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Section E - Summary
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We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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1. The target returns are achievable with the right asset allocation.
2. We require diversifying into different Asset Management Companies
and into funds with different investment philosophies and mitigate
the risk of fund manager.
3. We recommend mutual funds as a transparent, liquid, high yielding,
professionally managed and tax efficient avenue that will enable
you to achieve desired growth in your wealth and at the same time
give you control over asset allocation in rapidly changing market
dynamics. Also MF vis-a-vis Direct equity would give you a much
larger representation of the market. We recommend portfolio of MF
rather than equity.
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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The Indian economy is performing extremely well and the Indian GDP is
expected to grow by over 7.5% in the current year. Besides the do-
mestic growth opportunities there are excellent avenues for growth,
which are emerging in the outsourcing areas. Currently the market cap-
italization of the Indian markets stands at Rs 18,00,00,000 Cr. against
a GDP of Rs 31,00,00,000 Cr. Over the next one year the Indian GDP
will grow at a nominal level of around 13% taking the GDP to Rs
35,00,00,000 Cr. At that GDP the market capitalization /GDP ratio in In-
dia will come down to nearly 50%. In our view this should be at a level
of more like 60% and increase further with time. This gives a potential
upside of nearly 15% to the markets over the next 12-15 months. Giv-
en the secular growth phase that Indian economy is passing through, it
is easier to estimate that after five years, assuming a normal profit
growth rate of 15% p.a. and reasonable PE’s, Sensex should be any-
where between 12000 (at 11 PE) to 16000 (at 15 PE).
The equity markets over long periods of time are slaves of earnings
and of growth in earnings. In fact over long periods of time returns
from equities must track corporate profit growth rates for very simple
reasons:
a) If markets continue to lag profit growth rates, the P/E’s will keep on
falling and ultimately start-approaching zero, which is not reasonable.
On the other hand, equities over short periods are simply volatile!
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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However, over the last 3-5 years, profits have grown at higher growth
rates of nearly 25% CAGR. Significant cost savings drove this mainly in
the manufacturing sector, significant de-leveraging and lower interest
rates resulting in a sharp fall in interest expenses, nearly flat
depreciation expenses as capital spending was minimal in the last 5
years (after significant capacity creation in mid and late 90’s) and a
cyclical upturn in commodity prices notably steel, aluminum and oil as
also a sharp rise in volumes of commercial vehicles, etc.
Looking forward over the next 2-5 years the expectations of growth
rates range between 12-18% CAGR. These are lower than past growth
rates because the incremental cost savings are relatively small, capital
spending is coming back as new capacity needs to be created which
will result in a gradual but steady rise in fixed charges, interest rates
have bottomed out and there are cost pressures from higher prices of
basic materials as also wage inflation. Finally, an appreciating currency
is also not good for margins on balance. A cyclical downturn in
commodity prices cannot be ruled out as well.
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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There is nothing like a “fair” PE multiple (if there was one, then shares
would not fluctuate because historic earnings in any case are known;
even 1 year forward earnings are known with reasonable accuracy).
However, it is possible to take a view on PE multiples whether they are
cheap or expensive. Let us look at the different ways to assess PE
multiples:
c) Our PE’s are also in line (actually somewhat higher) with the PE’s of
the region. However, there is a case to be made that Indian PE
multiples should actually be higher than PE’s of the region. This is
because of higher sustainable economic growth rate of our economy,
on account of size and diversified nature of our economy, on account
of low leverage in the economy and finally very low dependence on
exports, etc. Thus, even from this perspective the PE’s are not
unreasonable.
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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Prospects of markets
The above tables appear to have an upward bias for the Sensex even
at lower PE multiples. This is so because, earnings are expected to
grow in a growing economy and over time, the growth offsets fall in PE
multiples even if there is one. In fact, as the time horizon becomes
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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b) As PE’s are reasonable and will come down only over time as
profits grow, there is a need to increase the time horizon of equity
investments.
