Market Strategy January 2021 AUGUST 2, 2017

Market Strategy January 2021

Sumit Pokharna [email protected] MARKET OUTLOOK FOR 2021 +91 22 6218 6438 Wishing you all a safe, healthy, and prosperous new year! 2020 has turned out to be one of the most unpredictable year for everyone. Equity markets Rusmik Oza [email protected] worldwide have gone through a roller coaster ride in this calendar year. The Nifty-50 fell 40% +91 22 6218 6441 between January & March and then rose by 86% from the lows of March. The Global equity rally has been led by the Big Tech companies which has taken the Nasdaq Composite Index up by a whopping 43% in this calendar year. In 2020, Nifty-50 and BSE Sensex have delivered returns of 15% & 15.9%, respectively which is at par with the MSCI Emerging Market Index and better than MSCI World Index. Unlike past two years 2020 saw a broad based rally with higher participation coming from mid & small caps. (Source: Bloomberg)

In 2020 the Nifty Mid Cap 100 Index & BSE Small Cap Index have gained 22% & 32%, respectively beating the Nifty-50. Two defensive sectors namely BSE Healthcare (up 62%) and BSE IT (up 56%) gave exceptional returns in this CYTD. Recovery across risk assets supported mainly by easy monetary policy by global Central banks. Finally, we are starting to see the light at the end of the tunnel with COVID vaccines availability. Three sectors delivered negative returns in 2020 which are BSE Bankex (-2%), BSE Oil & Gas (-4%) and BSE Utilities (-1%).

2021 outlook: 2021/FY2022 likely to be a better year with a strong recovery in both the economy and earnings. We expect India’s real GDP to grow by 9.3% in FY22E vs (‐) 8.6% in FY21E. Naturally with strong growth, other macro-economic parameters to normalize in FY22E like 1) consolidated GFD/GDP declining to 9% from 11.9% in FY21, 2) CAD slipping to 0.4% from (-) 0.7% of GDP in FY21, etc. Further, we expect CPI inflation averaging to 4.7% in FY22 versus 6.4% in FY21E and INR being range-bound versus sharp depreciation in CY20. According to the Centre for Economics and Business Research (CEBR), India will become 5th largest economy in 2025, 3rd largest by 2030 in the world, overtaking UK in 2025, Germany in 2027 and Japan in 2030. Moreover, it forecasts that the Indian economy will expand by 9% in 2021, by 7% in 2022 and by 5.8% in 2035.

Notably, the most important macro-economic variables to monitor would be i) actual inflation trajectory, ii) related RBI monetary policy action and iii) exit strategy from the current loose monetary conditions. Uptill now, RBI has maintained its accommodative stance while emphasizing the importance of economic growth over inflation.

Dollar index hits 2.5 year lows: The U.S. Federal Reserve, whose policy affects economies worldwide, slashed interest rates to near zero and committed to not raising them until inflation exceeds its 2% target, resulting in dollar chasing higher returns in other markets. A weak dollar is certainly positive for emerging market (EM) currencies, equity markets and commodities. In 2020, dollar Index has depreciated by nearly 7%. We expect combined Central Bank balance sheets of Fed, ECB and BoJ to expand by US$ 7.8 lac crore in CY20 and by another US$ 3.7 lac crore in CY21. With higher risk-on flows into emerging markets, we expect INR to trade with an appreciating bias through H1FY22 (i.e.72-75). With risk emanating in the later part we except INR to have depreciating bias in the H2FY22 (i.e.74-77).

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Market Strategy January 2021

Earnings Outlook Key factors which will drive the markets in 2021 - i) Covid-Vaccines wide availability & reopening of economies, ii) Dollar index movement & related FPI flows, iii) Oil price movement, iv). Inflation & Interest rates movement and vi) Earnings trajectory. We see possibility of moderate earnings upgrade over the next few months. We expect Nifty-50 earnings to increase by 11% (base effect) in FY21E, 28% in FY22E and 19% in FY23E. Notably, sharp earnings jump in FY22E will be supported by automobiles, banks, metals and telecom sector. Our updated free float EPS for Nifty-50 stands at Rs.488 for FY21E, Rs.628 for FY22E and Rs.746 for FY23E. Moreover, last five years earnings CAGR of Nifty-50 is just 2.6% (i.e. FY16-20). On the low base, we expect Nifty-50 earnings CAGR for the period of FY20-23E to be ~18%. (As per KIE and Bloomberg).

Valuation and Outlook Both MSCI World Index and MSCI Emerging Markets Index are trading at decade high valuations. The Nifty-50 is trading at 23.6x on one year forward PE basis as compared to its 10 year average of 15.8x and previous peaks of ~19x. Although, valuations are a worry, the underlying structure of the market has remained positive given the strong FII inflows, expectations of earnings upgrades and early vaccine availability. The low bond yields globally is also helping equity markets sustain and trade at higher valuations.

Going forward strong FII flows, weak dollar index and healthy earnings growth could keep valuations at elevated levels. With fresh stimulus coming from BoJ & ECB and likely stimulus coming from Fed early next year we expect FPI flows to remain strong in initial months of CY21. Overall we expect FII flows to range between US$ 15 & 20 bn in CY21 as compared to more than US$ 22 bn received in this calendar year to date.

We see markets behaving differently in first half and second half of CY21. Q3 earnings season could turn to be strong due to healthy advance tax figures and also lead to some earnings upgrades. We can expect Nifty to go anywhere between 14,000 & 15,000 range sometime in first quarter of CY21. Post budget and Q4 result season we expect markets to go into some kind of consolidation phase and witness time correction. We expect moderation in monetary policies and rising yields scenario in 2HCY21, which will lead to mean reversion of valuations towards 10/15 year averages. Based on these thesis we have used the previous 15 years peak of 19x Fw PE multiple to value the Nifty-50 to derive at our CY21 end target. We expect Nifty- 50 to end CY21 somewhere ~13,500 and BSE Sensex to end at ~46,000.

