A Monthly Bulletin From HDFC securities January-19 | Vol.

: 03 | Issue: 1

6 LESSONS
to learn from the
MARKETS IN 2018

Page 1
 6 lessons to learn from
the markets in 2018

Investors have
to learn the art of
dissecting the
politicians’ statements
and analysts’ projections

Dhiraj Relli
MD & CEO, HDFC securities

Correlations in the financial markets are not sacrosanct; they keep evolving. While interest
rates kept rising in 2018, the P/E ratios also kept rising (vs the traditional thought process
which suggests the inverse of this). Low inflation, which at one point in time was considered
to be good for the economy, is no longer considered in the same way especially if the inflation
remains low for extended periods.

In a globalised economy, Indian equities could get hit for no fault of ours. The trade tiff
between US and China has apparently to do very little with India, but the repercussions that
it could have on global growth momentum has a possibility of hitting our growth.
Risk sentiments of investors globally are very fickle. They tend to change in opposite
directions with little incremental newsflow or developments.

Political leaders and their statements (now even through social media platforms) have a
profound impact on the directions of the market. One will have to develop the capability to
decipher as to what is the actual meaning of the apparently simple statement by a politician
(posturing vs intent). Politicians are nowadays trying to goad regulatory agencies in a
particular direction backed by their hold over the electorate.

Statements by corporate chieftains and CFOs have to be taken with a pinch of salt; though
they are aware about their limited hold on evolving situations, they behave as if they are in
the know of all things. Their agenda is more to maintain the stock price levels than to give
a fair outlook to investors. Repeated disappointment over earnings proves this. The same
applies to most of the analyst community who are largely bullish on company prospects and
underestimate the impact of sector dynamism/disruption on the company’s performance.
Investors have to learn the art of dissecting the politicians’ statements and analysts’
projections in this background.

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Continued...
 6 lessons to learn from
the markets in 2018
Continued...

Investors should realise that media claims the right of the freedom of speech, and hence has
to face little regulatory control as compared to research analysts appearing thereon. Hence
the discussions by media hosts/reporters on company stocks need to be viewed in this
background of lack of accountability.

Track the sources of inflows more closely. This will give an indication of the emerging technical
position of the market and the segments where action is likely to happen (whether large cap
or mid/small cap). Large FII flows in a short period could mean a rally that is more broad-
based, while a MF SIP-led rally could mean more focused buying with narrower breadth.
Market performance may not be reflected in your portfolio valuation. Investors in 2018
has seen their portfolio values significantly underperform the Nifty changes. Action has
been limited to fewer stocks in 2018 with underperformance across most small and midcap
stocks. Hence even though equity as an asset class is needed to build wealth, stock selection
and right exit (mostly to book profits without being too greedy and sometimes even at small
loss) have become even more important.
Mutual funds sahi hai…but why pay expenses to fund managers when their large cap funds
underperform their benchmarks. In 2018, we have witnessed this phenomenon more glaringly,
bringing out the utility of low-cost index funds/ETF over most large cap funds.

Page 3
 2019 -
What to expect

Outlook on markets and sectors for 2019

The broader market could do well especially in H2CY19 on expectations of an earnings
pickup among Indian corporates post Q4FY19, along with the resumption of FII flows into
India around and post the general elections time. Mutual fund inflows in India are on a
structural upmove driven by greater financialisation of savings. Softening stance (including a
probable rate cut) by the RBI in early 2019 could help valuations.
Continuation of trade tiffs, resumption of bullishness in crude oil prices, continuation in rate
increases by the US Fed and unstable outcome from general elections remain key risks to
achieving the above.

Nifty targets
The Nifty has the potential to touch 12,400 during CY2019. This is based on various factors,
namely the expectations of an earnings pick-up in Indian corporates post Q4FY19, and the
resumption of FII inflows to the Indian markets around and post the general elections.

Performance of equities viz-a-viz other asset classes

Gold and debt could post 6-9% returns in CY19. Equities could yield more than that, but
with heightened volatility. Hence, timing the entry and exit will be even more important in
CY19 for fresh investments.

Investment advisory for retail investors

Investors have become more choosy about governance and capital allocation decisions
made by the companies’ managements. Many small-cap and mid-cap companies and even
some largecap ones may fail the test of survival in an era of constant disruption – be it
owing to regulations, technology or capital availability. Retail investors should learn from
market moves, and may also want to upskill themselves regarding the ways of the markets,
and individual stocks’ financials/valuations. A staggered investment in direct equities
after sufficient due diligence may result in lowering their risks, in an era when the world is
witnessing a paradigm shift in business models and the valuations assigned to them

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Page 5
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Page 6
 PRODUCT OFFERINGS
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 PRODUCT OFFERINGS
National Pension Scheme

What is NPS?
The National Pension Scheme is a contribution based retirement scheme regulated by
PFRDA, which is backed by Govt. of India. It helps you build a retirement corpus in a
systematic manner during your working life.

Why NPS?

