Monthly Communiqué Portfolio Management Services Regn No. PMS INP 000000670 January 2015 Dear Investors and my dear advisor friends, Greetings of the festive season! Wish you a Happy New Year 2015. The entire team at Motilal Oswal Asset Management and our families join in wishing you the best of everything in 2015. May the new year bring along all that you wish for! 2014 has been a great year for the markets and for investment scenario in general. The year started with huge amount of scepticism with regards to prospects for the Indian economy, politics and the resultant investment scenario. But we witnessed a watershed election that changed the course of events and finally we have ended the year with a 31% (absolute) gain on the S&P BSE Sensex (Source: www.bseindia.com). Along with turnaround in political scenario we have also seen declining inflation, early signs of improving economic performance and to top it all a dramatic fall in crude oil prices. My reading of research papers from a lot of international investors tells me that India is being viewed as one of the few bright spots in a relatively gloomy global economic scenario. While rest of the world is fighting slowdown and deflationary trends, India is one of the few countries where we are seeing inflation and reviving economic growth. In the first 8 months of this financial year, equity mutual funds have seen an inflow of nearly Rs 45,000 crs or USD 7.5bn (Source: www.moneycontrol.com). With land and gold prices going nowhere and deposit rates beginning to decline, we are expecting Indian investors to divert more and more of their savings into equities in the next 12 to 18 months. Sentiment can also be gauged from the fact that India ranks no.1 on consumer confidence globally in a survey conducted by Nielsen. Source: (http://in.reuters.com/article/2014/10/29/global- economy-nielsen-idINKBN0II06620141029). This is reflected locally in the increased sales of auto and some of the consumer products in our market. All in all, we are not only expecting the good times to continue, we also believe that this is just the beginning! We would urge everyone to review the asset allocation and ensure a healthy exposure to equities in the times to come. I am sure you have heard this statement about reviewing asset allocation or rebalancing asset allocation many a times. What exactly does it mean? Let me explain. All of us have some financial deadlines to meet in future. Such as paying for kids' admissions into higher education, putting up a handsome downpayment for a bigger house, accumulating a war chest for retirement. Some of us who may be better endowed may not have to worry about investing for meeting deadlines, but then its important to keep money growing so that our future generations benefit. Depending on the starting corpus, how far down in time the intended spend is likely to come up and the final amount needed, we need to make decisions on how to invest whatever corpus we have - may it be a lumpsum or small amounts of surplus generated every month. Let me present a table to you. And then I explain how one must read it. Our Investment philosophy - BUY RIGHT : SIT TIGHT QGLP ‘Q’uality ‘G’rowth denotes growth in earnings and sustained RoE ‘L’ongevity ‘P’rice denotes quality of the business and management denotes longevity of the competitive advantage or economic moat of the business denotes our approach of buying a good business for a fair price rather than buying a fair business for good price Buy and Hold: Focus: We are strictly buy and hold investors and believe that picking the right business needs skill and holding onto these business to enable our investors to benefit from the entire growth cycle, needs even more skill. Our portfolios are high conviction portfolios with 20 to 25 stocks being our ideal number. We believe in adequate diversification but over-diversification results in diluting returns for our investors and adding market risk. Buy Right stock Characteristics Sit Tight Approach (Continued overleaf)
Greetings of the festive season! Wish you a Happy New Year 2015. The entire team at Motilal Oswal
Asset Management and our families join in wishing you the best of everything in 2015. May the
new year bring along all that you wish for!
2014 has been a great year for the markets and for investment scenario in general. The year started
with huge amount of scepticism with regards to prospects for the Indian economy, politics and the
resultant investment scenario. But we witnessed a watershed election that changed the course of
events and finally we have ended the year with a 31% (absolute) gain on the S&P BSE Sensex
(Source: www.bseindia.com). Along with turnaround in political scenario we have also seen
declining inflation, early signs of improving economic performance and to top it all a dramatic fall in
crude oil prices. My reading of research papers from a lot of international investors tells me that India is being viewed as one of the
few bright spots in a relatively gloomy global economic scenario. While rest of the world is fighting slowdown and deflationary
trends, India is one of the few countries where we are seeing inflation and reviving economic growth. In the first 8 months of this
financial year, equity mutual funds have seen an inflow of nearly Rs 45,000 crs or USD 7.5bn (Source: www.moneycontrol.com).
