Reliance Capital Builder Fund Series C (A Close Ended Equity - - PowerPoint PPT Presentation

Reliance Capital Builder Fund – Series C

(A Close Ended Equity Oriented Scheme)

Offer for Sale of Units at Rs.10/- per unit during the new fund offer period

Tenure – 3 Years from the date of allotment of units NFO Opens – September 17, 2014 NFO Closes – October 1, 2014

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Reliance Capital Builder Fund – Series C is suitable for investors who are seeking*: · Long term capital growth · Investment in diversified portfolio of equity & equity related instruments with small exposure to fixed income securities · High risk. (BROWN) *Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Note: Risk is represented as: (BLUE) investors understand that their principal will be at low risk (YELLOW) investors understand that their principal will be at medium risk (BROWN) investors understand that their principal will be at high risk

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Market Outlook

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India: Nascent Bull Market Stage*

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Macro economic recovery already visible

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Decisive political mandate after 30 years

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Huge pent up demand due to severe domestic under investment in equity markets

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Valuation still favorable for long term wealth creation

Source: Bloomberg, RCAM estimates August 28, 2014. * RCAM Internal View

2008 2014 S&P BSE Sensex Levels 20873 26638 Markets At Life Time Highs……But Earnings Per Share (EPS) 833 1418 Trailing P/E (Price To Earnings) ~28x ~19x Forward P/E ~24x ~17x Market Cap To GDP Ratio 103% ~70%

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India: Now & Then

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Source: Bloomberg . * Data is the last published number .^ Data is the numbers a year back from the last published number.

Parameter Month Manufacturing PMI August Index of Industrial Production June Passenger Car Sales July CPI Inflation July Exports (USD million) July Fiscal Deficit March Foreign Reserves (USD billion) August GDP Growth June 48.5

• 1.8%

1.3 lacs 9.64% 25,835 4.9% 278 4.7% 2013^ 2014* 52.4 3.4% 1.4 lacs 7.96% 27,728 4.5% 319 5.7%

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Equity markets perform in the long term

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S&P BSE Sensex has given positive returns 23 out of the 35 years

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Markets have given an average return of 25%

Past performance may or may not be sustained in future Source: Bloomberg, Annual returns above refer to absolute returns & are Financial Year returns.

S&P BSE Sensex Annual Returns (%)

Out of 35 years: 23 years of positive returns 12 years of negative returns 35 year CAGR (1979 to 2014): 16.7%

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Significant turnaround in equity markets

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Past performance may or may not be sustained in future. Source: MFIExplorer. Index values have been normalized.

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Better macro numbers & stable political environment leading to recovery of equity markets

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Sharp recovery after prolonged period of sluggish market conditions

90 110 130 150 170 190 210 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jun-14 Aug-14 Performance of Equity Markets (July 2013 – August 2014) S&P BSE Sensex S&P BSE Midcap S&P BSE Smallcap

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1 2 3 4 5 6 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Forward P/BV S&P BSE Sensex 5 10 15 20 25 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Forward P/E S&P BSE Sensex

Market valuations still favorable for wealth creation

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Past performance may or may not be sustained in future Source: Bloomberg Estimates. P/E = Price to Earnings ratio. P/BV = Price to Book Value ratio.

Average Average

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Valuations are at long term average level

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42 52 82 83 103 55 95 88 69 63 65 72 20 40 60 80 100 120 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E Market Cap to GDP (%)

Market Cap to GDP is below 2007-08 levels

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Current level is lower than the last bull market of 2007-08

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Case for expansion in India’s market cap

Past performance may or may not be sustained in future Source: Bloomberg, MOSL estimates

Average: 72%

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Key Drivers going forward

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Pace of Indian GDP growth has improved

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While the first trillion dollars required 58 years, the next trillion dollars in GDP required only 7 years

Past performance may or may not be sustained in future Some of the above data are only estimates & actual data may vary depending on various market & economic factors. Source: Central Statistical Organization, MOSL estimates

21 33 57 150 293 464 475 492 523 618 721 834 948 1,239 1,226 1,366 1,708 1,879 1,858 1,878 2,113 2,280 2,460 2,655 2,865 3,092 3,337 3,601 3,886 4,194

