ICICI Securities -Model Portfolio update :”Quality-21/Consistent-15” continues to outperform…

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• Our indicative large cap equity model portfolio (“Quality-21”) has
Deal Team
– At Your Service ”Quality-21/Consistent-15” continues to outperform…
Though we have a tilt towards higher beta that could generate substantial • Our indicative large cap equity model portfolio ( Quality-21 ) has
continued to deliver an impressive return (inclusive of dividends) of ~74%
since its inception (June 21, 2011) vis-à-vis the index return of ~52%
during the same period, an outperformance of ~22%. This validates our
thesis of selecting companies with sound business fundamentals that
forms the core theme of our portfolio. Our midcap portfolio (“Consistent-
15”) outperformed the benchmark by ~1.5x since June 2011 (~1x during
June 2014). Our consistent outperformance demonstrates our superior
returns given their respective market dominance, we have not deviated
from our core focus on holding good brands. We exit DCB (74% returns),
JK Cement (71%) to book profits since potential upside appears limited,
hereafter, and remove Tata Global Beverages and Oberoi Realty as
company-specific headwinds could likely persist in the medium term
• Our conviction in domestic recovery is visible in terms of relative
June 2014). Our consistent outperformance demonstrates our superior
weightage of sector vis-à-vis the index. We remain overweight on the
stock picking ability as markets in H2CY15 aligned to our view of
favourable risk-reward, good franchisee vs. reward-at-any-risk businesses.
Some key performers of our portfolio are Lupin, Sun Pharmaceuticals,
Axis Bank, TCS and Info Edge delivering ~120-230% returns since
inception
• We have always suggested the SIP mode of investment and still find a lot
of merit in it as the preferred mode of deployment given the market
e g tage o secto s à s t e de e e a o e eg t o t e
consumer discretionary (auto, consumer), financials (private sector banks
in particular), and the infra space (cement, infra and power). This has been
primarily triggered by hopes of a rate cut by the RBI on the back of
moderating inflation and possibility of decisive action in the infrastructure
and real economy space by the new government. We are also overweight
on telecom, media owing to reducing concerns & better earnings growth
of merit in it as the preferred mode of deployment given the market • We have turned underweight on oil
& gas as we have chosen to replace
conditions and volatility associated since the inception of the portfolio. It
has outperformed other portfolios, thus, reinforcing our belief in a plan of
investment. However, now we are also advising clients to look at lump
sum investments at any possible dips
• The last six months saw a paradigm shift in the global energy industry as
crude prices declined to a historic five-year low to $58 (down ~46% YTD).
Intense competition among oil producing nations for market share (Opec
We have turned underweight on oil
& gas as we have chosen to replace
Reliance with ONGC has better risk-reward (muted RoIs from unrelated
investments could impact the former while the latter has lessening
regulatory challenges). We continue to remain underweight on pure play
defensives (IT, FMCG) as secular earnings coupled with sector rotation
could de-rate valuations and offer limited upside. We remain equal weight
on pharma, metals (global generic opportunity, stock specific play)
Intense competition among oil-producing nations for market share (Opec • On individual names we are strongly overweight on companies like L&T
vs. non-Opec) and ramp-up in US shale resources led to this slump in
global commodity aided further by languishing global growth prospects.
While world economies adjust to this new normal, India, which fulfils
~80% of its oil demand through imports, could be a major beneficiary of
this benign oil scenario. Thus, domestic equities attracted strong FII flows
(YTD $16 billion, highest ever) helped by a stable, reformist central
government Consequently sectors geared towards a pick up in domestic
House view on Index
• Factoring in the fall in inflation, comfortable CAD, improved sentiments
and pick-up in GDP growth, we expect Sensex EPS to grow 15%, 20% to
| 1570 and | 1890 during FY15E, FY16E respectively (CAGR of 17% over
FY14-17E). Pickup in earnings could index get further re-rated and hence,
we assign a P/E multiple of 15
x on FY17E EPS to arrive at a fair value of
• On individual names, we are strongly overweight on companies like L&T
and UltraTech in the infra space while we prefer HDFC & SBI in financials
government. Consequently, sectors geared towards a pick-up in domestic
economy like consumer discretionary, banks, auto and cement
outperformed the benchmark index. On the other hand, defensives saw
profit booking as YTD CNX IT and FMCG indices underperformed by
~13% each on moderating valuations and changing investor preference
• Thus, we rebalance our portfolio, to capture the essence of a broader
economic revival, growing urbanisation and benefits of crude declines.
A di l th dd t k lik Ctl I di ( d) CARE ( )
we assign a P/E multiple of 15
x on FY17E EPS to arrive at a fair value of
32500 by end CY15 with Nifty reaching 9750

What s' in?
Name Portfolio Weight
Oil and Natural Gas Corporation Largecap 6%
Tata Steel Tata Steel Largecap 4%
Castrol India Midcap 8%
Voltas Midcap 8%
CARE Midcap 6%
Heidelberg Cements Midcap 6%


What's out ?
Name Portfolio Weight
Reliance Industries Largecap 11%
NMDC Largecap 4%
DCB Midcap 8%
JK Cement Midcap 6%
Source: ICICIdirect com Research
p
Tata Global Beverages Ltd Midcap 6%
Oberoi Realty Midcap 6%

LINK
http://content.icicidirect.com/mailimages/IDirect_ModelPortfolioUpdate_Dec14.pdf