With land and gold prices going nowhere and deposit rates beginning to decline, we are expecting Indian investors to divert more
and more of their savings into equities in the next 12 to 18 months. Sentiment can also be gauged from the fact that India ranks
no.1 on consumer confidence globally in a survey conducted by Nielsen. Source: (http://in.reuters.com/article/2014/10/29/global-
economy-nielsen-idINKBN0II06620141029). This is reflected locally in the increased sales of auto and some of the consumer
products in our market. All in all, we are not only expecting the good times to continue, we also believe that this is just the
beginning!
We would urge everyone to review the asset allocation and ensure a healthy exposure to equities in the times to come. I am sure
you have heard this statement about reviewing asset allocation or rebalancing asset allocation many a times. What exactly does it
mean? Let me explain. All of us have some financial deadlines to meet in future. Such as paying for kids' admissions into higher
education, putting up a handsome downpayment for a bigger house, accumulating a war chest for retirement. Some of us who
may be better endowed may not have to worry about investing for meeting deadlines, but then its important to keep money
growing so that our future generations benefit. Depending on the starting corpus, how far down in time the intended spend is
likely to come up and the final amount needed, we need to make decisions on how to invest whatever corpus we have - may it be a
lumpsum or small amounts of surplus generated every month.
Let me present a table to you. And then I explain how one must read it.
Our Investment philosophy - BUY RIGHT : SIT TIGHT
QGLP
‘Q’uality
‘G’rowth denotes growth in earnings and sustained RoE
‘L’ongevity
‘P’rice
denotes quality of the business and management
denotes longevity of the competitive advantage oreconomic moat of the business
denotes our approach of buying a good business for a fairprice rather than buying a fair business for good price
Buy and Hold:
Focus:
We are strictly buy and hold investors and believethat picking the right business needs skill and holding onto thesebusiness to enable our investors to benefit from the entire growthcycle, needs even more skill.
Our portfolios are high conviction portfolios with 20 to 25stocks being our ideal number. We believe in adequatediversification but over-diversification results in diluting returns forour investors and adding market risk.
Buy Right stock Characteristics Sit Tight Approach
The above table is used for illustration and explaining the concept. It should not be construed as an investment advice to any party.
The table shows that if you are able to save Rs 5000 per month and you need a sum of over Rs 10 lacs to be accumulated over
the next 10 years, then you will not get there unless your investment grows at a rate well over 9% per year! If for instance,
your investment grows at a rate of 15% per year, you will be able to reach Rs 13.76 lacs.
Take another example, if you perceive that you have a low risk appetite and hence you will prefer only to keep money in
some asset class at a rate of 9% per annum but still you need a corpus of near about Rs 1 cr in 10 years, then you need to
have the ability to save Rs 50,000 per month start now!!!
It's a simple analogy to any journey. Lets say that I intend to travel from Mumbai to Pune for some critical work which has to
be accomplished before a deadline and hence it is imperative for me to reach Pune in the next 3 hours. The distance from my
home to my destination within Pune is 200 kms. This means that first of all, I need to leave my house immediately and start
early. Apart from this most important fact, it also means the following:
• I need to travel at an average speed of 70 kms per hour towards my destination.
• If I can not manage a speed of 70 kms per hour, I need more than 3 hours
• If I can not manage a speed of 70 kms per hour and I do not have more than 3 hours, I will not be able to accomplish the
critical task
When it comes to investing for meeting some of our life's milestones we are faced with similar situations. Let us see how.