FY51 FY60 FY70 FY80 FY90 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E FY23E FY24E India GDP Trend (USD) The Next Trillion Dollar Opportunity

FY51- 08: 7.3% CAGR FY08- 15: 7.9% CAGR 1st US$ tn 58 years 2nd US$ tn 7 years 3rd US$ tn 5 years 4th US$ tn 4 years

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India expected to lead in the emerging market space

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Highest EBITDA & PAT growth for FY14 to FY16

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Highest ROE with reasonable average

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Lowest PEG; cheapest among emerging markets

Past performance may or may not be sustained in future Source: Bloomberg estimates. EBITDA = Earnings before interest, taxes, depreciation & amortization, PAT = Profit before tax, RoE = Return on Equity, PEG = Price to Earnings Growth. The above analysis is done on the top 200 market cap companies of each above mentioned country. From this subset the following filters have been applied excluding companies which are 1) listed in multiple country exchanges 2) do not have published data for the specified years in Bloomberg & 3) financial companies. The above no of companies is the remaining after applying all the above filters. Some of the above data are only estimates & actual data may vary depending on various market & economic factors.

Country

• No. of

Cos Growth (CAGR FY 14 – 16e) RoE (%) Net Debt/ Equity PEG Sales EBITDA PAT 2013 2014 2015e 2016e China 89 6% 9% 12% 13% 13% 13% 13% 47% 1.2 India 123 8% 14% 15% 16% 16% 17% 17% 53% 1.0 Australia 32 4% 6% 6% 10% 16% 16% 15% 38% 1.9 South Korea 47 5% 7% 11% 12% 15% 15% 15% 31% 1.2 South Africa 19 6% 2% 2% 13% 18% 17% 15% 42% 4.9 Taiwan 20 8% 8% 8% 16% 17% 16% 16%

• 9%

1.6 Saudi Arabia 15 4% 3% 4% 14% 15% 15% 14% 31% 3.5 Singapore 15 9% 9% 10% 11% 10% 11% 11% 23% 1.6 Malaysia 16 5% 8% 8% 12% 11% 12% 12% 13% 1.9 Indonesia 14 11% 10% 12% 20% 19% 19% 19% 8% 1.4 World 1,563 5% 8% 10% 15% 15% 15% 15% 41% 1.3

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Growth recovery on track

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Past performance may or may not be sustained in future Source: Central Statistical Organization, MOSL estimates.

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Indian GDP growth expected to pick up

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Recent Budget proposals show the intent of improving growth rates

GDP Growth (%)

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Economic Recovery leads to higher earnings

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0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

• 2.0%

3.0% 8.0% 13.0% 18.0% 23.0% 28.0% 33.0% 38.0% 43.0% Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 GDP Growth Sensex Earnings Growth Earnings growth GDP Growth

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High correlation between company earnings & GDP Growth

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In the last bull market of 2007-08, Sensex earnings growth had reached a high of 37%

Past performance may or may not be sustained in future Source: Bloomberg. Earnings growth is of S&P BSE Sensex.

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Corporate profits to GDP likely to revert to mean

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Corporate profits to GDP is below the long term trend

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Mean reversion of corporate profits to long term average may lead to earnings revival

Past performance may or may not be sustained in future Some of the above data are only estimates & actual data may vary depending on various market & economic factors. Corporate Profit above is Profit after Tax of all listed companies. Source: MOSL Estimates

3 4.7 5.4 6.3 7.3 7.8 5.6 6.5 6.2 4.9 4.6 4.3 4.4 4.6 4.9 5.4 1 2 3 4 5 6 7 8 9 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E Corporate Profit to GDP (%) Average: 5.5%

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Earnings Growth expected to propel equity markets

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After a subdued 8% EPS growth period, Sensex EPS expected to grow

Past performance may or may not be sustained in future Source: Bloomberg, MOSL estimates. EPS = Earnings per share.