Most of the high growth and quality stocks are now ‘priced to perfection’ leaving scope for potential re-rating in value stocks. As we go into CY21 with few vaccines coming in the market it is be ideal to play the recovery theme for next year. In this scenario cyclical sectors and stocks could score over defensives in CY21. Returns, in CY21 could be more broad-based as compared to the wide divergence seen in CY21. Returns could also be a function of earnings upgrades and potential of any re-rating which could be higher in case of value stocks in CY21.

The Nifty Mid Cap 100 Index was trading at a discount to Nifty-50 in terms of valuations at the start of CY20 which has now gone into premium. Based on Bloomberg consensus estimates the Nifty Mid Cap 100 Index is trading at 23.5x on a one year Fw PE basis which is at par with the Nifty-50. Between large and mid caps we would prefer large caps as they could be more resilient in any future correction and also remain the favourites of FIIs. The BSE Small cap Index is still underperforming the Nifty-50 because of the steep erosion in market cap over the previous two years. Since the small cap space is an ocean one can do individual bottom fishing with proper research and reading.

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Market Strategy January 2021

Global Indices Performance - CY20

MSCI World 13.9 MSCI EM 15.6

S&P 500 15.5 Dow Jones Indl 6.6 NASDAQ COMP. 43.4

Germany 3.5 France -6.8 UK -14.3

BSE Sensex 15.8 Nifty 50 14.9 NIFTY Midcap 100 21.9 S&P BSE SmallCap 32.1

Taiwan 22.8 Japan 16.0 S.Korea 30.8 Hong Kong -3.4 Shanghai 13.9 Singapore -11.8 Indonesia -5.1 Thailand -8.3 Brazil 2.9 Russia 8.0

-20.0 -10.0 0.0 10.0 20.0 30.0 40.0 50.0 Source: Bloomberg India Sectoral Performance – CY20

BSE Bankex -2.1% BSE Oil & Gas -4.4% BSE Utilities -0.4% BSE Realty 8.7% BSE Capital Goods 10.6% BSE Metals 11.2% BSE FMCG 10.5% BSE Auto 12.6% BSE Consumer Durables 21.5% BSE Telecom 13.6% BSE Industrials 17.8% BSE Energy 16.8% BSE IT 56.7% BSE Healthcare 61.4%

-25.0% -15.0% -5.0% 5.0% 15.0% 25.0% 35.0% 45.0% 55.0% 65.0% 75.0%

Source: Bloomberg Commodity performance – CY20 Currency Performance – CY20

Silver (US$/oz) 48.7% US Dollar -2.4%

Copper (US$/ton) 26.4% Japanese Yen -7.9% Gold (US$/oz) 25.0% Euro -12.1% Aluminium (US$/ton) 11.0% Chinese Yuan -9.8% Richard Bay coal (US$/ton) 11.4%

Brent crude (US$/bbl)-25.0% British Pound -5.3%

-35.0% -15.0% 5.0% 25.0% 45.0% 65.0% -15.0% -10.0% -5.0% 0.0% Source: Bloomberg Source: Bloomberg

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Market Strategy January 2021

TOP INVESTMENT IDEAS

Price Fair Upside/ Mkt EPS Rating (Rs) Value Downside cap. EPS (Rs) growth (%) P/E (x) P/BV (x) RoE (%) Company 30 Dec 20 (Rs) (%) (Rs Cr) FY22E FY23E FY22E FY23E FY22E FY23E FY22E FY23E FY22E FY23E

Bajaj Auto BUY 3,448 3,900 13.1 99,778 185 216 19.7 17.1 18.7 16.0 4.2 3.8 23 25 Bharti Airtel BUY 516 710 37.6 2,81,589 10.2 21.4 NM NM 50.8 24.2 4.7 4.2 9.5 18.4 Britannia Industries ADD 3,584 4,050 13.0 86,325 81 93 2.9 15.8 45 38 21.1 17.7 54 50 Hindustan Zinc BUY 239 295 23.4 1,01,070 20.3 22.7 14.7 11.8 11.8 10.6 3.2 3.2 27 30 ICICI Bank BUY 529 600 13.4 3,65,028 27 30 15.9 11.4 19.6 17.6 2.4 2.2 12.3 12.5 Infosys BUY 1,247 1,400 12.3 5,31,085 48.9 55.4 12.0 13.2 25.5 22.5 6.5 5.9 27 28 Kalpataru Power BUY 318 475 49.3 4,738 39 43 56.8 11.7 8.2 7.3 1.0 0.9 13.5 12.9 Petronet LNG BUY 247 300 21.5 36,975 21.7 24.1 11.0 10.8 11.3 10.2 3.0 2.9 27 29 State Bank of India BUY 277 340 22.7 2,47,122 30 39 24.8 30.4 9.3 7.2 1.1 1.0 10.0 11.7 SBI Life Insurance BUY 903 1,150 27.9 90,300 20.8 23.6 16.9 13.1 43 38 8.1 6.8 20 19.3 Source: Kotak Institutional Equities. For details refer to KIE India Daily report dated 31st Dec 2020; Note: Earnings season has started and KIE would be changing their earnings estimates, price targets and ratings of above companies as and when their results are out in near future.

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Market Strategy January 2021

INTERNATIONAL MARKETS Long emerging markets is the favorite trade for CY21

Global central Easy US Fed banks balance Policy US Dollar Index hits 2.5 year sheet will low continue to expand

Bank of General England Long emerging markets is government extended its the favourite trade for gross debt to cheap funding CY21 GDP climbs scheme for banks

European Japan Central Banks approved a loose largest-ever monetray draft budget policy for 2021

Source: Kotak Securities – Private Client Group.

Public debt climbs in the Pandemic According to International Monetary Fund’s world economic outlook, governments have increased spending to protect jobs and support workers. Globally, government measures to cushion the pandemic’s economic blow totaled US$12 lac crore. Such staggering levels of spending have pushed global public debt to an all-time high.

