Latest Model Portfolio By ICICI-Direct

Outperformance continues across all portfolios…

• Our preference remains for companies with sound business fundamentals. This forms the core theme of our portfolio. Our indicative large cap equity model portfolio has continued to deliver an impressive total return (inclusive of dividends) of 135.2% since its inception (June 21, 2011) vis-à-vis the index return of 104.4% during the same period, an outperformance of 31%. Our midcap portfolio has returned 2.1x benchmark’s return since inception. The total returns of our indicative mid cap portfolio is 283.4% vs. benchmark return of 137.0%

• Our consistent outperformance is reflective of our stringent process of identifying quality businesses with good franchisee offering superior risk-reward opportunities. Some key performers of our portfolio are Bajaj Finance, TCS and Nestlé India in the large cap portfolio while Bajaj Finserv and Pidilite Industries have delivered good returns in the midcap portfolio.

Given the recent volatility, we continue to advocate the SIP mode of investment as the preferred mode of deployment. We highlight that the SIP return of our portfolio has consistently outperformed indices. This affirms our belief in the staggered and systematic approach of investment amid market volatility

• Sensex companies have largely maintained their positive momentum with topline growth of 15.7% YoY and double digit bottomline growth in Q4FY18. On a full year basis, in FY18, sales increased 10.9% YoY resulting in bottomline growth of 10% YoY. On the sectoral front, in Q4FY18, overall auto volumes increased 23.9% YoY mainly due to low base & strong growth momentum across segments.

In the FMCG space, double digit volume growth is encouraging. This, coupled with ~15% volume growth in the cement space, depicts robust demand prospects domestically. In the capital goods space, robust execution led to healthy double digit growth in sales amid robust build-up of order book

• The recent volatility is providing attractive valuations on an overall basis especially the pharma sector. We introduce fresh allocation in both our indicative large cap and midcap portfolios. The new addition in our large cap portfolio is Sun Pharmaceutical Industries.

In our midcap portfolio, we have added Syngene International, apart from Exide Industries, Firstsource Solutions and AIA Engineering. Considering the near term challenges in the business profile, we have exited Tata Motors DVR from the large cap portfolio and NBCC, Symphony, Bharat Electronics, J&K Bank from our indicative midcap portfolio.

• We continue to maintain our high allocation towards the BFSI space with total weightage of 37% in the large cap portfolio and 14% in midcap portfolio. Apart from this, we continue to remain positive on consumption theme with allocation of 19% and 24% in large cap and midcap portfolio, respectively

• Over the last quarter, commodity prices have remained elevated. Along with a depreciating rupee, this may adversely impact margins of net importers. Thus, our preference remains to identify domestic growth stories with durable competitive advantages and considerable unutilised capacity available, thus benefitting from higher operating leverage

• Timely resolution of key NPA accounts through swift insolvency proceedings is likely to help alleviate the current pain in the banking sector. Despite key challenges, we continue to remain positive on the BFSI sector with a high allocation

House view on Index

• We maintain our index targets (Sensex at 37,600 & Nifty at 11,725) with revised Sensex earnings, implying ~17x P/E on FY20E EPS, in tandem with the long period average. Going ahead, with much of the asset quality pain already recorded and IBC resolutions in the banking space coupled with firm rural demand amid expectations of normal monsoon 2018 and industrial activity pick up, corporate earnings are expected to stage a smart recovery, growing in excess of 20% CAGR over FY18-20E