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S&P BSE Bharat 22 Index: A benchmark for “Bharat 22” disinvestment program of Government of India

Private & Confidential

Download this

Research Paper from

the resources section

on your screen.

http://www.asiaindex.co.in/documents/research/Bharat 22 Research Paper.pdf?


Bharat 22: Aligning ETFs to the Government Agenda

Webinar

Tuesday, September 26, 2017


Disclaimer

Private & Confidential 3

S&P Dow Jones Indices emphasizes to participant that Chintan Haria - ICICI Prudential

AMC & Shreenivas Kunte - CFA Institute are guest speaker and not affiliated with S&P Dow

Jones Indices or Asia Index Private Limited and that S&P Dow Jones Indices is not

providing endorsements as to the opinions expressed which are those of the guest speaker

for this webinar. S&P Dow Jones Indices offers no guarantees or warranties as to the

accuracy and reliability of opinions expressed.

Guest speaker are not affiliated with S&P Dow Jones Indices and S&P Dow Jones Indices

does not sponsor, endorse, sell, or promote any product based on an S&P Dow Jones index

nor does it make any representation regarding the advisability of investing in the products.


CHINTAN HARIA

4

Fund Manager & Head- Product Development & Strategy

ICICI Prudential Asset Management Company Limited

Chintan joined the investments team at ICICI Prudential AMC in October 2005 as a

member of the equity dealing desk and rose through the ranks to become a fund

manager. He also anchors Product Development and Strategy where he is responsible for

driving new product initiatives across business lines and working closely with the

respective teams to augment business growth.

He continues to manage ICICI Prudential Equity Income Fund & ICICI Prudential Value

Fund – Series 3. With overall experience of more than a decade, his core competency lies

in portfolio management, derivatives strategies and market intelligence.

Chintan received a Masters in Commerce from Sydenham College of Commerce and

Economics in 2005 and is a Fellow Member Chartered Accountant (FCA) from Institute of

Charted Accountants of India (ICAI). He is an Associate Member of Cost and Management

Accountancy (ACMA) from Institute of Cost & Works Accountants of India (ICWAI).

He also holds a Masters in Financial Analysis (MFA) and Charted Financial Analyst (CFA)

from Institute of Charted Financial Analyst of India (ICFAI). Further, he is a Certified

Management Accountant from Institute of Management Accountancy, USA.



SHREENIVAS KUNTE

5

Content Director,

CFA Institute

Shreenivas Kunte, CFA, is a director for continuing education and advocacy at CFA

Institute. In this role he provides thought leadership across a range of topics and through

different delivery platforms.

He also serves as an external research scholar at the Indian Institute of Technology

Bombay. Prior to joining CFA Institute, Shreenivas worked as the country trading

strategist for Citi. Shreenivas holds a degree in computer engineering from Veermata

Jijabai Technological Institute.



KOEL GHOSH

6

Senior Director & Business Head, India

Asia Index Private Limited

Koel Ghosh is the head of business development for S&P Dow Jones Indices in South

Asia. Koel is responsible for business development, sales and ongoing client relationship

management across South Asia. She explores new markets and works with market

participants to offer suitable solutions.

Prior to joining S&P Indices in 2009, Koel gained wide experience in the asset

management and financial industry. She previously served at IL&FS Mutual Fund and UTI

Asset Management Company where she gained insights on the asset management

industry through her marketing and sales roles. She extended her experience further in

the investment management industry in her role at Thomson Reuters.

Recently, Koel has the additional responsibility as Head of Business Development at Asia

Index Pvt. Ltd. (BSE & S&P DJI Venture). Koel is a Chartered Accountant and a member of

the Institute of Chartered Accountants of India.



BHARAT 22 Aligning ETFs to the Government Agenda


September 2017

Koel Ghosh


8

INVESTING STYLES – ACTIVE V/S PASSIVE 01

02

03

04

AGENDA

THE ETF GROWTH STORY – THE GOVERNMENT BOOST

S&P BSE BHARAT 22 INDEX

GLOBAL INVESTMENT TRENDS


ATTRACTIVE CHARACTERISTICS IN AN INVESTMENT

9

• Good performance

• Acceptable risk

• Low Costs

• Easy to understand

• Independence or transparency

• Diversification

Active and passive management approaches provide two paths to implementation


STYLES OF INVESTING

10

Active

Investor/fund manager chooses

stocks he or she thinks will do the

best

Choices can be based on analysts’

predictions, stories, news (or

rumors) or shifts in the market and

the economy

“Beat the market…”

Passive

Investors choose a market or a

segment of a market

Buys the market by investing in an

index tracking fund

Participates in the growth of the

market and the economy

“Replicate the market”

Advantages Possible outperformance Skill-based decision making

Market performance Rules-based decision making Lower fees and costs

Disadvantages Higher fees and costs More concentrated portfolio Hard to beat the market

No outperformance No active management


IT’S HARD TO BEAT THE BENCHMARK IN INDIA SPIVA INDIA – YEAR END 2016

11

66% 64%

71%

36%

82%

31%

11%

49%

71%

97%

55%

25%

42%

75%

95%

55% 50%

46%

81% 83%

0%

20%

40%

60%

80%

100%

120%

S&P BSE 100 S&P BSE 200 S&P BSE MidCap S&P BSE India GovernmentBond Index

S&P BSE India Bond Index

Indian Equity Large Cap Indian ELSS Indian Equity Mid/Small Cap Indian Government Bond Indian Composite Bond

One-Year (%) Three-Year (%) Five-Year (%) Ten-Year (%)

Percentage of active funds outperformed by benchmarks

Source: S&P Dow Jones Indices LLC. Data as of [December 31, 2016]. Index performance based on [total return INR)]. Charts and graphs are provided for illustrative purposes. Past performance is not an indication or guarantee of future results. These charts and graphs may reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance.