Chart showing ratio of general government’s gross debt to GDP

Source: International Monetary Fund’s World Economic Outlook (Oct 2020) and CNBC.

Accommodative Fed Policy The FOMC kept policy rate unchanged and informed that it would not begin tapering its asset purchase program until “substantial further progress toward the Committee’s maximum employment and price stability goals” has been made. The FOMC now estimates inflation at 1.8% in 2021 (1.7% earlier) and GDP growth at 4.2% (4% earlier).

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Market Strategy January 2021

Bank of England The Bank of England (BoE) kept monetary policy unchanged given the “unusually uncertain” outlook for the UK economy on the back of spread of Covid and Brexit related uncertainty. The MPC decided to maintain policy rate at 0.1% and keep the asset purchasing program unchanged at GBP 89500 crore by end-2021. It extended its cheap funding scheme for banks to lend to SMEs till October 2021.

Japan approved a largest-ever draft budget for 2021 As per media sources, Japan's Cabinet approved a largest-ever US$1.03 lac cr (106.61 lac cr yen) draft budget for fiscal 2021 due to coronavirus pandemic, its rapidly aging society and new security challenges. To finance the budget, new bond issuances will soar 11.04 lac cr yen from the current year's initial plan to 43.60 lac cr yen, the first year-on-year rise in 11 years on an initial basis. (Source: Japantimes.com)

Global Central Bank Balance Sheets Major central banks launched massive stimulus programs in 2020 to contain the fallout from the coroanvirus outbreak. We foresee the cumulative balance sheet of the US Federal Reserve, the European Central Banks and Bank of Japan to expand by US$ 3.7 lac crore in CY21 Vs US$ 7.8 lac crore in CY20. As such, central banks are unlikely to halt or scale back stimulus anytime soon. Huge infusion of liquidity could keep asset prices at higher levels. Notably, long emerging markets has become the favourite trade for CY21.

Net change in balance sheet of DM central banks, December calendar year-ends, 2007-21E (US$ bn)

Source: Kotak Institutional Equities

US Dollar Index hits 2.5 year low In 2020, dollar Index has fallen around 13% from the high of 102.8 levels in March 2020. Just to highlight, the dollar index gauges the greenback's strength against a basket of six currencies. A weak dollar is certainly positive for emerging market (EM) currencies and flows to EM markets and also for commodities. Before the US election outcome the Dollar Index was at 94. Post US election and subsequent posture of Fed there has been consistent weakness in the Dollar Index.

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Market Strategy January 2021

Dollar Index

105

100

75 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18 Dec 19 Dec 20

Source: Bloomberg

Brexit UK has finally sealed the trade deal and cooperation agreement with the EU, preparing the ground for the Brexit legally. The deal has come into force on January 1, 2021, guaranteeing tariff-free trade on goods and creating a platform for future co-operation. The agreement will be applied on a provisional basis until February 28, 2021 while EU and UK stakeholders scrutinize the details of the agreement. (Source: ec.europa.eu; KIE)

Global crude oil demand at around 10 cr b/d through CY2025 According to BP’s Energy Outlook 2020 report, global oil demand may have already peaked/will peak over CY2020-25.

Global oil demand stable over CY2019-30E in the business-as-usual scenario; decline in two other scenarios

BP's estimates of global oil demand, calendar year-ends, 2019-30E (mn b/d)

Source: BP, Kotak Institutional Equities

This raises several profound issues (1) large amount of oil reserves that may never be used; “the oil age did not end for lack of oil” may become a thing in the future, (2) future of oil prices as companies may be reluctant to invest in new capacity resulting in possible volatility in prices even as near-term supply glut and ‘excess’ production capacity in the US shale oil industry may cap prices, (3) strategy of governments and companies and (4) valuation of oil & gas companies.

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Market Strategy January 2021

Global surplus oil supply to continue in CY2021 Estimated global crude demand, supply and prices, calendar year-ends, 2014-21E

Notes: (a) OPEC production data includes Indonesia in 2012 and Gabon from 2013 onwards. Source: IEA, Kotak Institutional Equities estimates

We expect Brent crude oil price to average around US$40/bbl in FY21E, US$45/bbl in FY22E and US$50/bbl in FY23E.

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Market Strategy January 2021

DOMESTIC MARKETS India's macro-fundamentals to monitor

GDP growth

Currency Inflation

India's macro- fundamentals

Current Interest account rate balance

GFD/GDP (%)

Source: Kotak Securities – Private Client Group.

Macro-economic parameters to normalize over FY2022-23 We strongly believe that the economy is set to rebound from the low base. However, structural growth rate beyond FY22 is much more relevant, according to us.

Summary of India's macro-fundamentals, March fiscal-year ends, 2016-23E

Source: CEIC, Kotak Institutional Equities

As indicated above in the table, due to base effect, Indian economy is expected to show a strong recovery in FY22 i.e real GDP growth is expected at 9.3%. Naturally with the strong GDP growth, we expect normalization in other macro-economic parameters in FY22 -- (1) consolidated GFD/GDP declining to 9% from 11.9% in FY21, (2) CAD slipping to 0.4% from (-) 0.7% of GDP in FY21, (3) CPI inflation averaging 4.7% versus 6.4% in FY21 and (4) INR being range-bound versus sharp depreciation in CY20.

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Market Strategy January 2021

YoY growth in India's real GDP, March fiscal year-ends, 2001-2023E (%)

In our view, the actual inflation trajectory, related RBI monetary policy action and exit strategy from current loose monetary conditions would be the most important macro-economic variable. Our base-case outlook for CY21/FY22 assumes (1) no resurgence in Covid-19 cases in India, (2) gradual rollout of Covid-19 vaccines in India starting Q2/3CY21, (3) continued recovery across sectors and reopening of more sectors from H2CY21 including education (physical classes) and international travel and (4) no major change in RBI’s monetary policy with a gradual exit from current ultra-loose monetary policy—gradual removal of surplus liquidity and rate increases from H2CY21 (subject to growth and inflation dynamics).