• We have a finite amount of money today - may it be a lumpsum like bonus received or maturity of some old investmentor a monthly surplus from our incomes
• We have an estimated corpus required to meet at some pre-defined time in future •So lets say if you have Rs 5 lacs tobegin with and for some particular milestone to be met, you need to have Rs 10 lacs exactly at the end of 5 years fromnow. If you want to cover 200 kms in 3 hours, you need average speed near 70 kms per hour; in the same way, if youwant Rs 5 lacs to becomeRs 10 lacs in exactly 5 years, then you need your 5 lacs to travel at the rate of 15% per year!!!
• If you don't start immediately, if you don't travel at a rate of 15% per year or if you fritter away your funds andeventually start with less than 5 lacs then you will need to compromise on the quality of your milestone because youwill not have the needed Rs 10 lacs or you will need to postpone your milestone to sometime later!!!
Years
Months
1
12
How far is the milestone? 2
24
10
120
5
60
What is the current ability tosave per month (in `)?
(Assumption) Rate ofReturn Scenarios
Terminal Values when milestone date is reached (in `)
• We don't calculate exactly what is needed in future to meet the milestone
• We don't calculate at what rate our current corpus needs to propel forward for it to equal the milestone requirement
• We don't pay enough attention to what mode of transport we are travelling in - not all vehicles can travel at 70 km perhour and not all investment vehicles are geared to deliver 15% per annum!!!
• We act as if we have too many choices and alternatives!!! No!!! If you wish to reach Rs 10 lacs in 5 years from now andRs 5 lacs is all you have to begin with, and assuming you are serious about meeting a real life milestone, then youdefinitely need to travel at a rate of 15% per annum - no two ways about it. And equity is one of the asset classes whichhave potential to do that for you.
Conversely of course if you already have Rs 8 lacs and you need that to become Rs 10 lacs in 5 years, then you are in no hurryand no need to travel at a high speed of 15% per annum or take any risks. Just leaving the money in the savings bank willtake you very close to your milestone!
So lets be clear, what you have now and what you need in future is basically caste in stone. How you invest it, will determinehow many milestones you can actually fulfil and let me remind you, for leading a successful and fulfilled life, its best not todrop any milestones - we owe it to ourselves and our families.
So what we all need to do is to consult our financial advisor and do the following simple steps:
• Get a handle of what starting corpus we have now - past accumulated and monthly surplus going forward
• List the important milestones we need to fund
• Estimate the financial value of each of those milestones - how much money we need to have to meet those milestonesconfidently
• Segregate our current resources into pots - one dedicated to meet each milestone
• Determine at what speed each pot needs to travel to ensure the milestone is met at the end of the stipulated time!
I meet a lot of people who think they know exactly what they need. They consult with their financial advisors by asking themwhat fund should I buy? That's like asking what train should I take without getting an accurate handle of where I am, whereI want to go, what time I need to reach and hence what speed I need to move at? May be train is not the answer at all!
Over the last few years, I have seen that investors buy products as if they are fashion trends. So in 2014, most of us havingbeen investing in equity funds, in 2013 most of the money was being invested into debt funds and fixed maturity funds, in2011 maximum money was being invested into gold funds and real estate and so on and so forth. It's like saying thatnowadays everyone seems to be taking a bus so I must take a bus too! You select your mode of transport depending on yourdestination and travel time and not depending on what everyone else is doing. They are all headed to different places fordifferent purposes - none necessarily aligned to yours!
Happy Journey… I mean, Happy Investing!
Wish you a happy 2015 once again,
Warm Regards,
Managing Director and CEOMotilal Oswal Asset Management Company [email protected]
The Above strategy returns are of a Model Client. Returns of individual clients may differ depending on factors such as time of entry/exit/ additional inflows inthe strategy. The Above returns are calculated on NAV basis and are based on the closing market prices as on 31st December 2014. Past performance may ormay not be sustained in future. Returns above 1 year are annualized. Please refer to the disclosure document for further information.