12


13


02

03

04

AGENDA





14

• Increasing focus on passive investing as active investment results are disappointing

• Managing the consequences of low yielding environment and aging populations

• Liabilities growing faster than assets

• Search for returns => more use of alternatives

• More use of ESG strategies in selected countries (especially Nordics)

INVESTMENT TRENDS GLOBALLY


15

Source: ETFGI

PASSIVE ADOPTION INCREASING OVER RECENT YEARS…

Since 2007, outflows from actively-managed mutual funds have hit a cumulative $1.2tn since while overall inflows into

index-trackers and ETFs have topped $1.4tn.

PwC Study: global passive assets as a share of total AUM will double from 11% in 2012 to 22% in 2020 (a total of

nearly $23 trillion in 2020).

In 2016 ETF assets overtook hedge fund assets – i.e. the definition of beta eclipsing the definition of alpha.


16

ASSET ALLOCATION SHIFT TO ALTERNATIVES

Evolution of aggregate asset allocation from 1997 to 2016 for Australia, Canada, Japan, Netherlands,

Switzerland, UK and US (92% of global pension assets) 1

Source :1 Willis Towers Watson Global Pension Asset Study 2017

• Asset allocation continues to see alternatives added at the expense of equity

• Shift in allocation driven by search for return outside of low yielding bonds and volatile equities

Cash

Alternatives

Bonds

Equities


17

ASSET ALLOCATION FOR KEY COUNTRIES

Source :Willis Towers Watson Global Pension Asset Study 2017

Aggregate asset allocation for

Australia, Canada, Japan,

Netherlands, Switzerland, UK

and US


18

GLOBAL ETP ASSET GROWTH AUG’17


INDIA – ETF ASSET GROWTH AUG’17

19


20


02

03

04

AGENDA





THE ETF GROWTH STORY IN INDIA –THE GOVERNMENT BOOST

21

• Department of Disinvestment (DOD)in 2012 announced the proposal of a CPSE ETF

for the disinvestment programme

• The first CPSE ETF launched in March 2014 by Goldman Sachs Asset Management

• Notification by Ministry of Labour and Development dated 29th May 2015

• ETF/Index Funds regulated by SEBI that replicate S&P BSE SENSEX and Nifty

• ETFs issued by SEBI regulated mutual funds constructed specifically for

disinvestment of the Government of India in body corporates

• EPFO initiated the investments in the SENSEX and Nifty to invest 5% of their

incremental inflows into the ETFs

• The allocation increased to 10% with current allocations at 15%

• Encouragement to other retirement funds to also follow suit and hence provide a

boost to this growing market


22

Source : http://dipam.gov.in

• DOD renamed Department of Investment and Public Asset Management or

'DIPAM' (in Mr Arun Jaitley’s budget speech for 2016-17) proposed a new second

ETF in September 2016

• The government has set a record disinvestment target of INR 72,500 crore (11bn

USD) for Financial Year April 2017- March 2018.

THE ETF GROWTH STORY IN INDIA –THE GOVERNMENT BOOST

http://dipam.gov.in/



DISINVESTMENT YEAR ON YEAR PROGRESS

23

Source: http://dipam.gov.in/




S&P BSE OFFERINGS: 54 EQUITY INDICES

24

3 realized volatility indices - S&P BSE SENSEX 1-Month Real Vol , S&P BSE SENSEX 2-Month Real Vol and S&P

BSE SENSEX 3-Month Real Vol For more details please log on to www.asiaindex.co.in

Equity: Broad market [14 indices]

S&P BSE SENSEX, S&P BSE SENSEX 50 and S&P BSE SENSEX Next 50

S&P BSE 100

S&P BSE 200

S&P BSE 500

S&P BSE AllCap

S&P BSE LargeCap

S&P BSE MidCap

S&P BSE MidCap Select Index

S&P BSE LargeMidCap

S&P BSE SmallCap

S&P BSE SmallCap Select Index

S&P BSE MidSmallCap

Equity: Sector & Industry [19 indices]

S&P BSE Basic Materials

S&P BSE Consumer Discretionary Goods & Services

S&P BSE Energy

S&P BSE Fast Moving Consumer Goods

S&P BSE Finance

S&P BSE Healthcare

S&P BSE Industrials

S&P BSE Information Technology

S&P BSE Telecom

S&P BSE Utilities

S&P BSE AUTO

S&P BSE BANKEX

S&P BSE CAPITAL GOODS

S&P BSE CONSUMER DURABLES

S&P BSE METAL

S&P BSE OIL & GAS

S&P BSE POWER

S&P BSE REALTY

S&P BSE TECK

Equity: Strategy [14 indices]

