December 2017 Volume 07 12
Bitcoin a story of how to get out than get in
A few platform updates
Greetings from
FundsIndia!
Before I get into the
subject matter - a
quick reminder if you havent
linked your Aadhaar number to
your FundsIndia account yet, do so
ASAP. This needs to be done by
the end of December 2017.
Over the last few of weeks, we have
released several updates to make it
more convenient and paperless for
you to invest.
First, you can now setup a SIP
without any paper mandate. At this
time, this feature is available only to
customers of HDFC and Axis
banks, and we hope to make it
available to more (ICICI to start
with) soon. This Standing
Instructions feature means you will
be able to instantly setup a SIP and
make it operational just using
net-banking.
Second, is a new version of the
Android app - with two important
functions. First, is the ability to
redeem funds, second, is enabling
UPI (BHIM) as a payment option.
We are the first platform to enable
UPI as a payment method for
mutual fund investing.
Theres more in the works for
December, and I hope to bring you
similar glad tidings in a months
time.
Happy investing!
Srikanth Meenakshi
Co-Founder & COO
FundsIndia.com
When many of you ask us about investing in gold, we often tell you that gold
has no underlying value; no fundamentals. Demand and supply drive golds
price. The more you buy gold the higher the prices will move. Gold has no
value of its own and yet it finds some use.
Bitcoins are not too different from the above scenario except for one key
difference: unlike gold, its inherent use is debatable. It appears that bitcoins
are bought only for FOMO (fear of missing out), as the Economist magazine
calls it. They are not bought like gold for use as jewellery or store of value
as of now. Is there any significant value of transactions that happens through
bitcoins in India? Yes, some items can be bought online using bitcoins but
reports suggest that most people who buy bitcoins, do so only on
expectations of enormous gains. To this extent, like any other currency,
bitcoins use as a medium of exchange does not appear to be a motive among
its buyers.
Second, even assuming that it is used for buying stuff, the volatility that
bitcoin shows makes it a terrible medium to buy goods. Can you imagine
paying your EMI using bitcoins? Yes, one can argue that with exchanges like
Nasdaq planning bitcoin derivatives, it is possible that it may not be too
volatile. But then, it may also thwart the soaring prices of bitcoins, which
primarily happens today because supply is limited. This is because once there
are contracts to bet on its future price, the price may not be unidirectional
like it is now.
All said, think about this before you start a conversation on buying bitcoins:
how many people have spoken of selling bitcoins? Not many today, as we are
still in the buying mode. What if many people felt that they have huge gains
and try to sell them? Will they be able to get out? The price of any asset that
is illiquid (including real estate) can rocket when more people flock for that
asset. What happens if that demand wanes? For a digital coin, that has no
state recognition as a medium of exchange, no regulation in terms of its use,
no nations law is going to save you when a bubble happens. When an
assets value remains unknown, the depth of its fall can be
unfathomable. Stay safe!
Vidya Bala
Head Mutual Fund Research
FundsIndia.com
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Year Award at the for Online Advisory Active Customer Engagement
Frost & Sullivan India Digital at the CII Award for
Transformation Awards Customer Obsession
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 Is the market rally backed by fundamentals?
Whether it was bank recapitalization or infrastructure spending or the recent upgrade of India
by Moodys, every opportunity has been used to propel the stock market. With the kind of
run-up, the stock market has had this year (25% returns in Nifty in the past 1 year) it is necessary
to examine whether the rally was merely driven by positive sentiments or backed by some
fundamentals that is earnings growth. This will also tell us what opportunities were tapped and
what remains to be tapped. It will also caution us as to what to expect from fund managers, both
Vidya Bala in terms of performance and strategy.