Affordable & Cost Effective

You can start investing as low as Rs. 500 per transaction and Rs. 1000
per year. Compared to other asset classes of NPS if invested in equity,
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Page 8
 Pick Of The Week

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Industry INFRASTRUCTURE
Recommendation Buy at CMP and add on declines
Target Rs. 445
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Page 9
 MUTUAL FUNDS
RECKONER

Scheme Fund 6 Value Morning

NAV 1 Year 3 Year 5 Year Crisil Risko-
Name & Size Months Top holdings Research Star
(Rs) Return Return Return Rank meter
ISIN (Crs. Rs) Return Rating Rating
Equity Funds
Equity: Multi-cap (min 65% in Equity)
ICICI Pru
ITC, NTPC, Vedanta, SBI, Moderately
Multicap 282.45 3024.22 3.57 0.20 12.20 16.88 CPR 2 4 Star 4 Star
Sun Pharma High
Fund (G)
Mirae Asset
HDFC Bk, Reliance Ind, Moderately
India Equity 48.15 9697.09 3.56 -0.63 14.16 18.84 CPR 1 5 Star 5 Star
ICICI Bk, TCS, Axis Bk High
Fund (G)
Equity : Large-Cap (min 80% in Large Cap)
HDFC Top
ICICI Bk, HDFC Bk, HDFC, Moderately
100 Fund 464.45 14961.22 6.37 0.13 12.75 14.55 CPR 2 5 Star 4 Star
INFY, ITC High
(G)
Reliance
ICICI Bk, SBI, NTPC, ITC, Moderately
Large Cap 33.27 11410.20 5.62 -0.20 12.18 17.16 CPR 2 4 Star 4 Star
L&T High
Fund (G)
Equity : Large & Mid-Cap (min 35% each in Large & Mid-Cap)
Canara
Robeco HDFC Bk, ICICI Bk, Axis Moderately
89.03 3936.88 -2.24 -9.24 12.24 25.66 CPR 2 5 Star 5 Star
Emerging Bk, SBI, L&T High
Equities (G)
Invesco
India
HDFC Bk, Reliance Ind, Moderately
Growth 32.80 969.33 1.05 -0.24 12.89 16.51 CPR 1 4 Star 4 Star
ICICI Bk, TCS, Indusind Bk High
Opport
Fund (G)
Equity : Mid-Cap (min 65% in Mid-Cap)
Berger paints, RBL
L&T Midcap Bk, Torrent Pharma,
133.13 3437.91 -1.68 -11.97 13.72 24.22 CPR 2 5 Star 5 Star High
Fund (G) Cholamandalam Invts,
City Union Bk
Balkrishna Ind, Sunda-
HDFC Mid-
ram Fasteners, Torrent Moderately
Cap Opport 53.49 20320.85 -2.43 -11.14 11.87 21.21 CPR 3 4 Star 4 Star
Pharma, Cholamandalam High
Fund (G)
Invt, Aarti Ind
Equity : ELSS (min 80% in Equity)
Aditya Birla Honeywell Auto, Gillette,
Moderately
SL Tax Relief 30.90 6984.25 -0.83 -4.52 12.20 18.97 Reliance Ind, Bayer CPR1 5 Star 4 Star
High
‘96 (G) CropScience, Pfizer
AXIS Long
HDFC Bk, TCS, Kotakmah Moderately
Term Equity 42.90 17626.14 -0.25 2.65 11.89 19.95 CPR 2 5 Star NA
Bk, Pidilite, Maruti Suzuki High
Fund (G)

• NAV value as on Dec 31, 2018. Portfolio data as on 30th Nov, 2018 wherever available.
• Returns are trailing and annualized (CAGR).
• The notations '5 Star & CPR 1' (used by VR & Crisil respectively) are considered as top in respective rating and ranking scales. NA = Not Available.
• The performance of the funds are rated and classified by Value Research in the following ways. Top 10% funds in each category were classified ‘*****’
funds, the next 22.5% got a ‘****’ star, while the middle 35% got a ‘***’, while the next 22.5% and bottom 10% got ‘**’ and ‘*’ respectively.
• The criteria used in computing the CRISIL Composite Performance Rank are Superior Return Score, based on NAVs over the Quarter Ended Sep 2016,
Based on percentile of number of schemes considered in the category, the schemes are ranked as follows: CPR 1- Very Good performance, CPR 2 - Good
performance, CPR 3 - Average performance, CPR 4 - Below average and CPR 5 - Relatively weak performance in the category.
• Schemes shortlisted based on the corpus (1% of category corpus or Rs.500 cr whichever is less), age and those open for fresh lumpsum subscription.
Final picks arrived from return score (respective weightage given for rolling returns and trailing returns generated from the last 7 years NAV history for
1m, 3m, 6m, 1yr, 2yr & 3yr) and risk score.
• The mutual fund riskometer is a simple representation of the risk a fund carries. It is a level of risk involved in the particular scheme. The level of risk
in mutual fund schemes are five i.e. Low - principal at low risk, Moderately Low - principal at moderately low risk, Moderate - principal at moderate risk,
Moderately High -- principal at moderately high risk, High - principal at high risk.

Page 10
 CORPORATE FIXED
DEPOSITS

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Company Name 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr Credit Rating

Bajaj Finance Ltd. 8.00% 8.15% 8.75% 8.75% 8.75% CRISIL- FAAA & ICRA - MAAA
Shriram Transport 8.25% 8.50% 9.00% 9.00% 9.25% CRISIL - FAAA & ICRA - MAAA
Mahindra Finance Samruddhi 8.10% 8.50% 8.80% 8.80% 8.80% CRISIL Rating - FAAA
PNB Housing Finance Ltd. 8.30% 8.30% 8.40% 8.40% 8.45% CRISIL - FAAA
HDFC Limited 7.98% 7.98% 7.98% 7.98% 7.98% CRISIL- FAAA & ICRA - MAAA
LIC Housing Finance 8.15% 8.20% 8.25% - 8.30% CRISIL - FAAA

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Page 13
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Page 14
 Food For Thought

"I will tell you how "We don't have to be smarter

to become
rich. Close the doors. than the rest; we have to be
Be fearful
when others are greedy.moreBedisciplined than the
greedy when others are fearful." rest."
- Warren Buffett -Warren Buffett

Warren Buffett is an American business magnate,

investor, speaker and philanthropist who serves as the
chairman and CEO of Berkshire Hathaway.

CALL 39019400 PREFIX LOCAL AREA CODE. (0 + LOCAL AREA CODE +

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registration no. INH000002475.

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