S&P BSE Momentum Index

S&P BSE Low Volatility Index

S&P BSE Quality Index

S&P BSE Enhanced Value Index

S&P BSE Dividend Stability Index

S&P BSE SENSEX 2X Leverage Daily

S&P BSE SENSEX 1X Inverse Daily

S&P BSE SENSEX 2X Inverse Daily

S&P BSE SENSEX Futures

S&P BSE IPO

S&P BSE SME IPO

S&P BSE DOLLEX 30

S&P BSE DOLLEX 100

S&P BSE DOLLEX 200 Equity: Thematics [5 indices]

S&P BSE India Infrastructure

S&P BSE India Manufacturing Index

S&P BSE 500 Shariah

S&P BSE PSU

S&P BSE CPSE

S&P BSE BHARAT 22 Index

Equity: Sustainability [2 indices]

S&P BSE CARBONEX

S&P BSE GREENEX


25


02

03

04

AGENDA





ABOUT: S&P BSE BHARAT 22 INDEX

26

For detailed index methodology log on www.asiaindex.co.in; 1 – CPSE: Central Public Sector Enterprise, 2 - SUUTI :

Special Undertaking of Unit Trust of India, and 3 - PSBs: Public Sector Banks

Objective –

The S&P BSE Bharat 22 index is designed to measure the performance of select companies

disinvested by the Central Government of India via Bharat 22 program.

• Universe. Companies are selected from CPSEs1, SUUTI2 companies and PSBs3. - CPSE - are those companies in which the direct holding of the Central Government or other CPSEs is

51% or more.

- SUUTI – Special Undertaking of Unit Trust of India-UTI-I investments managed by the Government

- PSBs - Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held by a

government

• Constituent Selection. List published under (Bharat 22) disinvestment program by

Government of India

• Rebalancing. Annually, in March

• Weighing. Maximum BSE sector weight and individual stock weight capped at 20% and 15%

respectively

• The index diversified by BSE sectors - represent each sector covered by underlying universe,

includes energy, finance, fast moving consumer goods, industrials, basic materials, and utilities

http://www.asiaindex.co.in/


Maharatna 5

Miniratna - I 2

Navaratna 9

INDEX COMPOSITION (1)

27

Source: Asia Index Pvt. Ltd. And www.dpe.gov.in; Data of as July 31, 2017. Past performance is no guarantee of future results. Table is provided for illustrative

purposes and reflects hypothetical historical data. Please see the Performance Disclosure at the end of this document for more information regarding the inherent

limitations associated with back-tested performance

Count of Stocks

CPSE 16

PSU Bank 3

SUUTI A Group 3

Total 22

CPSE

Maharatna 23.5%

Miniratna - I 1.4%

Navaratna 24.8%

Index Weight

CPSE 49.7%

PSU Bank 10.3%

SUUTI A Group 40.0%

Total 100.0%

C

P

S

E

• Number of stocks

• Index Weight

http://www.dpe.gov.in/


INDEX COMPOSITION (2)

28

Source: Asia Index Pvt. Ltd. Data of as July 31, 2017. Past performance is no guarantee of future results. Table is provided for illustrative purposes and reflects

hypothetical historical data. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with

back-tested performance

BSE Sectors S&P BSE Bharat 22

Underlying Universe

Industrials 22.6% 18.1%

Finance 20.3% 27.2%

Utilities 20.0% 11.6%

Energy 17.5% 17.8%

FMCG 15.2% 22.9%

Basic Materials 4.4% 2.2%

Telecom - 0.1%

Total 100.0% 100.0%

BSE Size S&P BSE Bharat 22

Underlying Universe

LargeCap 89.3% 88.1%

MidCap 8.5% 8.4%

SmallCap 2.1% 3.5%

NA 0.0% 0.1%

Total 100.0% 100.0%


BACK TEST INDEX PERFORMANCE

29

Source: Asia Index Private Limited; Data as of July 31, 2017, Data from March 17, 2006 up to July 31, 2017. Index performance based on total return [INR]. All data prior to

launch date are back-tested. It is not possible to invest directly in an index. Past performance is no guarantee of future results. Please see the Performance Disclosure at

the end of this document for more information regarding the inherent limitations associated with back-tested performance

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Re

bas

ed

Ind

ex

Leve

ls

S&P BSE Bharat 22 Index TR S&P BSE SENSEX (TR)


RISK-RETURN PROFILE

30

Source: Asia Index Private Limited; Data as of July 31, 2017, Data from March 17, 2006 up to July 31, 2017. Index performance based on total return [INR]. All data prior to

launch date are back-tested. It is not possible to invest directly in an index. Past performance is no guarantee of future results. Please see the Performance Disclosure at

the end of this document for more information regarding the inherent limitations associated with back-tested performance

Since inception S&P BSE Bharat 22 has outperformed S&P BSE SENSEX amid marginal volatility

Stats Data Label S&P BSE Bharat 22 S&P BSE SENSEX

CAGR (%)