The September quarter of FY-18 is a good point to assess September quarter would have been less robust at
corporate performance for multiple reasons: it has seen a 9.7%. This means, the heavy-weight banking
quarter post GST implementation; it provides enough sector has stopped weighing on equity earnings
time to review performance post demonetization and it is and that is an important clue. Earnings support
a period when the benefit of low commodity price no from this sector can provide significant boost to index
longer exists. Above all, it is a period after most banks earnings.
have taken the worst hit in their books on NPAs.
For the broad market (1977 companies with
Before we get into details, here is a synopsis of the results consolidated results, wherever applicable), sales growth
itself. was at 8% year-on-year while net profits declined by
Earnings recovering close to 2%. The earnings growth may appear poor
here but needs to be broken down to understand why
Growth over a year it appears so. The broken-down numbers tell us that
ago quarter the muted performance in the broad market were
influenced by few large companies with depressed
Nifty Sep-17 Jun-17 numbers such as Reliance Communications, MTNL or
Sales 10.6% 9.9% textile company Alok Industries.
Net profits 12.2% -0.5% However, the trend becomes clearer if we break down
the universe in terms of market cap. Larger
companies did better than smaller ones. Stocks
Broad market (1977 companies) Sep-17 Jun-17 with market capitalisation of over Rs 5,000 crore did
Sales 7.9% 7.7% well with a sales growth of 9% and profit growth of
Net profits -1.8% -10.7% 8%. For stocks with market-cap of less than Rs 5,000
crore, sales growth was just 3.3% and it had losses at a
Includes consolidated numbers where applicable. Source: Cline. net level. Here again, few stocks from infrastructure,
Growth is over the same quarter of last year paper, steel, textiles and telecom bogged down results.
In other words, the trend in the Nifty is more or less
The bellwether index of Nifty saw a double digit in representative of the larger universe of stocks with
sales in the September quarter (over a year ago) and market cap of over Rs 5,000 crore.
importantly saw a double-digit growth in earnings, after
six quarters of muted earnings. That basically In our universe of 1977 companies, more companies
suggests an earnings revival. (53% of the universe) saw an expansion in profits
in September quarter (over a year ago) as opposed to
Banking stocks buttressed the Nifty sales and earnings 47% in the June quarter. But this trend is more
growth. Without banks, the earnings growth for the pronounced with larger companies. 64% of the

Talking about recapitalisation of the public sector banks, I think it is a very important and a positive
step because one, it gives the banks the capital to be able to resolve assets. Secondly, it gives the banks
the capital to be able to grow their business.
Chanda Kochhar, MD and CEO, ICICI Bank

www.fundsindia.com
 companies in our universe, with market cap above Rs Whats the summary here?
5,000 crore saw an increase in profits as against 53% in Core sectors, that is, those that feed into other
the June quarter (over a year ago). Here again, quality industries (steel, energy, cement) are showing uptick,
companies (larger market cap) are clearly leading especially in sales. As far as mutual funds are
the profit growth. concerned, many of them have already built
Cost under control positions in this space and are benefitting from
Fear of increasing crude oil and other commodity input them.
prices hurting profit margins, were not reflected in the The capital goods and engineering space again is a
September quarter earnings. Profit margin before interest mixed bag - not providing clear signals. And yet, this
and tax depreciation at 17.5% did not also see much of a could remain one segment where a bottom up
fall from the 17.6% margin a year ago. approach by fund managers, picking good stocks at
Interest cost seems to be under check but for stressed reasonable valuations may still work as both
sectors (telecom, textiles) and a few companies that have performance and valuations remain very divergent
seen marked increase in borrowing (Reliance Industries within the sector.
for itself and for Jio). In all, for now, there does not appear The service sectors: Financials and IT are showing
to be any major concern on the cost and margin front. signs of momentum. While the former has received
Sector trend high weights in most funds, the latter appears to be a
contrarian play in some funds. IT appears to be one
Like we saw in the case of broad market earnings, the space where the valuations are relatively lower
influence of certain sectors can skew the larger picture. compared with most other sectors with earnings
Hence, a quick look at the sector trend would also help growth. The service space offers a fine mix of cyclical
clear the picture. growth story (banks and insurance) and a defensive
play (IT) and may turn out to be the return generators
Sectors with marked shift in earnings growth
for fund portfolios. How well fund managers play this
Qtr. ending Qtr. ending mix will determine their performance in the next
Sectors couple of years.
Sep-17 Jun-17
FMCG 15.4% 0.4% The consumer space is a mixed bag with some
segments showing better growth than others. The
Crude oil & natural gas 4.0% -9.50% urban play appears to be ticking as suggested by profit
Gas distribution 34.1% -10.2% numbers for hotels and restaurants, breweries, or a
Petrochemicals 30.2% -54.8% proxy like air travel but a rural influence on the
consumer growth story may be needed to provide a
Power generation -3.9% -16.0%
fresh trigger. Having said that, as is the case with few
Agro chemicals 26.0% -3.5% sectors, the FMCG sector too is not cheap in terms of
Refineries 31.2% -26.7% valuations. Select stocks could deliver if their valuations
are relatively attractive to others.
Automobile 28.3% 5.0%
Infrastructure 36.8% 4.5% The pharma space, dispelled the earnings gloom of the
previous 2 quarters and showed sequential recovery.
Air transport 230.0% 33.0% And yet, we think the sector remains uncertain for
IT 5.90% 0.20% several reasons: For one, while companies with a
Pharma 9.30% -64.00% domestic rebound showed less uncertainties, those
with US exposure remained volatile. Two, even within
Includes consolidated numbers where applicable. Source: Cline

