INDIAN EQUITIES – GROWTH REVIVAL

TO SUPPORT EARNING CYCLE

1
Indian equities continue to move higher

Nifty 50 Index Performance

9000

8500

8000

7500

7000

6500 Last 6 months have seen

a sharp liquidity inspired
6000 rally
5500

5000

4500

4000
Sep-10 Sep-12 Sep-14 Sep-16

Source: Bloomberg
2
 Key Market Drivers

1. Policy – Reform momentum strong; GST progresses to next

stage

2. External – Flows strong, India relatively looking good

3. Consumption and Growth – uneven yet; but underpinnings

improving

4. Capex and Investment cycle – likely to be a slow; credit growth

lethargic; utilization close to bottom

5. Earnings & Valuations – 4Q better; next 2 years should see a big

boost

6. Risks – Job creation, Global instability

3
 #. 1 Policy

4
#1. Policy: Reform momentum strong

Key Government
Key objectives/Achievement Progress
Scheme

- To boost manufacturing, reduce imports Implementation gaining

Make in India momentum
- Net FDI to India up by 67% over FY14 to FY16
- Raise India’s competitiveness at global level
Implementation gaining
Ease of business
- Global rank improved four spots YoY to 130; momentum
Target 50
- To improve financial access, coverage
PMJDY - Efficient delivery of govt. subsidies/benefits Success with major
(Financial inclusion) objectives achieved
- 241m no-frills bank accounts opened since Aug-15

- To create broadband infrastructure at village level

Entered
Digital India
implementation stage
- Work on e-governance is progressing

- To provide housing for all Indians by 2022

Entered
Housing For All
implementation stage
- Project sanctioning stage but limited progress yet

Source of data: Citi Research, CLSA

5
#1. Policy: GST progresses to next stage,
Const. amendment through; GST council to be formed

- All Eyes on Revenue neutral rate

- Revenue neutral tax rates will be based on the recommendation of GST council

- CEA has recommended 15 – 15.5%, but not a single rate

Taxes subsumed under GST

GST

Central Govt. State Govt. Local Bodies

-Excise Duty -Value Added Tax

-Countervailing (VAT)
-Octroi / Entry Tax
Duty -Excise Duty
-Service Tax -Central Sales
Tax -Local Body Tax
-Surcharges
-Cesses Others
Source of data: CLSA, Citi Research
6
 #. 2 External

7
 #2. Flows remain strong - FII

In Bn$ FII Flows

8

0
Sep-14 Mar-15 Sep-15 Mar-16 Sep-16

-2

-4
Rolling 3 month flows

8 Source: Bloomberg
 #2. Flows remain strong – FDI

In Bn$ FDI Flows

50

45

40

35

30

25

20

15

10

0
Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16

Rolling 12 month flows

Source: Bloomberg
9
 # 2. India’s macro conditions vastly improved

Post Global
Taper crisis Current
recession
(2013) (Sep-16)
(2010)

GDP* 8.5% 5.1% 7.1%

CPI Inflation 9.4% 9.5% 5.1%

FX Reserves ($bn) 297.3 275.5 370.8

Current Account
-3.3% -4.7% 0.1%
Deficit

Fiscal deficit Target -6.5% -4.8% -3.5%

Crude Oil
$94 $116 $48
(per barrel)

Source of data: ACEMF, Bloomberg, RBI, BIS

2010 refers to Dec 31st 2010, 2013 refers to 31st Aug 2013 and current refers to September 30th, 2016
*10
GDP New Series . Figure for Q1 FY17
 # 2. IMF revises India’s growth forecast

Change in 2016 projections

World No Change

July October
EU Change: 0.1%

US Change: -0.6%

China No change

India Change: 0.2%

0 1 2 3 4 5 6 7 8

Source: IMF , Change in October forecast over July

11
 # 2. India, fastest riser on Global Competiveness Index

Country Global Rank*

Switzerland 1
Singapore 2
United States 3
Netherlands 4
Germany 5
Sweden 6
Fastest riser ,
United Kingdom 7
Moved from
Japan 8
Rank 55
Hong Kong SAR 9 (in 2015-2016)
Finland 10
India 39

Source: World Economic Forum, Global Competiveness Report 2016-2017. Rank out of 138 economies
12
 # 3. Consumption and Growth

13
 # 3. High frequency data shows improvement, but uneven

India Manufacturing PMI India Services PMI

54 54

53 53

52
52
51
51
50

50 49

48
49 India Services PMI
India Manufacturing PMI 47
48
46

47 45
May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16

Data shown is the 3 month rolling average.

Source: Bloomberg
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 # 3. High frequency data shows improvement, but uneven (2)

40% Private vehicle and two-wheeler sales

30% Commercial vehicle sales (3mma)
(3mma)
30%
20%

20%
10%

10%
0%

0%
-10%

-10%
-20%

-20%
-30%
Aug-12

Aug-14

Aug-16
Apr-13

Apr-15
Dec-11

Dec-13

Dec-15

Apr-13

Apr-15
Dec-11

Dec-13

Dec-15
Aug-12

Aug-14

Aug-16
PV (3mma) 2W (3mma)
CV (3mma)

15 Source of data: Ambit Capital

# 3. Lower inflation may lead to more rate cuts, aiding growth

Inflation roadmap for RBI

Monetary policy loses RBI sets glide path for achieving New Monetary
credibility on sustained sustained lower inflation Policy Framework
double digit inflation
12%

11%

10%

9%
Initial Target – 8%
8%
Formal Inflation
7%
Intermediate Target – 6%
Target of
6% 4% +/- 2%
Mar ‘17 Target – 5%
5%