1 year 20.0 17.4

3 year 10.6 9.4

5 year 14.4 15.2

10 year 12.9 9.2

Since Inception 14.3 11.7

Annualized Volatility (%)

1 year 13.2 10.5

3 year 16.5 14.0

5 year 17.5 14.4

10 year 23.1 23.5


Risk Adjusted Returns

1 year 1.5 1.7

3 year 0.6 0.7

5 year 0.8 1.1

10 year 0.6 0.4



ASIA INDEX – CREATING S&P BSE INDICES

Asia Index Pvt. Ltd –A 50-50 partnership between S&P Dow Jones Indices LLC, the world’s largest provider of

financial market indices, and BSE Ltd, Asia’s first exchange and home to the iconic SENSEX index - a leading

indicator of Indian equity market performance

Building a local index “culture”

• Experience: Both BSE and S&P Dow Jones Indices have over 115 years of experience in the financial markets and

global experience with pension funds.

• Domain Expertise:

– Across asset classes/themes – Equities, Fixed Income, Commodities, Real Estate and ESG (sustainability) etc.

– Regions - Developed, Emerging and Frontier markets

• Compliance: Stringent internal compliance followed

• Systematic and Standard processes and procedures

• Quality Data and reliable data

• Global Technology and systems: Systems that work round the clock

• 24x6 client servicing, from 4 different locations globally

• Location Flexibility: In case of disaster, ability to calculate indices from various regions across the world

31


BACK-TESTED PERFORMANCE DISCLOSURE

32

S&P BSE SENSEX Index , S&P BSE Auto Index, S&P BSE 100 Index, S&P BSE 200 Index, S&P BSE Midcap Index, S&P BSE Government Bond Index, S&P BSE India Bond

Index Charts and graphs are provided for illustrative purposes. Past performance is no guarantee of future results. These charts and graphs may reflect hypothetical historical

performance. All information presented prior to the launch date is back-tested. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations

are based on the same methodology that was in effect when the index was officially launched. However, it should be noted that the historic calculations of an Economic Index may

change from month to month based on revisions to the underlying economic data used in the calculation of the index.

AIPL defines various dates to assist our clients in providing transparency on their products. The First Value Date is the first day for which there is a calculated value (either live or

back-tested) for a given index. The Base Date is the date at which the Index is set at a fixed value for calculation purposes. The Launch Date designates the date upon which the

values of an index are first considered live: index values provided for any date or time period prior to the index’s Launch Date are considered back-tested. AIPL defines the Launch

Date as the date by which the values of an index are known to have been released to the public, for example via the company’s public website or its data feed to external parties.

Past performance of the Index is not an indication of future results. Prospective application of the methodology used to construct the Index may not result in performance

commensurate with the back-test returns shown. The back-test period does not necessarily correspond to the entire available history of the Index. Please refer to the methodology

paper for the Index, available at www.spdji.com and www.asiaindex.co.in for more details about the index, including the manner in which it is rebalanced, the timing of such

rebalancing, criteria for additions and deletions, as well as all index calculations.

Another limitation of using back-tested information is that the back-tested calculation is generally prepared with the benefit of hindsight. Back-tested information reflects the

application of the index methodology and selection of index constituents in hindsight. No hypothetical record can completely account for the impact of financial risk in actual trading.

For example, there are numerous factors related to the equities, fixed income, or commodities markets in general which cannot be, and have not been accounted for in the

preparation of the index information set forth, all of which can affect actual performance.

Index returns shown do not represent the results of actual trading of investable assets/securities. It is not possible to invest directly in an index. AIPL or its agent maintains the S&P

BSE Indices and calculates the Index levels and performance shown or discussed, but does not manage actual assets. Index returns do not reflect payment of any sales charges or

fees an investor may pay to purchase the securities underlying the Index or investment funds that are intended to track the performance of the Index. The imposition of these fees

and charges would cause actual and back-tested performance of the securities/fund to be lower than the Index performance shown. As a simple example, if an index returned 10%

on a US $100,000 investment for a 12-month period (or US $10,000) and an actual asset-based fee of 1.5% was imposed at the end of the period on the investment plus accrued

interest (or US $1,650), the net return would be 8.35% (or US $8,350) for the year. Over a three year period, an annual 1.5% fee taken at year end with an assumed 10% return per

year would result in a cumulative gross return of 33.10%, a total fee of US $5,375, and a cumulative net return of 27.2% (or US $27,200).

http://www.spdji.com/



GENERAL DISCLAIMER

33

© Asia Index Private Limited 2017. All rights reserved.

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Redistribution, reproduction and/or photocopying in whole or in part are prohibited without written permission. This document does not constitute an offer of services in

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provided by AIPL Companies is impersonal and not tailored to the needs of any person, entity or group of persons. AIPL Companies receive compensation in connection with

licensing its indices to third parties. Past performance of an index is not a guarantee of future results.