The earnings have come as the breath of fresh air and one can look forward to better earnings due
to base effect and disruptions behind us.
Gautam Duggad, Head of Research-Institutional Equities, Motial Oswal

www.fundsindia.com
 those with US exposure, while some companies have Summary: While the economy as a whole may have seen
gained others have lost. While at some point there may a lack of capital expenditure, in the listed space and within
be faster FDA clearances and issues clouding approvals pockets, there has been asset addition and borrowing. It is
may wane, whether a price erosion from true that fund houses have already picked the trend and
commoditization of generics would change the profit invested in some while opportunities remain in others
structure of these companies remains a question. To where the asset addition has been more recent.
this extent, unlike IT (another contrarian sector What can funds do
now), we think pharma could deliver only if the
stocks are chosen with care, inspite of the At a broad level, the growth story, when juxtaposed with
seeming value available across the sector. valuations, does not post a pretty picture in terms of
potential. When broken down into stocks, there emerge
Is there no capex? opportunities.
While the sales and profits numbers tell us what The results and the way fund managers have moved about
happened, another segment of corporate numbers can picking stocks tell us the following:
well tell us whether companies are expecting more
business to come by. Asset addition is one such indicator. Fund managers, especially with multi-cap strategies
have a bias for larger companies and numbers suggest
Whether it was replacement cost or consolidation or fresh that it may be the right thing to do given that larger
capacities, what is visible is that certain sectors have seen companies have shown improved growth this time
a ramp up in assets. The interesting part is that in sectors around.
where the fixed asset additions have come by earlier
(March 2017), the revenue increase is only too visible. Fund managers have already benefitted from the
Consumer durables, auto ancillaries, cables, refineries are sectors with a clear trend of uptick in sales or earnings.
all classic examples where it is already reflected in terms of This includes stocks in sectors such as such as energy,
higher production and sales. However, in the case of steel, consumer durables, construction.
engineering, cement and glassware and sanitary ware Not all fund managers have spotted the right stocks in
(indicative of uptick in housing) and textiles, the asset sectors such as capital goods, cement, pharma or
addition may yet translate into sales, if demand indeed fertilizers. In these sectors, only a pure stock selection
exists. approach, rather than a sector call would have paid.
Sectors Increase in Fixed assets Banking sector will likely emerge as a secular call with
Sep-17 Mar-17 fund managers even as they play the corporate credit
Consumer Durables 25% 13% revival story through corporate banks; cautiously
Auto ancillaries 14% 15% mixing it with the more stable retail banking story.
Tyres 19% 34% Some bold calls on sectors such as IT, pharma, or
Cables 21% 17% capital goods besides pockets of energy and smaller
Engineering 19% 0% pockets in housing allied sectors could be make or
break calls for some contrarian managers.
Cement 14% 1%
Glass & glassware 16% -1% Vidya Bala
Sanitary ware 12% 5% Head Mutual Fund Research
Crude Oil & Natural Gas 18% 8% FundsIndia.com
Refineries 18% 20%
Textiles 18% -2%
Increase in fixed assets compared with a year ago date. Source: Cline

In the investment game, you are likely to, at best, get it right in seven out of 10 stocks you buy. Over
a period of time, you get used to going wrong in a controlled manner.
Samir Rachh, Fund Manager, Reliance Mutual Fund

www.fundsindia.com
 Why the point-to-point returns are misleading

The 1-year returns of funds today can paint a very bright picture of performance. A
chart-topping small-cap fund, for example, today sports a 1-year return number in excess of
50%. Even a sedate large-cap fund seems like it is a good one with a 30%-plus return. But these
figures change very quickly and going by the 1, 3, and 5 year returns can be misleading.

Bhavana Acharya
Point in time previously underperforming fund could show higher
Take the average return for large-cap funds. As of 1st returns as it begins to improve or vice versa.
December, it was 25.7%. The average return Fluctuation in 1-year (%) returns

mid-and-small cap funds clocked was 35.1%. But just 80.0

100.0 18.0

three months before this on September 1st, the average 60.0

16.0
14.0

1-year return for large-cap funds was 16% and 20% for 40.0
12.0

mid-and-small cap funds. Three months before this, on

10.0
20.0 8.0

June 1st, the 1-year returns for the two categories were -20.0
6.0
0.0
4.0

22% and 31% respectively.