Three years or longer is a reasonable time frame in my opinion.
c) As the PE’s are reasonable and there are always risks linked to
events either locally or internationally, equity investors should be
prepared
for volatility, particularly over shorter time frames.
d) The risks to earnings are not as much across the board and are
more sectoral in nature e.g.
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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1. Invest into Equity Funds through SIPs/ STPs: This can be done on a
weekly basis over 2-3 months. It will give the benefit of 'Rupee-Cost
averaging’; where are cost for the full investment would be average
cost of all the entries done over the period.
Large caps that were significant under performers for months have
now started to perform. This is very positive for the overall stock
markets as most of the money of a large number of investors (be it
domestic or institutional) lies in large cap stocks. This will create lot of
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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liquidity in the system, which will be positive for the long run
performance of the stock markets.
Domestic Consumption
Infrastructure
India has witnessed high economic growth in last few years but lack of
quality infrastructure is acting as a speed breaker for sustaining the
same. For instance, the fund states that in India there are 710 phone
connections per 10,000 people as compared to 4,238 in China and
11,643 in US. Further 264,000 aircraft take-off in India, as compared
946,000 in China and 77,89,000 in the US. But with both Central and
State governments running into deficits, private participation is
actively encouraged. Some of the steps that the government has taken
so far to woo investors in the infrastructure sector include:
Service
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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Overall the yield in the bond markets remained volatile ahead of the monetary policy. The
RBI announced the monetary policy on Oct 25th. The RBI hiked the Repo and reverse
repo rates by 25bps. However the bank rates were left unchanged. The yield of the
benchmark 10-yr security touched a high of 7.18% on expectation of hike in reverse repo
rate but fell after the RBI announced the monetary policy. We recommend investors to
invest into short term income funds while investors having an investment horizon of
less than 3 months can consider Liquid Fund and Floating Rate Fund Short term
plan. In view of the above scenario we advise to consider allocation between Fixed
Maturity Plan and Liquid Fund. If Liquidity is not a issue than ULIP Plans could
also be considered.
Fixed Maturity Plan (FMP’s) - Fixed Maturity Plans invests in instrument whose
maturity is in line with duration of the plan, and hence FMP eliminates interest rate
risk as investment is held to maturity. FMP is a short-term debt fund with fixed date
of Maturity. Current Yield is around 8%.
DEBT ALLOCATION
Among the Floating Rate we would recommend you to invest in the following ones.
PAST PERFORMANCE
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
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The following Four (5) funds would capture the growth stories
in the respective segments over the next 3-5 years. We have
also given the % exposure of these funds in the above three
themes.
Sr. No. Name of the Fund/ Scheme Amount in Rs. Type % Allocation
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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HDFC Prudence Fund is one of the best-balanced funds. The fund invests around 60-
65% in equities and the rest in debt and money market instruments. The fund has
returned around 58% in the past year, as against its benchmark return of 28%. The
fund follows a portfolio rebalancing strategy of booking profits on its equity
investments on a regular basis, thereby reducing the risk level and sticking to its
asset allocation. Under equities, the fund invests in a mix of large and mid cap
stocks. Under debt, the fund follows a passive investment strategy.
We also believe that the portfolio must have a structured risk policy which
suits the profile. Our suggestion on the risk policy on the portfolio would be
:
2. Although, we believe that there should be risk monitoring in the form of a stop
loss for the equity portfolio (in accordance to the risk appetite), we feel that it can
be reviewed by the investment committee if the stop loss is hit due to
unexpected events like the Intra-year rise in inflation, Deficient Monsoon fall,
Volatility in Oil Prices & Political instability. Thus in our risk policy we separate the
risk due to a wrong investment decision which must be rectified and the risk due
to an event which may just be short term impact rather than a long term effect
4. We recommend review of the portfolio once every three months for any
rebalancing that is needed through a detailed review of portfolio balancing needs,
the market view and the tactical allocation at that point of time.
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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market outlook). These return expectations must be aligned to the market trend.
Future cash flows would be integrated into the portfolio and rebalancing
done whenever these flows are seen.
Section F - Summary
5. The approach is one of long term investing (60 months and above).
Samrat Bose
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
Equities & Private Banking
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Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.