FY03-08: 25% CAGR FY08-14: 8% CAGR 216 236 272 348 450 523 718 833 820 834 1,024 1,123 1,183 1,340 1,524 1,836 2,190 5,000 10,000 15,000 20,000 25,000 500 1,000 1,500 2,000 2,500 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015E FY2016E FY2017E Index Level Sensex EPS EPS S&P BSE Sensex

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Budget Announcements – Furthering Growth

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Source: Ministry of Finance

Big sector reforms Reforms in banking, housing, infrastructure & rationalizing tax reforms Opening sectors for FDI FDI cap for defence, railways & insurance was raised Fiscal consolidation Fiscal deficit target was left unchanged; roadmap for fiscal consolidation Focus on Investments Measures to attract capital inflows & to boost household disposable income (higher exemption & tax deduction limit) Inflation Commitment to address structural issues in the supply side to contain inflation; setting up a fund to smoothen out fluctuations in food prices

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Reliance Capital Builder Fund – Series C Investment Framework & Strategy

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Investment Philosophy

19 Key Themes:

Economic Recovery

Note: The current fund philosophy may change in future depending on market conditions or fund manager’s views.

Emerging Themes High Capability companies at Reasonable Valuations

Urban Recovery: Auto, Retail Industrial revival: Engineering, Capital Goods Defence, Railways Media Internet, E-Commerce Leader in ignored or underpriced segments Long operating history Low near term visibility Travel & Hospitality

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Investment Themes: Urban Recovery

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Source:Business Standard, Economic Times, Forbes, IIFL Research

Signs of an Urban Recovery in India

Forrester’s Asia Pacific Online Retail forecasts, no.

• f online buyers in India to

reach 39 mn by 2014-end & 128 mn by 2018-end Car sales up for 3rd straight month; with festive season nearby SIAM has given a full-year sales growth guidance of 8-10% Credit card payments have picked up in 2014 suggesting uptick in urban consumption India's largest car maker Maruti Suzuki India says its August domestic sales grew by 29% from last year

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Investment Themes: Urban Recovery

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Higher per capita GDP increases disposable income

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Discretionary spending typically increases by 10x when per capita GDP doubles

Past performance may or may not be sustained in future Source: MOSL estimates. The above analysis does not consider inflation, savings & other economic factors. The actual data may vary depending on various economic factors.

GDP p.c. $1,000 GDP p.c. $2,000 900 1,000 100 1,000

GDP growth & discretionary spending correlation

Basic Spend Discretionary Spend 10x

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Investment Themes: Industrial Recovery

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Manufacturing capacity utilization at the lower end of historical range

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June IIP growth number positive for the third straight month

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Traffic volume at major ports has picked up in last couple of months

65 70 75 80 85

2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

Capacity Utilization for manufacturing companies (%)

Source: RBI, Bloomberg, CMIE & IIFL Research

• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10% Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Index of Industrial Production (IIP) Average: 77%

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Investment Themes: Defence

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Source: Ministry of Finance. * Union Budget estimates

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Capital Expenditure of armed forces is expected to be ~INR 90kcrs in FY15E; INR 33k crs in FY05

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India in the midst of a major spending drive to modernize its armed forces; entails an investment of ~$100bn

100 200 300 400 500 600 700 800 900 1,000 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14* FY15* Defense Capex Expenditure (INR bn) Various Segments likely to benefit from Defence spending Aerospace & Air force Requirements Electronics Naval Systems Maintenance, Repairs and Operations (MROs) Artillery, Transportation, Components

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Investment Themes: Defence

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Source: Nation master, Edelweiss research

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New Government explicitly envisages India as exporter of defence equipment in the next decade

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Union Budget increased FDI in defence to 49%; enhanced capex by 20%

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Defense Procurement Procedure 2013 (Made in India v/s Import) & offset

• pportunity (Technology transfer) – key prospects for local companies

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Total opportunity of ~USD 25-40 bn from offset opportunity over next 5-7 years

Per capita defence spend globally

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Investment Themes: Railways

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Railway capex expected to increase to INR ~65,000 crs* in FY15; investments expected to increase over INR 1 lakh crs (12th Five year plan) by FY17

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Dedicated Freight Corridor Corporation of India (DFCC) spending estimated at INR 82,000 – 85,000 crores