2.0
5-Dec-12 5-Dec-13 5-Dec-14 5-Dec-15 5-Dec-16 5-Dec-17
-40.0 0.0

Returns such as these, or 3-year, or 5-year or any period

Source: ICRA MFI Database
Diversified funds Largecap funds Midcap funds Dynamic bond funds (RHS)

for that matter, are called point-to-point returns. They are

simply the returns calculated between two particular dates.
It shows performance at a particular point in time and not
performance over a period of time.
The first point to note about these returns is that they are
influenced either by what happened on the start date or on
the end date. So if markets were down on the start date,
the returns may look higher and vice versa. Take the
current 1-year returns. In December 2016, stock markets
Secondly, point to point returns ignore everything that
happens in between the two dates. This is especially
important while looking at longer term point-to-point
returns as markets may have gone through different
phases in the interim. The graph below shows the
monthly movement in 5-year returns for different equity
fund categories, over the past 7 years.
Fluctations in 5-year returns

were still grappling with the ramifications of the currency

30

note withdrawal. Therefore, the 1-year return in

25
20

December 2017 looks much better than that in September

15

2017. Similarly, dynamic bond funds and gilt funds

10

sported double-digit 1-year returns in December 2016 and

5
0

today show either 1-year losses or low single digit returns.

4-Feb-11 4-Feb-12 4-Feb-13 4-Feb-14 4-Feb-15 4-Feb-16

This is because bond yields dropped during the

Source: ICRA MFI Database
Diversified funds Large-cap funds Mid-cap funds

demonetisation period but have surged higher now on a

range of concerns. A 5-year return today ignores the fact that markets
corrected somewhat in 2013. A 5-year return figure in
The graph below shows the daily movement in 1-year
2016 does not consider the fact that markets had three
returns for different fund categories in the past three
different phases in these years. If funds were ranked
years. Notice how they much they can move over the years
according to 1 year returns at the start of every calendar
and even on a daily basis. Apart from market effects, fund year, there would be a different set of funds each time.
returns could also be influenced by its management a

Look at how the economy is growing. Look at the inherent growth. You can't but be optimistic
from a 5 to 10-year perspective. But you have to be careful from a shorter-term perspective.
Chirag Setalvad, Senior Fund Manager - Equities, HDFC Mutual Fund

www.fundsindia.com
Implications
FundsIndia Select Funds
Given these daily movements in returns, drawing
conclusions from looking merely at 1-3-5 year returns on Tax-saving (ELSS) funds
a day would therefore be misleading. If one fund had Equity-oriented funds with a lock-in of three years.
returns of 15% and another 17% today, tomorrow it Qualifies for deduction upto Rs 1.5 lakh under Section
could change to 16% for the first fund and 16% for the 80C of the Income Tax Act, in the year of investment.
second one simply on account of market and fund activity.
Similarly, a fund that is just improving performance may Moderate Risk
look much better than it actually is. It's also easy to base 1. Axis LT Equity Fund (G)
return expectations on the current returns and a wrong 2. DSPBR Tax Saver Fund-Reg (G)
conclusion may be drawn either because returns were low
3. Franklin India Taxshield (G)
or returns were high.
4. Invesco India Tax Plan (G)
The way to avoid being influenced in this manner is to
look at returns over a longer period. Comparing average High Risk
1-year or 3-year returns over a particular period, for
example, will take into account market cycles and present 1. Aditya Birla SL Tax Plan (G)
a more realistic picture. Looking at calendar performance 2. ICICI Pru LT Equity Fund (Tax Saving) (G)
for several years will similarly show fund performance in 3. Tata India Tax Savings Fund-Reg (G)
better light.
To view our complete list of Select Funds, click here.
Bhavana Acharya
Deputy Head Mutual Fund Research
FundsIndia.com

www.fundsindia.com
Technical View Nifty
The Nifty reached a high of 10,490 earlier in November,
but failed to keep momentum and slipped below its
crucial support level of 10,400. It witnessed a free fall to
test a low of 10,094 for November. The Nifty has formed
a strong base around 10,100 levels. The short-term trend
will remain bearish as long as the index trades below
10,270. With the Nifty trading below the 21-day Simple
Moving Average (SMA) of 10,290, we believe the bears
are firmly in control. Crucial support for is at 10,095 and
9,960. Resistance is at 10,270 and 10,400. A close below
9,960 will take the index lower to test 9,700 levels.

Adani Ports Ltd CG Power

Adani Ports has declined sharply from the high of Rs.
443 to test a low of Rs. 377 in November. It has bounced
back from major support level of Rs. 379. Currently, it
trades below the latest 21-day SMA of Rs. 409. We can
expect a fresh up move above Rs. 405. We recommend
investing in Adani Ports for a medium-term target of Rs.
443. Resistance is at Rs. 405 and Rs. 416. Strong support
is at Rs. 379 and Rs. 360. Stop loss is at Rs. 359.
CG Power is currently trading in a wide range between
Rs. 76 to Rs. 90 for the past 7 months. Currently, the stock
needs to trade above breakout level of Rs. 90 to trigger a
strong upside momentum. Major resistance is at Rs. 97.
Strong support is at Rs. 82 and Rs. 76. The long-term
trend remains bullish. The latest 15-day SMA is at Rs. 84.
We recommend investing in CG Power at the current
market price (CMP) for a target of Rs. 102, with stop loss
at Rs. 75.