*Above 5%
Periods
Value Strategy CNX Nifty All Figures in %
% o
f re
turn
s
The data given above is as on 31st December 2014
55.64
26.90 25.81
14.94 15.58
27.7231.39
18.4321.42
7.79 9.75
19.54
0.00
10.00
20.00
30.00
40.00
50.00
60.00
1 Year 2 Year 3 Year 4 Year 5 Year Since Inception
The Above strategy returns are of a Model Client. Returns of individual clients may differ depending on factors such as time of entry/exit/ additional inflows inthe strategy. The Above returns are calculated on NAV basis and are based on the closing market prices as on 31st December 2014. Past performance may ormay not be sustained in future. Returns above 1 year are annualized. Please refer to the disclosure document for further information.
*Above 5% & Cash
*Above 5%
Auto & Auto Ancillaries
Banking & Finance
FMCG
Engineering & Electricals
Cash
Eicher Motors Ltd.
Page Industries Ltd.
Bosch Ltd.
Bajaj Finance Ltd.
Cummins India Ltd.
Next Trillion Dollar Opportunity Strategy CNX MIDCAP All Figures in %
Period
% o
f re
turn
s
The data given above is as on 31st December 2014
78.16
45.0248.85
28.45 27.66
19.10
55.91
21.6427.19
9.17 11.105.76
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
1 Year 2 Year 3 Year 4 Year 5 Year Since Inception
The Above strategy returns are of a Model Client. Returns of individual clients may differ depending on factors such as time of entry/exit/ additional inflows inthe strategy. The Above returns are calculated on NAV basis and are based on the closing market prices as on 31st December 2014. Past performance may ormay not be sustained in future. Returns above 1 year are annualized. Please refer to the disclosure document for further information.
*Above 5% & Cash
Eicher Motors Ltd.
Bajaj Finance Ltd.
Page Industries Ltd.
HDFC Bank Ltd.
Ipca Lab Ltd.
Lupin Ltd.
Gujarat Pipavav Port Limited
Housing Development Finance Corporation Ltd.
Tata Consultancy Services Ltd.
State Bank Of India
Hero Motocorp Limited
Supreme Industries Limited
11.06
8.43
7.35
6.13
5.82
5.55
5.46
5.37
5.21
5.17
5.07
5.05
Top Holdings
Top Holdings % Allocation*
*Above 5%
Period
Invest India Strategy BSE 200 All Figures in %
% o
f re
turn
s
The data given above is as on 31st December 2014
3.01
12.15
24.11
48.06
22.6526.93
14.91
-2.34
5.429.71
35.47
18.9122.78
11.12
-10.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
1 Month 3 Month 6 Month 1 Year 2 Year 3 Year SinceInception
The Above strategy returns are of a Model Client. Returns of individual clients may differ depending on factors such as time of entry/exit/ additional inflows inthe strategy. The Above returns are calculated on NAV basis and are based on the closing market prices as on 31st December 2014. Past performance may ormay not be sustained in future. Returns above 1 year are annualized. Please refer to the disclosure document for further information.
*Above 5% & Cash
*Above 5%
Period
Focused Series IV BSE 200 All Figures in %
% o
f re
turn
s
The data given above is as on 31st December 2014
4.60
18.33
34.17
62.88
38.3841.50
16.93
-2.34
5.429.71
35.47
18.9122.78
9.66
-10.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
1 Month 3 Month 6 Month 1 Year 2 Year 3 Year SinceInception
The Above strategy returns are of a Model Client. Returns of individual clients may differ depending on factors such as time of entry/exit/ additional inflows inthe strategy. The Above returns are calculated on NAV basis and are based on the closing market prices as on 31st December 2014. Past performance may ormay not be sustained in future. Returns above 1 year are annualized. Please refer to the disclosure document for further information.