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Metro projects under construction at ~ 390 kms; 730 kms at planning stage

100 200 300 400 500 600 700 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14* FY15* Investments in Railways (INR bn)

Source: Ministry of Finance. * Union Budget estimates

Various Segments likely to benefit from Railway spending Civil Construction Electricals Signaling Locomotive & Coach Air Cooling & Ventilation

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Investment Framework

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Fund will endeavor to invest in High growth potential companies generating relatively good earnings High ROEs or rising ROEs High operating leverage Sustainable businesses with operational track record; at an inflexion point to scale up Good quality managements; no fractured balance sheets

Note: The current fund philosophy may change in future depending on market conditions or fund manager’s views.

Companies with: Companies across market cap with bias towards midcaps 25 – 30 stocks; focused portfolio

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RMF Fund Management Expertise

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RMF Fund Management Strength

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Large & Experienced Team:

• 6 Fund Managers including CIO Equities supported by 15 member analyst

team.

• Cumulative experience of over 350 years in Indian Equities of which

collectively over 100 years with RMF

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Strong In House Research:

• Active coverage of over 450 companies (> 1100 co’s tracked)
• Analyst Team subdivided with specialists covering all key areas:

– Sectors & Companies – Quantitative Analysis – Economics & Macro – Technical Analysis

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Our research capability empowers the Fund Manager to be BOLD in identifying high growth potential stocks & manage the RISK associated with it (Past performance may or may not be sustained in future) 28

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Scheme Facts

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Scheme Features

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Investment Objective Option Minimum Application Amount The investment objective of the scheme is to provide capital appreciation to the investors, which will be in line with their long term savings goal, by investing in a diversified portfolio of equity & equity related instruments with small exposure to fixed income securities. Although, the objective of the Fund is to generate optimal returns, the objective may or may not be achieved. Direct – Growth & Dividend Payout Other than Direct– Growth & Dividend Payout, Rs 5,000 and in multiples of Re 1 thereafter Benchmark S&P BSE 200 Index Asset Allocation Diversified Equity & Equity Related Instruments: 80%-100% Debt & Money Market Instruments: 0%-20% Load Structure Entry Load - Nil. Exit Load: Not Applicable. Since the scheme shall be listed on BSE or any other recognised Stock Exchange, Exit load shall not be applicable. Fund Manager Sailesh Raj Bhan & Jahnvee Shah (Overseas Investments)

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Fund Manager Profile

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Name Sailesh Raj Bhan Qualification MBA (Finance), CFA (ICFAI) Experience

• Over 18 years in Equity research and Analysis
• Managing funds at Reliance Capital Asset Management Ltd since

2003 Designation Deputy CIO – Equity

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Scheme Specific Risk Factors: Trading volumes and settlement periods may restrict liquidity in equity and debt investments. Investment in Debt is subject to price, credit, and interest rate risk. The NAV of the Scheme may be affected, inter alia, by changes in the market conditions, interest rates, trading volumes, settlement periods and transfer procedures. The NAV may also be subjected to risk associated with investment in derivatives, foreign securities or script lending as may be permissible by the Scheme Information Document. BSE Disclaimer: It is to be distinctly understood that the permission given by BSE Ltd. should not in any ways be deemed or construed that the SID has been cleared or approved by BSE Ltd. nor does it certify the correctness or completeness of any of the contents of the SID. The investors are advised to refer to the SID for the full text of the Disclaimer clause of the BSE Ltd.

Disclaimers

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The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. Certain factual and statistical information (historical as well as projected) pertaining to Industry and markets have been obtained from independent third- party sources, which are deemed to be reliable. It may be noted that since RCAM has not independently verified the accuracy or authenticity of such information or data, or for that matter the reasonableness of the assumptions upon which such data and information has been processed or arrived at; RCAM does not in any manner assures the accuracy or authenticity of such data and

• information. Some of the statements & assertions contained in these materials may reflect RCAM’s views or opinions, which in turn

may have been formed on the basis of such data or information.



Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision. None of the Sponsor, the Investment Manager, the Trustee, their respective directors, employees, affiliates or representatives shall be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material.

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

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Thank you