4%

3%

2%
2012-14 2014-17 March 2017 onwards

16 Source of Data: Bloomberg.

 # 4. Capex & Investment Cycle

17
 # 4. Fiscal spending orientation is shifting towards capex

Subsidies v/s Government Capex Big push to infrastructure

(% of GDP) investments
3.0% In Rs . Bn

700
2.5%
Govt. Expenditure

600
(as % of GDP)

2.0%

Budget Funding
500
1.5% 400

1.0% 300

200
0.5%
100 Roads Railways
0.0%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 0
(RE) (BE) FY13 FY14 FY15 FY16RE FY17BE
Capex Subsidies

Source: Ambit Capital, CLSA

Note: RE refers to revised estimates and BE refers to Budget estimates
18
Nominal GDP for FY17 is assumed to grow at 11% YoY as mentioned in the FY17 union budget
 # 4. Industrial capacity utilization may be bottoming

• Unutilized capacity hurting operating margin

• Corporate ROEs on the mend

Capacity Utilization Corporate Profits to GDP (%)

84
7.8
82 7.3
6.5
80 6.2 6.2
5.4 5.5
78
4.7 4.9 4.6
4.3
76 4.0 3.7
3.0
74

72

70

68
FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

Source of data: Citi

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 # 5. Earnings and Valuations

20
 # 5. Improving margins and earnings growth

EBIDTA Margin (%) Sales growth YoY (%)

18.5 18.1 15.1

17.0 17.0
15.9 16.3
15.5 15.7
13.9

6.7
5.1 4.9
3.9

1.0 0.5

-2.9 -2.8
Sep-14

Sep-15
Dec-14

Dec-15
Jun-14

Mar-15

Jun-15

Mar-16

Jun-16
Sep-14

Sep-15
Dec-14

Dec-15
Jun-14

Mar-15

Jun-15

Mar-16

Jun-16

Source of data: Motilal, Universe: BSE500 Ex Financials & OMCs

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 # 5. Valuations broadly reasonable

Nifty 50 Index Forward P/E Nifty 50 Index Forward P/B

23 Nifty Best P/E 6

21 Nifty Best P/B Average
19
4
17

15

13
2
11

7 0
Sep-06 Sep-08 Sep-10 Sep-12 Sep-14 Sep-16 Sep-06 Sep-08 Sep-10 Sep-12 Sep-14 Sep-16

Source of data: Bloomberg, P/E – Price to Earnings Ratio P/B – Price to Book Ratio
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 # 5. Earnings tend to be cyclical linked to economy

Nifty Earnings Trend (Jan 1999 – December 2015)

1999-2002
450 2003-2007 2008-2015
Earnings
Earnings Growth Earnings Growth
Growth
+24.7% pa +6.1% pa
400 -1% pa
(+201.5% absolute) (+51.9% absolute)
(-3.8% absolute)
350 Nifty Returns Nifty Returns
Nifty Returns
41.0% pa 14.1% pa
5.4% pa
300 (23.5% bsolute)
(458.5% absolute) (151.6% absolute)

250

200

150

100

50

0
Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14

Source of data: NSE

23
 # 5. Benefits of long term investments

Rolling returns based on Sensex (1980 - 2015)

26% of the
times negative
13% of the
times negative
10% of the
times negative Never
negative Never negative
21% 17% 17% 17% 15%

1 year 3 year 5 year 10 year 15 year

Source: Bloomberg, Data from Dec'80 - Dec'15, Returns are compounded annualized. Data based on yearly rolling

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 # 6. Risks

25
 # 6. Risks: Job Creation

• Demographics need creation of 9m-10m jobs/year

• However, labour supply exceeds job creation

10 Jobs created Labour supply 9

mn 9
9
8
7 6 6
6 6 6
6 5
5
5 5 5
4
4 4 4
3
2
1
0
FY78-83 FY83-88 FY88-94 FY94-00 FY00-12 FY12-16 FY16-20

Source of Data: CLSA

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 # 6. Risks: Global instability

• Negative yields reflecting weak global growth/inflation outlook

• Developed country central banks struggling to get traction on

monetary policy

Date 6M 1Y 3Y 5Y 10Y 30Y

Switzerland -0.65 -0.99 -0.96 -0.84 -0.50 -0.05
Germany -0.62 -0.61 -0.65 -0.51 -0.05 0.54
Japan -0.32 -0.24 -0.18 -0.15 -0.01 0.49
France -0.58 -0.58 -0.56 -0.39 0.25 1.02
Italy -0.28 -0.24 -0.01 0.26 1.16 2.23
Spain -0.28 -0.22 -0.06 0.16 1.03 2.16
United Kingdom 0.14 0.12 0.12 0.24 0.76 1.38
US 0.50 0.56 0.90 1.19 1.61 2.32

Source of Data: Bloomberg. Data as on September 2016

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 Statutory Details and Risk Factors

Disclaimer: Past performance may or may not be sustained in the future. Sector(s) / Stock(s) /
Issuer(s) mentioned above are for the purpose of disclosure of the portfolio of the Scheme(s) and should
not be construed as recommendation. The fund manager(s) may or may not choose to hold the stock
mentioned, from time to time. Investors are requested to consult their financial, tax and other advisors
before taking any investment decision(s).

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882,
sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd.
Investment Manager: Axis Asset Management Co. Ltd. (the AMC) Risk Factors: Axis Bank Limited is
not liable or responsible for any loss or shortfall resulting from the operation of the scheme.

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Mutual Fund Investments are subject to market risks, read all scheme related documents
carefully.

Data updated as on 30th September, 2016