Robust Nifty-50 Index earnings growth in FY22E and FY23E We believe Nifty-50 Index earnings to recover sharply on the back of further economic recovery. Expect Nifty-50 earnings to grow by 28% in FY22 and 19% in FY23 (Vs 11% growth in FY21E). Interesting to note that, FY21 earnings growth reflects low base in a few sectors in FY20 such as oil, gas & consumable fuels reflecting large adventitious/inventory losses in Q4FY20 and telecom reflecting low ARPUs and profits. We see possibility of moderate earnings upgrade over the next few months and the extent of earnings upgrades would be one of the key drivers of the market. Nonetheless, a few sectors may disappoint if consumption, especially discretionary consumption, was to decelerate on sustained Covid-19 impact on household incomes.

Our EPS estimates have seen moderate upward revisions in the past few weeks Nifty-50 Index EPS estimates trend, March fiscal year-ends, 2019-23E

EPS estimates Nifty-50: EPS estimates (in Rs.)

800 Nifty-50 EPS (Rs)-LHS 40% % chg (RHS) 600 30%

400 20%

200 10%

- 0%

(200) -10% FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Source: Companies, Kotak Institutional Equities estimates Source: Bloomberg & Kotak Securities – Private Client Group

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Market Strategy January 2021

Is RBI’s rate cut cycle over? Yes, we do believe RBI’s rate cut cycle is over. Hence, we do not expect any further rate cuts and believe that the MPC could begin the process of policy normalization (from being below the reverse repo) in FY22. The RBI policy minutes shed light on increasing complexities arising out of (1) low short-term rates and sustained negative real interest rates, (2) macro-financial stability given liquidity, credit, and money supply, and (3) unequal pricing power among firms.

Real interest rate has become negative over the past few months Trend in 10-year G-Sec yield adjusted for CPI inflation (%)

Source: CEIC, Kotak Institutional Equities estimates.

Prof. Varma raised two key issues with respect to rates and inflation: (1) reduction in short- term rates (below the reverse repo rate) “carries significant risks and very little rewards” and (2) “…ripe conditions for the oligopolistic core to start exercising pricing power”. (Prof. Jayanth R. Varma is the member of Monetary Policy Committee (MPC)

We expect CPI inflation to be 6.4% in FY21E, 4.7% in FY22E and 4.9% in FY23E. Even as we expect inflation to soften we remain mindful of the upside pressures from rising commodity prices, pricing power of firms, and risks of demand-side pressure. This may weigh on the overall core inflation trajectory as economic growth has started to normalize. While we expect headline inflation to moderate back into the RBI’s target band from December, the floor is likely to remain elevated in the foreseeable future.

Inflation to trend down over the next few months Headline and core CPI inflation (%)

Source: CEIC, Kotak Institutional Equities estimates.

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Market Strategy January 2021

INR: story of two halves We believe forex market outlook will broadly be determined by the following factors (1) secular USD weakness, (2) sustenance of easy DM monetary policies and (3) pace of vaccine rollout. Yes, while these are favorable for risk-on flows across EMs, the consequent growth recovery will provide a fillip to commodity prices capping some of the gains in INR.

With higher risk-on flows into emerging markets, we expect INR to trade with an appreciating bias through H1FY22 (i.e.72-75). With risk emanating in the later part we except INR to have depreciating bias in the H2FY22 (i.e.74-77).

SIPs Systematic Investment Plans (SIP) flows have were steady, though a tad lower on a year-on- year basis. Strong SIP flows is a positive for the markets as it helps in providing support to the markets in times of FII selling.

Monthly SIP flows Rs cr FY21 FY20 FY19 FY18 FY17 Total 63,440 100,080 92700 67190 43920 March 8640 8060 7120 4340 February 8510 8090 6430 4050 January 8530 8060 6640 4100 December 8520 8020 6220 3970 November 7302 8270 7990 5890 3880 October 7800 8250 7990 5620 3430 September 7788 8260 7730 5520 3700 August 7792 8230 7660 5210 3500 July 7831 8320 7550 4950 3330 Jun 7917 8120 7550 4740 3310 May 8370 8180 7300 4580 3190 April 8640 8240 6690 4270 3120 Source: AMFI

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Market Strategy January 2021

KEY SECTORAL OUTLOOK

Automobiles Pent-up demand, preference for personal mobility, strong rural economy and lower interest rates helped swift volume recovery for the passenger vehicle industry post reopening of the economy We expect two wheeler and passenger vehicle volumes to grow on the back of recovery in economic activity and lower base. After two consecutive years of steep decline in domestic truck volumes, we expect volumes to grow from FY22E onwards on the back of revival in road freight, strong replacement demand and lower base. Favourable scrappage policy could further boost truck replacement demand in the medium term. Tractor segment demand remains buoyant amid improving farm sentiments.

Capital Goods We expect private sector spending to remain constrained in CY21 due to lower industry-wide capacity utilisation caused by the lockdown. However, select industries like Metals, Cement, Food & Beverage, pharma and chemicals should provide opportunities for order intake. In the buildings sector, premium offices and hotels are deferring capex but there is increased interest from builders and real estate for digitized building solutions. Benefits from government initiatives on Atmanirbhar Bharat could also be a positive as manufacturers go for higher domestic content. Outlook on Transmission and Distribution sector is positive and large tenders are expected to be finalised in next 1-2 years. If economic growth gains traction and interest rates remain benign, then we can be hopeful of corporates thinking seriously on fresh capex plans to add capacity.

Consumer Durables The Consumer durables sector remains a multi-year growth story as 1) higher disposable incomes 2) lower product life cycle 3) demand for energy efficient products and 4) ease of purchase through e-commerce mode is expected to drive demand. In several product categories like ACs and Front loading washing machines, the household penetration is very low in India, thus offering huge room for growth. Higher reliability of electricity and improved service network is also aiding higher demand for consumer durables. Contract manufacturing for consumer durables and consumer electronics is emerging as a fast growing segment, which has received a boost from the government’s “Production Linked Incentive” scheme.