It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. AIPL

Companies do not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an

investment return based on the performance of any index. AIPL Companies make no assurance that investment products based on the index will accurately track index

performance or provide positive investment returns. AIPL and S&P Dow Jones Indices LLC are not investment advisors, and the AIPL Companies make no representation

regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle

should not be made in reliance on any of the statements set forth in this document. Prospective investors are advised to make an investment in any such fund or other vehicle

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the issuer of the investment fund or other vehicle. Inclusion of a security within an index is not a recommendation by the AIPL Companies to buy, sell, or hold such security, nor

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These materials have been prepared solely for informational purposes based upon information generally available to the public from sources believed to be reliable. No content

contained in these materials (including index data, ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof

(Content) may be modified, reverse-engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written

permission of AIPL. The Content shall not be used for any unlawful or unauthorized purposes. AIPL and its third-party data providers and licensors and the other AIPL

Companies (collectively “AIPL Parties”) do not guarantee the accuracy, completeness, timeliness or availability of the Content. The AIPL Parties are not responsible for any

errors or omissions, regardless of the cause, for the results obtained from the use of the Content. THE CONTENT IS PROVIDED ON AN “AS IS” BASIS. THE AIPL PARTIES

DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A

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consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the

Content even if advised of the possibility of such damages.



Thank you

Koel Ghosh

Senior Director- Business Head - India

[email protected]

Market Outlook and Way Forward

35

Chintan Haria Fund Manager and Head – Product Development and Strategy

Global Market: Last 1 Year Performance

Source: MFI, Explorer. Data as on 19th Sep 2017. United States : Dow Jones, Germany : DAX Index, France CAC 40 Index, United Kingdom:FTSE, Hong kong:

Hangseng, Brazil: Ibovespa Sao Paulo Index, South Korea: Kospi, Japan: Nikkei, Euro: Euronext 100, Russia: RTS Index, Singapore: Strait Times, Taiwan: Taiwan

weighted, India: S&P BSE Sensex.

36

Unites States 23%

Germany 21% France 19%

United Kingdom 6%

Hong Kong 19%

Brazil 32%

South Korea 19% Japan 23%

Euro 17% 15% Russia

Singapore 13% Taiwan 15%

India 13%

US 10 Year G-Sec – Long Term Trend

Data as on 21st September 2017

37

02468

1012141618

Sep-8

0

Jun-8

2

Mar-

84

Dec-8

5

Sep-8

7

Jun-8

9

Mar-

91

Dec-9

2

Sep-9

4

Jun-9

6

Mar-

98

Dec-9

9

Sep-0

1

Jun-0

3

Mar-

05

Dec-0

6

Sep-0

8

Jun-1

0

Mar-

12

Dec-1

3

Sep-1

5

Jun-1

7

10 Year US G Sec Yield (%)

US 10 Year G-Sec Yield & Movement of S&P BSE Sensex

6000

7000

8000

9000

10000

11000

12000

3.7

4.1

4.5

4.9

5.3

10 Year US G Sec S&P BSE Sensex

2500

3000

3500

4000

4500

5000

5500

6000

4

4.5

5

5.5

6

6.5

7

10 Year US G Sec S&P BSE Sensex

Data Source: S&P BSE Sensex - Asia Index Pvt. Ltd.

38

S&

P B

SE S

ense

x 1

0 y

ear

US G

-sec Y

ield

S&

P B

SE S

ense

x

10 y

ear

US G

-sec Y

ield

Pension Assets Across Major Markets

Source: Global Pension Asset Study 2017

Country Total Assets - 2016

(USD Billion)

US 22,480

UK 2,868

Japan 2,808

Australia 1,583

Canada 1,575

Netherlands 1,296

Switzerland 817

South Korea 575

Germany 415

Brazil 251

Next 10 1,625

39

India attracting higher inflows

Source: East India Securities. As on 21st September 2017. YTD: Year to Date

40

ASIAN MARKETS YTD Inflows (in Rs Cr)

TAIWAN 49,539

SOUTH KOREA 44,035

INDIA 41,479

VIETNAM 3,988

PHILIPPINES 3,552

THAILAND 2,646

PAKISTAN -2,769

INDONESIA -4026

JAPAN -111,989

World Market Capitalization

*July 31, 2017; **July 2016

41

Countries 2017*

(USD mn) % of World

2016**

(USD mn) % of World

US 2,74,54,116 35.13% 2,43,41,787 37.25%

China 70,99,266 9.08% 61,43,346 9.04%

Japan 57,40,647 7.34% 51,00,372 7.80%

Hong Kong 47,99,582 6.14% 39,08,609 5.98%

UK 35,50,345 4.54% 32,30,828 4.94%

France 24,15,866 3.09% 18,94,286 2.89%

Germany 22,30,539 2.85% 18,08,906 2.76%

Canada 22,03,215 2.81% 19,23,645 2.94%

India 20,74,592 2.65% 16,28,450 2.49%

Switzerland 17,28,211 2.21% 15,07,816 2.30%

Brazil 8,25,849 1.05% 7,09,507 1.08%

World 7,81,48,543 100% 6,53,42,217 100%

India : Growth Story Continues

42

India: One of the fastest growing large economy across the world

Twin Deficit under control - Lower CAD and Fiscal Deficit

Stable Government with thrust towards infrastructure and reforms

Low Interest Rate – Leads to Lower borrowing cost for business

Low CPI / WPI Inflation

Strong Currency. Stable Forex Reserves

Demographic Advantage - Large Consumption Market

CAD: Current Account Deficit; CPI: Consumer Price Inflation; WPI: Wholesale Price Inflation. Source: CITI Bank Research Report 2017.

