Further, the information contained herein
should not be construed as forecast or promise. The recipient alone shall be fully responsible/are liable for any decision taken on
this material.
Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial
implication or consequence of subscribing to the units of ICICI Prudential Mutual Fund.
The sector(s)/ mentioned do not constitute any recommendation/opinion of the same and ICICI Prudential Mutual Fund may or
may not have any future position in these sector(s). Past performance may or may not be sustained in the future. The portfolio of
the scheme is subject to changes within the provisions of the Scheme Information document of the scheme. Please refer to the
SID for investment pattern, strategy and risk factors

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