Going into 2021, we believe economic recovery, quicker availability of Vaccine, and favourable weather (sustained summer for ACs) will be the key drivers that will influence demand. Any second wave of infections or mutations of virus as recently observed in the UK, could be a spoiler for demand. Commodity prices have risen in recent months, which could put pressure on margins going ahead.

Consumer Staples The Fear jobs loss and income has made people circumspect even as things have started improving post unlock. Macro challenges continue to persist and companies are hopeful of a demand pickup by the end of this year or early next year. While the months of April and May continued to be weak, July/August/ September saw mid-single-digit growth. Managements of most companies indicated continued improvement in demand during the course of 2QFY21 and thereafter in October (getting into festive season). Even as per market insight firm Nielsen, the FMCG industry has displayed signs of recovery in Q3CY20 with a growth of 1.6% yoy. This was following a 19% yoy decline in Q2CY20. As per Nielsen, the growth seen in the FMCG sector reflected positivity witnessed in the overall macroeconomic scenario amid opening up of the economy and easing of lockdown restrictions.

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Market Strategy January 2021

There is high demand for personal wash products, household care and select food items. Margin outlook is positive with benign crude and other raw material prices (except dairy). Furthermore, low media intensity, strict control of overhead costs and Ind-AS 116 impact should help reported EBITDA margins, even as operating leverage will be a drag for most names. Rural is now growing faster than urban given (a) lower Covid-led disruption, (b) good harvest season and (c) government initiatives. Companies are taking initiatives to support distribution network – judicious deployment of credit to support trade and insurance for distributor partners, among others. They have further accelerated steps to drive digital adoption in the trade. Management commentary across the board suggests continued recovery in demand, buoyancy in rural consumption and comfort on profitability.

Construction Infrastructure and construction sector is expected to see push from central government funding in CY21 in order to revive economic growth and achieve targets under Self Reliant India Mission. State government projects may get impacted due to fiscal constraints led by priority towards fighting Covid-19. We expect order inflows in CY21 to remain strong from the sectors like road, railways, building, urban infra, etc. We expect improved performance from construction companies operating in the space based on robust order backlog, strong order pipeline, lower interest rates and improved availability of labour resources. In our view, unlocking of economy and mandatory usage of FASTag on National Highways from 1st January 2021 bode well for BOT toll road operators.

We remain constructive on the sector as most of the stocks still trade at a significant discount to their peak valuations. Key risks include increase in interest rate, sharp volatility commodity prices, any future lockdown, etc.

Cement Demand remained robust in October-November but has moderated in December 2020 led by extreme weather and farmer protests in a few regions. Cost headwinds should hit from 3QFY21-end but price strength should partly offset the impact on margins. Variable costs bottomed in June 2020 and have continued to see an increase in 3QFY21. After record earnings in 2QFY21, margins should moderate with higher fixed costs in 2HFY21. We now expect cement demand to decline by 6% in FY21E led by a sharp recovery in demand post Covid-19. Utilization drops to 59% in FY21E and recovers to 65% by FY23E. Industry capacity additions are expected to grow at CAGR of 4% for the next four years.

Natural Gas The pickup in economic activity has led to a recovery in gas demand in October 2020, with total gas consumption growing by 5% yoy to 16.05 cr scm/d as compared to a reduction of 3.5% in H1FY21—this will result in higher gas transmission volumes for gas transmission companies like GAIL. Further, we expect gas volumes to improve further, underpinned by (1) commissioning of new pipelines including Urja Ganga phase I project and Kochi-Mangalore section, (2) anticipated pickup in availability of domestic gas as well as LNG and (3) policies directed towards shift to gas in several segments such as CGD and industrial sector.

The recent increase in crude-linked as well as spot LNG prices will augur well for the gas marketing segment of GAIL, as the respective differential with the US LNG price has reduced considerably in the past few months. This may drive a turnaround in gas marketing profitability from EBITDA losses in the past two quarters, when the contracted LNG prices were at a premium to spot LNG price and crude-linked swaps. Spot LNG prices are seasonal and volatile in nature and may moderate going forward, but global crude prices remaining steady at current levels may help GAIL in placing the US LNG volumes without any loss.

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Market Strategy January 2021

Pharmaceuticals Pharma sector continues to remain attractive with positive outlook for next two-three years. We feel the domestic pharma business could witness growth in the range of 10-12% which is sustainable in the medium term. In the US, we feel, companies with clear USFDA track record with a pipeline for complex generics are likely to benefit with steady improvement in their profitability. Also during the pandemic, the cost-savings undertaken would partially sustain. We feel going forward the focus shall be on execution to improve growth and profitability. Also progress on speciality business in the US will be monitored. We feel that API and CRAMs businesses would grow at healthy pace as India becomes a preferred destination for manufacturing. Key risks: Increased number of USFDA inspections, currency volatility & inclusion of more products under NLEM in India.

Real estate The real estate sector is betting on a better CY21, after facing Covid-19 led challenges in CY20. Residential real estate across India showed signs of improvement as sales gradually crawl up to pre-COVID levels. Pent-up demand, reduced home loan interest rates and the need to invest in well planned, spacious homes amidst extended work from home are key demand drivers. Trend of consolidation in the real estate sector is evident with more formalization coming in the sector due to RERA, GST and post the NBFC crisis. We are encouraged by the improving absorption trends in commercial space, particularly by top tenants in India with the listed REITs.

We remain constructive on real estate stocks, though the recent run-up leaves less upside on the table. Key risks are any major change in government policy for the sector, increase in interest rate, sharp volatility in commodity prices, any future lockdown, etc.

Steel Industry Domestic steel prices are up by Rs6,500-7,000/ton sequentially in 3QFY21E and exit prices of Q3FY21 are Rs4,000/ton higher. Supply issues, both, in India and global markets, have driven a Rs2,000/ton or 78% hike in iron ore prices versus 2QFY21 average. Both these factors augurs well for the companies who are backward integrated. We expect domestic steel makers earnings to reach record high levels in H2FY21 and accelerate deleveraging. However, in FY22E we expect spot steel spreads to moderate but the current strength helps reduce leverage and drives earning upgrades.