India Story - Capacity Utilization below Long Term Average

67.7

73.8

82.2 82.6

79.2

90.0

86.3

72.8 73.5 73.3

74.1 73.5

69.0 68.8 70.2

72.6

Long Term Average

Capacity Utilization(%)

The capacity utilization is below the long term average of 76%. No additional capacity required to cater higher

demand.

Data as on April 30 2017.

76%

43

Wealth Distribution of Indians

57% 12%

27% 4%

44 Source: CLSA, RBI, AMFI, WGC, IRDA. Data as of Mar 31, 2017

Shift: Physical Assets vs Financial Asset

Source: CEIC, Goldman Sachs Global Investment Research. E: Estimate; FY: Financial Year; GS: Goldman Sachs

Increase in allocation into financial savings compared to physical savings .

45

Sensex close to 32,000. What Next?

Markets at all time high

47

Our Checklist to Understand Mid-Cycle

BUBBLE-PHASE MID-PHASE

Credit Growth is high Credit Growth is Still Low

More Industries showing uptick in

Capex Cycle Evident in Auto and Airline only

Capacity Utilization is High Capacity Utilisation Still Low

High Earnings Growth No Sign of Earnings Growth

A type of theme funds getting

money

Currently thematic funds not

witnessing huge inflows

48

Valuation Trajectory

Look beyond PE, Valuations are reasonable.

EPS growth has been nearly flat in the last 3

years. PE is high more due to denominator issue.

48

Source: BSE India. Data as on 31 Aug 2017, Internal database, Reserve Bank of India, Kotak Securities; P/E: Price to Earnings Ratio; P/B: Price to Book Ratio;

CAGR: Compound Annualised Growth Rate; YoY: Year on Year; RoE: Return on Equity; FII: Foreign Institutional Investors; IIP: Index of Industrial Production; GDP:

Gross Domestic Product. Past performance may or may not be sustained in future.

Dec-07 August 2017

Trailing P/E S&P BSE

Sensex 22.07 23.74

Trailing P/B S&P BSE

Sensex 6.10 3.1

Market Cap to GDP Ratio

(GDP for Jun 2017) 149% 85%

Past Returns of S&P BSE Sensex (CAGR)

Last 1 Year Return 46.89% 11.5%



S&P BSE Sensex Past Earnings Per Share Growth

(CAGR)

Last 1 Year (YoY) 38.38% -1.51%

Last 2 Years (YoY) 36.61% 3.70%

Last 3 Years (YoY) 29.29% -1.44%

Macro Indicators

Dec-07 August 2017

Capacity Utilisation

(Mar 2017) 91.70% 74.1%

Credit Growth 23.30% 6.3%

RoE - S&P BSE Sensex 27.62% 12.61%

Net FII Flows (TTM in Cr.) 80,915 23,938

IIP (TTM) 15.58%

-0.1%

(as of Jun

2017)

GDP Growth

9.60%

(Oct-Dec

2007)

5.7%

(Apr-Jun

2017)

Investing in Exchange Traded Funds (ETFs)

49

What is an ETF?

50

ETFs are passively managed mutual fund schemes tracking a benchmark index and reflect the

performance of that index. The types of ETFs are as under:

• Equity ETFs • Debt ETFs • Commodity ETFs

Like an index fund… 1. Tracks an index

2. Open ended mutual fund scheme

3. Lower expense ratio compared to

actively managed schemes

4. Lower turnover

5. More transparent

Like a stock… 1. Intraday trading on the exchange

2. Real time prices

3. Put limit orders

4. Minimum trading lot - 1 unit

5. Delivery into your Demat account

Why invest in ETFs?

51

Low cost as compared to actively managed mutual fund schemes

Diversification

Trading at real time NAV Index is based on research and back

tested data

Transparency in holdings and price

Periodic portfolio rebalancing

Adequate liquidity with AMC and on stock exchange

Benefits offered by ETFs:

Growth of Global ETFs

52

• Over the past 10 years, Assets under Management (AUM) of ETFs across the globe has grown

exponentially with assets of US$ 4.1 trillion as on July 2017.

• AUM of Global ETFs is expected to touch US$ 7 trillion by 2021.

In the above chart, bars represent AUM and the line represents number of ETFs.

Data Source: www.etfgi.com. Data as on Aug 31, 2017.

http://www.etfgi.com/





Growth of ETFs in India

53

• Indian ETF industry has seen rapid growth in last 3 years.

• Recent investments in ETFs:

EPFO’s apex decision making body has approved the proposal to increase investments in

equity ETFs to 15% of the investible deposits. This may translate into an investment of

around Rs. 22,500 crore in ETFs during 2017-18.

