Insights
In today's era of knowledge economy and seamless connectivity, we are increasingly being burdened with an overload of information. Solicited or unsolicited information is inundating us through various channels like newspapers, magazines, television, e-mails, websites etc. It is important to breakthrough the clutter and get timely actionable advice which can be executed
ICICI Securities is dedicated to provide objective, independent and actionable research to our clients across various asset classes to help them make informed financial decisions. Our approach is a mix of top down and bottom up where we track the macro indicators to identify investment themes that are playing out. At the same time, we do extensive product research to ensure that we only advise the best in class products to our clients in each asset class. This approach ensures that we identify not only the correct investment theme but also the most suitable product to invest in the theme.
The best minds in the organization sit across the table every month to track the domestic and global macro environment in our meeting after monthly investment committee to ensure that we are up the curve in spotting investment themes to invest or avoid. Our investment committee consists of research heads from our institutional equity, retail, and I-SEC PD along with business heads of the ICICI Securities, Private wealth and retail business. This is further supplemented by inviting a renowned fund manager from the industry. This committee meets with a single point agenda of tracking the macro–economic environment and identify trends which can give actionable advice to our clients.
The investment committee is complemented by our stringent research across equity markets and different product classes.
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Direct Equity
Our experienced and award wining research team of over 40 analyst offers timely and unparalleled company and industry insight on base of rigorous analysis. It is one of the widest coverage in domestic industry, with active coverage on about 200 companies across 16 sectors in large/mid/small cap universe. Another key aspect of our research is the monthly and thematic reports on various sectors, keeping the client up-to-date with the latest developments in the sector.
Our team is grouped into smaller teams, specializing in particular industry and sectors. This sector focus allows the analyst to maintain detailed level of knowledge of key drivers of each sector.
Each recommendation is backed by rigorous and in-depth analysis of not only the company's financials but also the management quality and depth, competitors and other external factors impacting the stock price. This ensures due weightage to both qualitative and quantitative factors. Regular interaction with company managements and various other stakeholders help our research analysts develop view on stocks and equip them to foresee upcoming trends well in advance to benefit our clients.
Our fundamental equity research combines expertise with innovative strategies to offer broad range of products including Model Portfolios, Monthly investment strategy, Equity tracker, Pick of the week, sector specific monthly reports, event and result updates and detailed company report.
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Mutual Funds
We research mutual funds through a proprietary research methodology which evaluates the schemes and AMC across a wide range of parameters. These parameters are further supplemented by our view across different sectors as well as alignment with our overall investment theme in our investment committee. Some of the parameters used to filter and select mutual funds are portfolio risk and liquidity, risk adjusted returns, returns across various market cycles, past performance of the AMC in the asset class etc. The fund selection is further backed by interaction with the fund managers of the selected schemes on an ongoing basis to monitor their portfolio strategy and performance.
Managed Accounts
Selection on the PMS platform covers the following four broad parameters:
Research & Fund Management – Our selection process includes evaluating the qualification and experience of the investment and research team and their ability to conduct primary research and identify multi-baggers for clients.
Performance evaluation – Consistency of performance across market cycles and performance relative to peer group (PMS / MF) is evaluated for the scheme and the fund manager
Investment Strategy – The suitability of the investment strategy to client portfolios as well as its compatibility with I-Sec's investment outlook is considered along with the resilience of the strategy across market cycles.
Risk control guidelines – We evaluate the risk controls and guidelines followed by the selected scheme and AMC
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Alternate Investments
Fund selection for alternate investments encompasses the following main themes:
Investment theme and strategy – Since alternate investment funds are usually longer-tenure products, we evaluate the theme of the fund in terms of novelty, suitability to the client's portfolio and availability of the proposition through other investing platforms.
Strength and experience of Investment Team – Alternate investment funds usually hold concentrated portfolios of 8 – 12 underlying investments of a tenure of 3 – 5 years, the selection and management of the underlying investments becomes crucial to performance. In our evaluation of the fund, we place strong importance on the background and experience of the fund team in investing, managing and exiting such deals and their ability and incentives to work together as a unit.
Portfolio construction and implementation strategy – The fund's ability and process of sourcing deals, evaluating them, investing in them and eventually, exiting them directly impacts investor returns – making this factor an important one in our evaluation.
Background and expertise of Fund House – The presence and experience of the parent group / fund house is also considered since it impacts the fund's ability of raise money from investors, and also, source, negotiate, manage and exit underlying investment deals.
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Asset linked Debentures
Since structured products can be customized to take a specific view on any asset class, our selection framework comprises of the following two parameters:
Product Strategy – The prime parameter for selection of a strategy is its fit with our in-house investment outlook so that an investor in the product is able to successfully play out the view on an asset that has been taken.
Issuer profile – Structured products are issued in the form of asset-linked debentures, our evaluation process ensures securities available only from issuers of a high credit quality and issuing and repayment track record.
Equity Markets Overview & Investment Strategy :
Indian equity markets witnessed increased volatility and snapped two-month positive streak in January. Market sentiments were impacted negatively due to mixed corporate earnings, profit booking and easing expectations of rate cuts by US Fed.