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Market Strategy January 2021

VALUATIONS Bloomberg World Market Cap Vs World Bank World GDP (USD Bn)

The World Market Cap 115000 Bloomberg World Exchange Market Cap in USD to GDP ratio stands at World Bank World GDP in Current USD 124% Vs last 5 years 95000 average of 92% and last 10 years average 75000 of 84%.

55000

35000

15000 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-20 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-20

Source: Bloomberg

India: Market Cap Vs. Nominal GDP (Rs.Bn) India’s current Market Cap to 200000 Nominal GDP ratio India Mkt Cap India Nominal GDP stands at 99% Vs last 160000 5 years average of 83% and last 10 120000 years average of 82%. 80000

40000

0 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10

Source: Bloomberg

MSCI World Vs MSCI Emerging Market (EM) Index: Fw PE chart Both MSCI World and 22.0 MSCI World Fw PE MSCI EM Fw PE MSCI EM are trading 20.0 at decade high 18.0 valuations. The MSCI World Index trades at 16.0 20.8x on Fw PE Vs 14.0 previous 10 year peaks of 17x. The 12.0 MSCI EM Index 10.0 trades at 15.2x Vs 8.0 previous 10 year peak of 13.3x 6.0 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-10 Dec-20

Source: Bloomberg

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Market Strategy January 2021

Bond PE Vs Nifty-50 Fw PE

On Bloomberg 25.0 Bond PE Nifty 50 Fw PE consensus estimates The Nifty-50 Fw PE 22.0 trades at 22.3x Vs 19.0 Bond PE of 17x. The premium of Nfity-50 16.0 PE over Bond PE works to 530 bps Vs 10 year 13.0 average of 250 bps. 10.0

7.0 Jul-15 Jul-20 Jul-10 Apr-14 Apr-19 Apr-09 Oct-11 Oct-16 Jan-13 Jan-18 Jan-08 Feb-15 Feb-20 Feb-10 Jun-13 Jun-18 Jun-08 Dec-15 Dec-20 Dec-10 Sep-14 Sep-19 Sep-09 Mar-12 Mar-17 Aug-12 Nov-13 Aug-17 Nov-18 Aug-07 Nov-08 May-11 May-16

Source: Bloomberg

Nifty-50 Fw PE Chart

On Bloomberg 24.0 consensus estimates 10 Yr Avg Fw PE Nifty-50 Fw PE the Nifty-50 trades at 20.0 22.3x on Fw PE basis Vs 10 year average of 16.0 15.8x and previous 15 years multiple peaks 12.0 at ~19x.

8.0

4.0 Jul-14 Jul-07 Apr-16 Oct-19 Apr-09 Oct-12 Oct-05 Jan-18 Jan-11 Feb-15 Feb-08 Jun-17 Jun-10 Dec-13 Dec-20 Dec-06 Sep-15 Sep-08 Mar-19 Mar-12 Nov-16 Aug-18 Aug-11 Nov-09 May-13 May-20 May-06

Source: Bloomberg

Nifty-50 Vs Nifty Mid Cap 100 Index (1 Yr Fw PE) In terms of Fw PE 28.0 Nifty Mid Cap 100-Fw PE Nifty-50 basis the Mid Cap Index is trading at a 24.0 premium over Nifty- 50. On Bloomberg 20.0 consensus estimates 16.0 the Nifty Mid Cap 100 Fw PE works to 23.5x 12.0 Vs 22.3 of Nifty-50. 8.0

4.0 Jul-14 Jul-07 Apr-16 Oct-12 Oct-19 Apr-09 Oct-05 Jan-18 Jan-11 Feb-15 Feb-08 Jun-17 Jun-10 Dec-13 Dec-06 Dec-20 Sep-15 Sep-08 Mar-12 Mar-19 Aug-11 Nov-16 Aug-18 Nov-09 May-13 May-06 May-20 Source: Bloomberg

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Bajaj Auto (BJAUT) - BUY

Company Update

Current Market Price (CMP) Target Price Rs.3448 Rs.3900

Our fair value of Rs.3900 offers 13.1% upside from the current market price. Rationale: • Strong long-term growth potential in export geographies. • We expect sales volume to grow by 20.5% in FY22E and 14.6% in FY23E. • We expect earnings to grow by 19.7% in FY22E and 17.1% in FY23E. • Stock is trading at a PE of 16.0x FY23E earnings. • Our fair value is based on Discounted Cash Flow (DCF) valuation.

Company Update: Positives: • Company to follow a strategy to gain market share in domestic 2W market • Richer mix to improve profitability in domestic two wheeler (2W) segment. • Company is able to maintain operating margins in these challenging times. • BJAUT is a free cash flow generating company.

Negatives: • We expect decline in sales and net profit in FY21E.

Click here For detailed report dated 22nd Oct 20. Note: CMP & valuation may differ due to difference in dates.

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This is a synopsis of the Research report issued by Kotak Securities Limited. This is not a comprehensive report and before taking any investment decision we request you to refer the detailed report including disclaimers by clicking here: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamental. Further, the recipient of this material should take their own professional advice before investing.

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BHARTI AIRTEL (BHARTI) – BUY

Company Update

Current Market Price (CMP) Target Price Rs.516 Rs.710

Our fair value of Rs710 offers upside of 37.6% from current market price. Rationale: • Improvement in sector fundamental and solid execution bodes well for BHARTI. • Management expects further increase in Average revenue per user (ARPU). • Bharti has sufficient cash on books with no liquidity issues. • Expects BHARTI to report free cash flow of Rs17,227 cr during FY21-23E period. • Expect BHARTI to report EPS of Rs10.2 in FY22E as compared to loss in FY21E. • Value the stock on Sum of the parts (SOTP) & arrive at a fair value of Rs710.