*Above 5%
*Above 5%
Focused Series V BSE 200 All Figures in %
Period
% o
f re
turn
s
The data given above is as on 31st December 2014
1.56
17.04
28.69
57.32
31.55
37.72
12.47
-2.34
5.429.71
35.47
18.9122.78
7.27
-10.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
1 Month 3 Month 6 Month 1 Year 2 Year 3 Year SinceInception
The Above strategy returns are of a Model Client. Returns of individual clients may differ depending on factors such as time of entry/exit/ additional inflows inthe strategy. The Above returns are calculated on NAV basis and are based on the closing market prices as on 31st December 2014. Past performance may ormay not be sustained in future. Returns above 1 year are annualized. Please refer to the disclosure document for further information.
*Above 5% & Cash
*Above 5%
Period
Bulls Eye Strategy BSE 200 All Figures in %
% o
f re
turn
s
The data given above is as on 31st December 2014
52.85
26.77
33.02
14.7012.79
16.05
35.47
18.9122.78
7.84 9.47
15.62
0.00
10.00
20.00
30.00
40.00
50.00
60.00
1 Year 2 Year 3 Year 4 Year 5 Year Since Inception
The Above strategy returns are of a Model Client. Returns of individual clients may differ depending on factors such as time of entry/exit/ additional inflows inthe strategy. The Above returns are calculated on NAV basis and are based on the closing market prices as on 31st December 2014. Past performance may ormay not be sustained in future. Returns above 1 year are annualized. Please refer to the disclosure document for further information.
Period
Optima Strategy BSE 200 All Figures in %
% o
f re
turn
s
The data given above is as on 31st December 2014
54.77
28.0131.24
15.93 16.11
26.05
35.47
18.9122.78
7.849.47
20.19
0.00
10.00
20.00
30.00
40.00
50.00
60.00
1 Year 2 Year 3 Year 4 Year 5 Year Since Inception
All opinions, figures, charts/graphs, estimates and data included in this document are as on date and are subject to change without notice. While utmost care has been exercisedwhile preparing this document, Motilal Oswal Asset Management Company Limited does not warrant the completeness or accuracy of the information and disclaims all liabilities,losses and damages arising out of the use of this information. No part of this document may be duplicated in whole or in part in any form and/or redistributed without prior writtenconsent of the Motilal Oswal Asset Management Company Limited. Readers should before investing in the Strategy make their own investigation and seek appropriate professionaladvice. Investments in Securities are subject to market and other risks and there is no assurance or guarantee that the objectives of any of the strategies of the Portfolio ManagementServices will be achieved. Clients under Portfolio Management Services are not being offered any guaranteed/assured returns. Past performance of the Portfolio Manager does notindicate the future performance of any of the strategies. The name of the Strategies do not in any manner indicate their prospects or return. The investments may not be suited to allcategories of investors. Neither Motilal Oswal Asset Management Company Ltd. (MOAMC), nor any person connected with it, accepts any liability arising from the use of thismaterial. The recipient of this material should rely on their investigations and take their own professional advice. While we endeavor to update on a reasonable basis the informationdiscussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. The Portfolio Manager is not responsible for any loss or shortfallresulting from the operation of the strategy. Recipient shall understand that the aforementioned statements cannot disclose all the risks and characteristics. The recipient isrequested to take into consideration all the risk factors including their financial condition, suitability to risk return, etc. and take professional advice before investing. As with anyinvestment in securities, the value of the portfolio under management may go up or down depending on the various factors and forces affecting the capital market. For taxconsequences, each investor is advised to consult his / her own professional tax advisor. This document is not for public distribution and has been furnished solely for informationand must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. No part of thismaterial may be duplicated in any form and/or redistributed without' MOAMCs prior written consent. Distribution Restrictions - This material should not be circulated in countrieswhere restrictions exist on soliciting business from potential clients residing in such countries. Recipients of this material should inform themselves about and observe any suchrestrictions. Recipients shall be solely liable for any liability incurred by them in this regard and will indemnify MOAMC for any liability it may incur in this respect. Securitiesinvestments are subject to market risk. Please read on carefully before investing.