This column is targeted at investors who are registered customers of Perumal Raja
FundsIndia for trading and investing in equity as well as prospective Technical Analyst - Equity Research Desk
investors who wish to open an equity account with FundsIndia. FundsIndia.com
Disclaimer: Mutual fund investments are subject to market risks. Please read the scheme information and other related documents before
investing. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund,
or designing a portfolio that suits your needs. Wealth India Financial Services Pvt. Ltd. (ARN code 69583) makes no warranties or
representations, express or implied, on products offered through the platform. It accepts no liability for any damages or losses, however
caused, in connection with the use of, or reliance on its products or related services. The terms and conditions of the website are applicable.
Think FundsIndia, a monthly publication of Wealth India Financial Services Pvt. Ltd., is for information purposes only. Think FundsIndia
is not, and should not, be construed as a prospectus, scheme information document, offer document or recommendation. Information in
this document has been obtained from sources that are credible and reliable in the opinion of the Editor.
Publisher: Wealth India Financial Services Private Ltd. Editor: Srikanth Meenakshi

About us: FundsIndia is Indias friendliest online-only investment platform. Built on robust technology, FundsIndia
gives users access to mutual funds from leading fund houses in India, stocks from the BSE, corporate fixed deposits
and various other investment products, all in one convenient online location. In short, FundsIndia is your one stop
shop to build wealth.

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Q&A
Q: STP works best as a defence mechanism when the
market is volatile or falling. This is when rupee cost
averaging comes into play and helps overcome risks.
However, when the market is rising as it is now, the
purchase price will always be high. One can expect fairly
good returns on a balanced fund, so why can't one run
an STP from a balanced fund over say 1-2 years? This
coupled with transfer to equity fund may result in
relatively better returns than an STP from a debt fund. I
also read an article that said an STP resulted in fewer units
bought than in a lump sum.
A: A balanced fund can fall only slightly lower than the
market. Why would you want a from fund to be volatile,
losing capital even before you transfer it? The idea is to
invest systematically into the equity market from your
liquid money and in the process, earn little more than the
savings rate in the liquid money.
@FundsIndia
Were happy to announce new updates to our
platform.
We launched Standing Instructions, a feature that
enables HDFC Bank customers to instantly set up
SIPs without any paper mandate, using just their
net-banking account to set up an e-mandate.
On our Android app, weve rolled out two new
features - UPI as a payment option; and the
redemption feature. UPI is supported by 58 banks,
and investors can take advantage of the technology
for smoother, faster payments.
On iOS, equity investors can now view their stock
holdings. Were working on constantly upgrading
our apps to deliver more value to customers.
Let us know what you think of these features at
support@fundsindia.com.
An STP is simply a modified SIP. In an SIP, the money is
in your savings bank. In an STP, it is in a liquid fund,
earning slightly higher. STPs, if done for short periods,
have to be followed up with SIPs, since STP or SIP have
to be run for longer periods to actually average in the
markets. Looking at STP returns run for very short
periods and in a unidirectional up-trending market is a
flawed assumption. Comparing a lump sum investment
and an STP is also incorrect. What if you had invested
the lump sum in 2008? You will be sitting on losses even
after 3 years. If a SIP is useful, so is a STP. Neither SIP
nor STP will work unless you do it for 3-5 year timeframes
or have a long holding horizon.
Vidya Bala
Head Mutual Fund Research
FundsIndia.com
Investment Quiz
1. Which country has launched new virtual currency
Petro?
2. Indias first crypto-currency exchange Coinome has
launched by which payment gateway?
3. Under whose chairmanship the 15th Finance
Commission has been constituted by the Union
Government?
4. Which bank has launched a unified integrated app
YONO (You Need Only One) for financial services?
5. Which Indian personality has been appointed as
advisory board member of the Financial Stability
Institute (FSI) of the BIS?
Please click here to submit your answers.
Answers for November 2017 Investment Quiz: 1. 6.7% 2.
Multi-Commodity Exchange of India Ltd (MCX)
3. Suresh Sethi 4. 100th 5. 65 years.
The winner of the November 2017 Investment Quiz is
Naveen Muthusamy.
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