Data Source: MFI Explorer Data as on Aug 31, 2017. EPFO: Employee Provident Fund Organisation

59333

0

10000

20000

30000

40000

50000

60000

70000

ETFs in India - AUM (Rs. in crore)

54

Disinvestment Programme

The Government of India (GoI) has in the past disinvested its holding in select companies

through various routes like

• Initial Public Offering (IPO)

• Offer For Sale (OFS)

• Institutional Placement Programme (IPP)

Recent IPOs and OFS of state owned companies have been successful owing to

overwhelming response received from investors.

Sr. No. Company Name Details Investor response

1. Cochin Shipyard Ltd. IPO worth Rs. 1,468 crore in

August 2017

Issue oversubscribed 76 times

2. Rashtriya Chemicals and

Fertilisers Ltd. (RCF Ltd.)

• OFS for 5% stake reduction (Rs.

2.76 crore) in June 2017

• Discount of 5% was offered to

retail investors

Issue subscribed 3.3 times

3. Housing and Urban

Development Corporation

Ltd. (HUDCO)

IPO worth Rs. 1,224 crore in May

2017

Issue subscribed 79 times

Data Source: Economic Times, Moneycontrol

55

ETF Route for Disinvestment

“We will continue to use ETF as a vehicle for further disinvestment of shares.

Accordingly, a new ETF with diversified CPSE stocks and other Government holdings will

be launched in 2017-18.” – Budget 2017-18

• On Aug 04, 2017, the Hon’ble Union Finance Minister announced a new ETF by the name

BHARAT 22, thus fulfilling the promise made in the Budget speech of 2017.

• The new ETF announced will act as one of the innovative vehicles for achieving the GoI’s

divestment target of Rs. 72,500 crore in FY 2017-18.

• ICICI Prudential AMC Ltd. has been appointed by the GoI to launch and manage the the

new ETF consisting of shares of listed Central Public Sector Enterprises (CPSEs) and other

corporate entities.

For detailed announcement, refer -

http://pib.nic.in/newsite/PrintRelease.aspx?relid=169636

56

S&P BSE BHARAT 22 Index

Data as on Aug 31, 2017. Source: www.asiaindex.co.in

• The S&P BSE BHARAT 22 Index is designed to measure the performance of select companies

disinvested by the Central Government of India according to the disinvestment program.

• Stock weighting mechanism – Free Float Market Capitalization Weighting Method

• Weight caps – Stock level cap: 15%; Sector level cap: 20%

• Rebalancing – Annually in March

• Additions/ deletions to the index – As per GoI notification on their website.

• For details about the index, refer - http://www.asiaindex.co.in/indices/equity/sp-bse-

bharat-22-index








57

S&P BSE BHARAT 22 Index Index Constituents

Data as on Aug 31, 2017. Source: www.asiaindex.co.in

Sr.

No. Company Name Basic Industry

Weight

(%)

1 National Aluminium Co Ltd Basic Materials 4.63

Total - Basic Materials

(%) 4.63

2 Oil & Natural Gas Corp Ltd Energy 5.00

3 Indian Oil Corp Ltd Energy 5.56

4 Bharat Petroleum Corp Ltd Energy 4.98

5 Coal India Ltd Energy 3.20

Total - Energy (%) 18.74

6 State Bank of India Finance 7.76

7 Axis Bank Ltd Finance 7.53

8 Bank of Baroda Finance 1.20

9

Rural Electrification Corp

Ltd Finance 1.27

10 Power Finance Corp Ltd Finance 0.97

11 Indian Bank Finance 0.22

Total - Finance (%) 18.95

Sr.

No. Company Name Basic Industry

Weight

(%)

12 ITC Ltd FMCG 15.26

Total - FMCG (%) 15.26

13 Larsen & Toubro Ltd Industrials 16.49

14 Bharat Electronics Ltd Industrials 3.61

15 Engineers India Ltd Industrials 1.47

16 NBCC (India) Ltd Industrials 0.64

Total - Industrials

(%) 22.21

17 Power Grid Corp of India Ltd Utilities 7.85

18 NTPC Ltd Utilities 6.98

19 GAIL India Ltd. Utilities 3.76

20 NHPC Ltd. Utilities 1.14

21 NLC India Ltd. Utilities 0.26

22 SJVN Ltd. Utilities 0.22

Total - Utilities (%) 20.21








58

• Six sectors (Basic Materials, Energy, Finance, FMCG, Industrials and Utilities).

• Secular growth prospects (FMCG and Utilities) + Cyclicals (Energy, Metals, Industrials).

Diversified exposure

Volatility

Returns

• Mix of leaders from different sectors representing balance between stability and growth. Bluechip companies

• Stock level cap of 15% and sector level cap of 20% applied annually at rebalancing. Stock and Sector cap

• Reduces concentration of few heavy weight companies by considering shares available for trading in the market.

Free Float Market Capitalization Method

S&P BSE BHARAT 22 Index Reasons to invest

59

*Data as on Aug 31, 2017. P/E: Price to Earnings Ratio, P/B: Price to Book Ratio. NFO: New Fund Offer.

• Higher dividend yield in comparison to Nifty 50/ S&P BSE Sensex*.

Attractive Dividend Yield

• Attractive investment opportunity due to lower P/E and P/B in comparison to Nifty 50/ S&P BSE Sensex. Reasonable Valuations

• The constituents of the index capture the various key reforms and initiatives of the GoI like Financial Inclusion, Digital and Cashless Economy, Make in India, GST, Infrastructure Reforms, etc.