Company update: Positives: • 2QFY21 topline and EBITDA grew 7.7% and 11.9%, respectively on qoq. • ARPU jumped Rs5 QoQ despite no price hikes. • In India wireless subscriber base was up 1.39 cr QoQ to 29.37 cr

Negatives: • BHARTI reported loss of Rs713.9 cr in 2QFY21. • Net interest expense during the quarter jump to Rs3,610 cr. • Reported exceptional loss of Rs49.3 cr pertaining to employee restructuring.

For detailed report dated 28th October 2020. Note: CMP & valuation may differ due to difference in dates

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Britannia Industries (BRIT) - ADD

Company Update

Current Market Price (CMP) Target Price Rs.3584 Rs.4050

Our fair value offers an upside of 13.0% from the current market price. Rationale: • BRIT’s domestic business volumes grew by about 9% in Q2FY21. • There was moderation in topline, but good execution in profits in Q2FY21. • We expect earnings to grow by 2.9% in FY22 and by 15.8% in FY23. • Stock is currently trading at valuation of 38.1x P/E FY23E EPS. • We value BRIT on Discounted Cash Flow (DCF) based fair value of Rs 4050.

Company Update: Positives: • Profitability continued to be impressive (operating margin up 385bps to 20.1%). • BRIT has ramped-up its direct reach to more than pre-Covid levels. • BRIT is well-placed to step up investments & scale up new growth engines.

Negatives: • Lockdown related temporary benefits are now behind. • Palm oil is seeing sharp inflationary pressure. • Volatility has made forecasting near-term demand difficult.

Click here For detailed report dated 21st October 2020. Note: CMP & valuation may differ due to difference in dates.

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HINDUSTAN ZINC (HZ) – BUY

Company Update

Current Market Price (CMP) Target Price Rs.239 Rs.295

Our fair value of Rs295 offers upside of 23.4% from current market price. Rationale: • Stronger than expected demand recovery supported zinc prices. • We expect earnings to grow at 9.7% in FY21 and 14.7% in FY22. • HZ’s strong growth visibility, high payout, Free cash flow yield and inexpensive valuation suggest attractive risk-reward. • We value Zinc & lead-7x & silver-10x FY22E EBITDA & arrive at fair value of Rs295.

Company update: Positives: • 2QFY21 sales increased to Rs5,660 cr led by higher metal volumes & silver prices. • Zinc cost of production fell sequentially to US$919/ton. • Board has approved an interim dividend of Rs21.3/share.

Negatives: • Profit declined 7% yoy due to lower other income and higher depreciation. • The commissioning of the Fumer project at Chanderiya has got delayed.

For detailed report dated 20th October 2020. Note: CMP & valuation may differ due to difference in dates

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ICICI Bank (ICICIBC) – BUY

Company Update

Current Market Price (CMP) Target Price Rs.529 Rs.600

Our price target of Rs. 600 offers upside of 13.4% from current market price Rationale: • Analyst meet gave glimpse of the efforts it is taking to rebuild itself as a bank • Execution is solid & we believe that this would reflect in a higher multiple • We keep our faith in this transition, and it is our top idea in banks • ICICIBC currently trades at a slight discount to peers & 2.2X FY23E book value • Our fair value of Rs.600 is based on Dec’22 valuation.

Company update: Positives: • Bank has regained growth across indicators, trending towards return to normalcy • Bank build scale that works for smaller ticket sizes without impairing cost structure • Evolve products around the customer need & translating to revenue is cost effective • Commentary & execution give comfort that the bank is coming out well this time

Negatives: • Lingering aspect was inability to understand when shareholder gets to see benefit • We are still yet to see it in the final frontier: the RoA/RoE normalization (RoA – Return on Assets; RoE – Return on equities)

Click here For detailed report dated 7th December 2020. Note: CMP & valuation may differ due to difference in dates.

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Infosys (INFO) – BUY

Company Update

Current Market Price (CMP) Target Price Rs.1,247 Rs.1,400

Our fair value of Rs.1,400 implies upside of 12.27% from current market price. Rationale: • Announced a mega-deal with Daimler for IT infrastructure transformation. • Strong deal wins provide visibility of double-digit revenue growth for FY22E. • Lift, shift and transformation can drive strong growth over the next 2-3 years. • Expect earnings to grow by 12.0% in FY22E and 13.2% in FY23E. • Even after the run-up, it offers reasonable upside.

Company update: Positives: • Focus on large deal wins was a key CEO agenda. • The Daimler deal highlights continued success in the large deal strategy. • Infosys will absorb Daimler’s employees across various geos. • Deal wins validate its capabilities, assets, solutions and partnerships. • The company has hit a sweet spot in our view on large/mega-deals.

Negatives: • Infosys has not disclosed deal size or duration.

Click here For detailed report dated 22nd December 2020. Note: CMP & valuation may differ due to difference in dates.

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Kalpataru Power Transmission (KPTL) - BUY

Company Update

Current Market Price (CMP) Target Price Rs.318 Rs.475

Our fair value of Rs 475 implies an upside of 49.3% from current market price. Rationale: • Improvement in performance was seen across all segments. • Management’s clarification on reduction of share pledges was comforting. • Expect earnings to grow by 56.8% in FY22E and 11.7% in FY23E. • Stock is trading at P/E of 8.1x/7.4x FY22E/FY23E forward earnings.

Company Update: Positives: • In Q2FY21, KPTL reported better than expected Revenue and profits. • Company expects order finalization to improve in 2HFY21. • Improved cash flow and transmission asset sale to help debt reduction.

Negatives: • Standalone gross debt has moved up qoq. • Order intake and Order backlog are down 72%/19% yoy respectively. • Working Capital has moved up due to higher receivables.

Click here For detailed report dated 6th November 2020. Note: CMP and valuation may differ due to difference in dates.