Realty & Energy were the best performing sectors in January while Banking, Financial Services and FMCG fared the worst.
In January, FPIs/FII’s were net sellers in equities to the tune of INR 257 bn. vs. net buyers of INR 661 bn in December. Mutual Funds, on the other hand, continued to be net buyers and their net investments were around INR 230 bn.
We have a positive long-term view on equity despite expectations of interim volatility in the short term due to global headwinds.
Indian markets closed almost flat in January due to drag from banking stocks, sustained profit booking after the indices scaled all-time highs and mixed corporate earnings reported by index heavyweights.
All sectoral indices except Banking, Financial Services, FMCG and Metals delivered positive returns in January. The banking sector was particularly under pressure, post quarterly results announcement by HDFC Bank.
Going forward, introducing FY26E, we expect Nifty earnings to grow at a CAGR of 16.3% over FY23-26E. We are valuing NIFTY at 25,000 i.e. 20x PE on FY26E Nifty EPS of Rs.1250.
Indian markets are expected to remain volatile over the short term and the future trajectory will remain guided by key risks that may get manifested in the form of a) Global growth slowdown, b) Escalated Geopolitical tensions (if any) c) Event risk due to general elections in India as well as globally.
Indian equity markets witnessed increased volatility and snapped two-month positive
streak in January. Market sentiments were impacted negatively due to mixed corporate
earnings, profit booking and easing expectations of rate cuts by US Fed.
Realty & Energy were the best performing sectors in January while Banking, Financial
Services and FMCG fared the worst.
In January, FPIs/FII’s were net sellers in equities to the tune of INR 257 bn. vs.
net buyers of INR 661 bn in December. Mutual Funds, on the other hand, continued
to be net buyers and their net investments were around INR 230 bn.
We have a positive long-term view on equity despite expectations of interim volatility in the short term due to global headwinds.
1. We retain positive view on Equities; however, we expect volatility to be sticky around current levels in the near future.
2. Hence in the first half of 2024, one should adopt “Buy on dips” strategy and corrections of 5% in markets can be used for making lumpsum investments in multi/flexi cap funds.
3. Investors can also increase SIP allocation in multi/flexi cap funds focused on Blended investment (Mix of Value & Growth) style of investment
4. Allocation towards thematic funds focusing on banking, auto and infrastructure sector can be considered, within banking sector we prefer PSU banks as they are expected to outperform Private banks.
5. Large caps are expected to outperform mid & small caps over next few months due to their recent underperformance v/s small/midcap and expectation of higher FPI inflows.
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Factors impacting Yield Curve :
Short term Yield Curve:
1. Liquidity (Neutral): System liquidity deficit has widened following tax outflows and tepid government spendings. Higher government spending in future likely to help ease liquidity in banking system.
2. RBI (Neutral): The MPC also decided to remain focused on ‘withdrawal of accommodation’
to ensure that inflation progressively aligns with the target, while supporting
growth.
Long term Yield Curve:
1. Inflation (Neutral): Inflation cools to 5.1 per cent in Jan’24 to a three month’s low supported by a slower rise in prices of food items and favorable base effects
2. Growth (Neutral): The Indian economy grew 7.6 per cent during Q2FY24, remaining the fastest-growing major economy in the world, according to gross domestic product
3. OMO/OT (Neutral): RBI is conducting VRR auctions to infuse liquidity into the banking system . They are expected to reinitiate OMO from June 24 onwards
4. Revenue (+ve): Total revenue receipts stood at INR 20.42 lakh Cr, or 77.6% of the budgeted estimate as on Dec’23 end. GST collections in Dec’23 stood at INR 1.72 lakh crore.
5. Expenses (-ve): Govt. expenditure up to Nov’23 stood at INR 30.54 lakh Cr, resulting in a fiscal deficit of 9.82 lakh Cr or 55.0% of budgeted estimate of FY23. The fiscal deficit of 2023-24 was downwardly revised to 5.8% of GDP and 5.1% for 2024-25.
6. G-Sec Supply (+ve): Out of Gross Market borrowing of Rs 15.43 lakh crore projected for FY 2023-24 in the Union budget, Rs 8.88 lakh crore (57.55%) is planned to be borrowed in first half (H1) and ₹6.55 lakh crore in H2 2023-24 through securities, including ₹20,000 crore through green bonds.
Outlook: We are at the peak of interest rates which are gradually expected to start
trending down and hence investment in long duration mutual funds can be considered
at the current juncture.
Debt Markets Overview & Investment Strategy :
Key Highlights
1. RBI has kept the repo rate at 6.50%.
2. The policy repo rate under the liquidity adjustment facility (LAF) kept unchanged at 6.50 per cent.
3. The standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.
4. Real gross domestic product (GDP) posted a growth of 7.6 per cent year-on-year (y-o-y) in Q2:2023-24 (July-September), underpinned by robust investment and government consumption which cushioned the drag from net external demand.
5. The MPC also decided to remain focused on withdrawal of accommodation to ensure inflation progressively aligns with the target, while supporting growth.