Government Reforms and Initiatives

Earnings Potential

• Highly liquid index since more than 99% of index constituents are available under F&O segment*.

Futures and Options (F&O)

S&P BSE BHARAT 22 Index Reasons to invest

60

Data as on Aug 31, 2017. Data Source: AIPL, NSE, Edelweiss Research. Returns and Earnings Growth in CAGR terms. Past Performance may or may not sustain in

future.

S&P BSE BHARAT 22 Index Past Performance & Statistics

Name of the index Total Returns (CAGR %)

1 year 2 years 3 years 5 years 7 years 10 years

S&P BSE BHARAT 22

Index 14.5 16.3 9.7 14.4 8.5 13.0

Nifty CPSE 15.8 10.3 0.4 6.9 1.6 8.5

S&P BSE SENSEX 13.0 11.4 7.5 14.4 10.1 9.1

NIFTY 50 14.3 13.1 9.1 15.2 10.7 9.9

Name of the

index

Earnings

Growth

(FY17 to

FY19E)

P/E P/BV Dividend

Yield

Aug-17 Mar-19E Aug-17 Mar-19E Aug-17

S&P BSE BHARAT

22 Index 16% 19 13 2.0 1.8 2.4

Nifty CPSE 12% 12 11 2.1 1.6 3.9

S&P BSE SENSEX 14% 23 16 3.0 2.6 1.2

NIFTY 50 13% 26 16 3.5 2.6 0.9

61

Data as on Aug 31, 2017. Data Source: AIPL, NSE. Past Performance may or may not sustain in future. Index values have been rebased to 100.

50

100

150

200

250

300

350

400

450

S&P BSE Bharat 22 Index Nifty CPSE Nifty 50 S&P BSE Sensex

S&P BSE BHARAT 22 Index Past Performance

62

Government Reforms and Initiatives aligned to S&P BSE BHARAT 22 Index

Reforms/ Initiatives Key highlights Companies that may benefit

Financial Sector

Reforms

• Insolvency and Bankruptcy Code

2016

• Monetary Policy Committee

• Expansion of Banking sector

• Digital and Cashless Economy

• Listing of Insurance Companies.

• Axis Bank

• Bank of Baroda (BOB)

• Indian Bank

• State Bank of India (SBI)

Taxation Reforms Goods and Services Tax (GST) -

Single Indirect tax structure aimed

at eliminating cascading effect of

indirect taxes.

All companies forming part of

the index.

Infrastructure Sector

Reforms

Quality of infrastructure and

speeding up clearance of stalled

infrastructure projects

• Larsen & Toubro Ltd. (L & T)

• NBCC (India) Ltd

• National Aluminum Co. Ltd.

(NALCO)

Liberalisation of

Foreign Direct

Investment (FDI) in

India

Progressively liberalized to permit

FDI in most sectors under the

automatic route.

• Axis Bank.

• BOB

• Bharat Electronics Ltd.

• SBI

Source: http://pib.nic.in/newsite/PrintRelease.aspx?relid=169636

63

Reforms/

Initiatives Key highlights Companies that may benefit

Make in India • Expanding Manufacturing

facilities in India

• International Skill Development

Centres for domestic workers.

• ITC

• L & T

• NALCO.

Oil & Gas Sector

Reforms

• Direct Benefit Transfer of LPG

subsidies

• Introduction of Daily Fuel pricing.

• Bharat Petroleum Corp. Ltd. (BPCL)

• GAIL (India) Ltd.

• Oil & Natural Gas Corp. Ltd (ONGC).

Energy Sector

Reforms

• Providing 24x7 quality, reliable

and affordable power supply

• Revival package for electricity

distribution companies of India

(DISCOMs).

• BPCL

• Coal India Ltd.

• NTPC Ltd.

• NHPC Ltd.

• Power Grid Corporation of India Ltd.

• Power Finance Corporation of India

Ltd

• Rural Electrification Corporation of

India Ltd.

• SJVN Ltd.

Source: http://pib.nic.in/newsite/PrintRelease.aspx?relid=169636

Government Reforms and Initiatives aligned to S&P BSE BHARAT 22 Index

Thank You

64

An Irrational

Market

Sentiment

Mutual Fund investments are subject to market risks, read all scheme related

documents carefully.

Disclaimer: All figures and data given in the document are dated unless stated otherwise. In the preparation of the material contained in this

document, the information used 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 entity and/or its affiliates and which may have been made available to the entity and/or to its

affiliates. Information gathered and material used in this document is believed to be from reliable sources. The entity however does not warrant the

accuracy, reasonableness and / or completeness of any information. We have included statements / opinions / recommendations 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 entity (including its affiliates) 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. 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 any

investment.

The Information contained herein should not be construed as a forecast or promise nor should it be considered as an investment advice. The

stock(s)/sector(s) mentioned in this communication do not constitute any recommendation and ICICI Prudential Mutual Fund may or may not have any

future position in these stock(s). Past performance may or may not be sustained in future.

65


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ICICI Prudential AMC

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