6. These decisions are in consonance with the objective of achieving the medium-term
target for consumer price index (CPI) inflation of 4 per cent within a band of +/-
2 per cent, while supporting growth.
The MPC notes that:
a. Assuming a normal monsoon next year, CPI inflation for 2024-25 is projected at 4.5 per cent with Q1 at 5.0 per cent; Q2 at 4.0 per cent; Q3 at 4.6 per cent; and Q4 at 4.7 per cent.
b. Real GDP growth for 2024-25 is projected at 7.0 per cent with Q1 at 7.2 per cent; Q2 at 6.8 per cent; Q3 at 7.0 per cent; and Q4 at 6.9 per cent.
c. Food inflation, primarily y-o-y vegetable price increases, drove the pick-up in headline inflation, even as deflation in fuel deepened. Core inflation (CPI inflation excluding food and fuel) softened to a four-year low of 3.8 per cent in December.
d. As the path of disinflation needs to be sustained, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting. Monetary policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission. The MPC will remain resolute in its commitment to aligning inflation to the target.
e. During the last MPC, for the fifth consecutive time, the RBI maintained the repo rate at 6.5%. The last adjustment occurred in February 2023, increasing the rate from 6.25%.
f. RBI indicated that rate cuts will not happen soon, after keeping them on hold for more than a year, as it is still focused on anchoring of inflation towards its medium-term goal of 4.0 per cent
g. India has set a target to narrow its fiscal deficit to 5.1% in the fiscal year 2024-25, after lowering the current year's deficit to 5.8% of gross domestic product (GDP)
h. Headwinds from geopolitical tensions, volatility in international financial markets and geoeconomic fragmentation, however, pose risks to the outlook. Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7.0 per cent with Q1 at 7.2 per cent; Q2 at 6.8 per cent; Q3 at 7.0 per cent; and Q4 at 6.9 per cent. The risks are evenly balanced.
7. Arbitrage funds which offer tax efficient returns are ideal for short term parking upto 6-12 months.
8. With domestic inflationary expectations getting moderated, we think the peak interest rate levels has been reached so exposure to duration funds can be taken in a calibrated manner at the current yields.
9. The yields in 3-5 years AAA corporate bond/SDL segment have hardened in the past few months and are trading around 7.5-7.7%. Hence, exposure to actively managed fund in 3-5 year will offer decent accrual yields with an investment horizon of 3 years and above.
10. Also, Blended/Medium Term fund with a balanced exposure to decent quality AA and AAA assets is also likely to generate good carry returns with a time horizon of 3 years and above. Further, funds which offer indexation benefit as per new taxation laws are being launched by AMCs, should be considered as part of new long term (>3 years) debt allocation
Source: RBI
Gold, Crude Oil and Currency Views :
GOLD
1. Historically, Gold has had a negative correlation with equities and debt, and hence adding allocation to Gold in the portfolio can result in an optimum diversification of portfolio
2. Gold failed to power higher in January, despite seasonal tailwinds, after breaching record highs at the end of 2023.
3. Global gold ETF outflows and a reduction in speculative positioning were major contributors of gold’s January performance. Added to this was the headwind of higher Treasury yields and the US dollar as US economic strength sharply surprised to the upside, and hopes of early monetary policy cuts were reduced.
4. We continue remain bullish on gold based on the current geopolitical scenario and current weakening dollar index. We recommend to invest (5% in tactical allocation) through ETFs and Sovereign Gold bonds (5% core allocation).
Source: World Gold Council, Bloomberg | Returns till 1 year are absolute; > 1 year
are CAGR
CURRENCY
1. USD INR gave positive return of ~0.2% in Jan’24 compared to a 1.27% rise in the Dollar Index.
2. The Indian rupee strengthened in January on foreign inflows, global bond inclusion and growth optimism even as other Asian peers depreciated.
3. The uptick is mainly fueled by the government bond inclusion in the JPMorgan Index. Earlier this month, Bloomberg Index Services also proposed to include Indian bonds in its emerging market local currency indices starting September.
4. We expect low volatility as RBI will manage the inflows to prevent sharp appreciation in Rupee.
Source: Bloomberg, RBI | Returns till 1 year are absolute; > 1 year are CAGR
CRUDE OIL
1. Oil prices rose because of positive U.S. economic growth and signs of Chinese stimulus boosted demand expectations, while Middle East supply concerns added support. The depletion in inventories, could create a squeeze on nearby futures prices.
2. Rising geopolitical tensions in the Middle East, which accounts for one-third of the world’s seaborne oil trade, has markets on edge at the start of 2024. World oil supply is forecast to rise fueled by record-setting output from the US, Brazil, Guyana and Canada. Non-OPEC+ production will dominate growth this year, by contrast, OPEC+ supply is expected to hold broadly steady on last year.
3. Hence, we expect that with slowdown in demand from China and no consensus amongst OPEC countries for cut in production, oil is expected to remain in 80 - 85 per barrel range.
Source: Ministry of Petroleum & Natural Gas, Bloomberg | Returns till 1 year are
absolute; > 1 year are CAGR
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