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Petronet LNG (PLNG) – BUY

Company Update

Current Market Price (CMP) Target Price Rs.247 Rs.300

Our fair value of Rs.300 implies upside of 21.46% from current market price. Rationale: • Robust results amid recovery in volumes and higher blended margins. • Expect gradual ramp-up in volumes driven by increase in utilization of Kochi. • PLNG increased its special dividend to Rs.8.0/share now from Rs.5.5/share. • Expect earnings to grow by 11.0% in FY22E and 10.8% in FY23E. • We value PLNG stock at Rs.300 using discounted cash flow methodology.

Company update: Positives: • Operating profit up 50% qoq to Rs1363 cr in Q2FY21, 18% above our estimate. • Volumes rose by 2% yoy and 34% qoq and sharp jump in blended gross margins. • Adj. net income up 18% yoy & 78% qoq to Rs927 cr, 30% above our estimate. • Plans for five LNG dispensing outlets on its own & 19 outlets with the OMCs.

Negatives: • No progress on discussions pertaining to non-binding MoU with Tellurian.

Click here For detailed report dated 13th November 2020. Note: CMP & valuation may differ due to difference in dates.

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State Bank of India (SBIN) – BUY

Company Update

Current Market Price (CMP) Target Price Rs.277 Rs.340

We see 22.7% upside in the stock at our Fair Value of Rs. 340

Rationale:

• Performance on collections & outlook on restructured loans is similar to Pvt. banks

• Legacy book has been adequately addressed & the bank does not expect surprises

• We expect earnings to grow at 24.8% in FY22E • SBIN trades at valuation of ~1.1X FY22 & 1X FY23 expected book value, respectively

• We are valuing at 0.8x book & 6x Sept 2022E EPS for RoEs ~8 -10% in medium-term (E- Expected; EPS – Earnings per share; RoE – Return on equities)

Company Update:

Positives: • Retail book should hold up better in this cycle as compared to corporate book

• ~50% yoy earnings growth on the back of ~25% yoy decline in provisions in 2QFY21 • NII grew impressively at 15% yoy; NIM improved ~0.05% to 3.1% in 2QFY21 (NII – Net Interest income; NIM – Net Interest Margin)

• In 2QFY21, Gross NPL hit 5-year low at 5.3%; Net NPL is at an 11-year low at 1.6% (NPL – Non-performing loans)

Negatives:

• Loan growth declined further to 6% yoy driven by subdued corporate loans • Possible slippage (not accounted due to Supreme Court ruling) of 0.5% of loans

Click here For detailed report dated 4th November 2020. Note: CMP & valuation may differ due to difference in dates.

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SBI Life Insurance (SBILIFE) – BUY

Company Update

Current Market Price (CMP) Target Price Rs.903 Rs.1150

Our price target of Rs. 1150 offers upside of 27.9% from current market price

Rationale:

• SBILIFE had performed broadly in line with industry averages in November Month

• We expect 8% yoy overall growth in APE in FY21E (11% yoy growth in FY20) (APE – Annual premium equivalent) • We expect VNB Margin of 19% & 20% in FY21E & FY22E respectively (VNB - Value of new business; it is used to measure profitability of new business written in the given period)

• SBI Life currently trades at 2.4x FY22E Price/EV (CMP/Embedded value)

Company Update: Positives:

• Group APE was up 10% yoy likely due to strong growth in credit life in Nov’20 • We expect growth in APE of 34% yoy in next remaining 4 months of FY21

• As of 2QFY21, SBILIFE holds largest market share of 12% in terms of APE

Negatives:

• Individual APE was down 6% yoy in Nov’20 (up 14% yoy in Oct’20)

• Individual sum assured was down 12.1% yoy in Nov’20 (up 9.7% yoy in Oct’20)

Click here th For detailed report dated 9 December 2020. Note: CMP & valuation may differ due to difference in dates.

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Market Strategy January 2021

RATING SCALE (KOTAK SECURITIES – PRIVATE CLIENT GROUP) / KOTAK INSTITUTIONAL EQUITIES Definitions of ratings BUY – We expect the stock to deliver more than 15% returns over the next 12 months ADD – We expect the stock to deliver 5% - 15% returns over the next 12 months REDUCE – We expect the stock to deliver -5% - +5% returns over the next 12 months SELL – We expect the stock to deliver < -5% returns over the next 12 months NR – Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only. SUBSCRIBE – We advise investor to subscribe to the IPO. RS – Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NA – Not Available or Not Applicable. The information is not available for display or is not applicable NM – Not Meaningful. The information is not meaningful and is therefore excluded. NOTE – Our target prices are with a 12-month perspective. Returns stated in the rating scale are our internal benchmark.

FUNDAMENTAL RESEARCH TEAM (PRIVATE CLIENT GROUP) Rusmik Oza Arun Agarwal Amit Agarwal, CFA Priyesh Babariya Head of Research Auto & Auto Ancillary Transportation, Paints, FMCG Research Associate [email protected] [email protected] [email protected] [email protected] +91 22 6218 6441 +91 22 6218 6443 +91 22 6218 6439 +91 22 6218 6433

Sanjeev Zarbade Jatin Damania Purvi Shah K. Kathirvelu Cap. Goods & Cons. Durables Metals & Mining, Midcap Pharmaceuticals Support Executive [email protected] [email protected] [email protected] [email protected] +91 22 6218 6424 +91 22 6218 6440 +91 22 6218 6432 +91 22 6218 6427

Sumit Pokharna Pankaj Kumar Krishna Nain Oil and Gas, Information Tech Midcap M&A, Corporate actions [email protected] [email protected] [email protected] +91 22 6218 6438 +91 22 6218 6434 +91 22 6218 7907

TECHNICAL RESEARCH TEAM (PRIVATE CLIENT GROUP) Shrikant Chouhan Amol Athawale Sayed Haider [email protected] [email protected] Research Associate +91 22 6218 5408 +91 20 6620 3350 [email protected] +91 22 62185498

DERIVATIVES RESEARCH TEAM (PRIVATE CLIENT GROUP) Sahaj Agrawal Malay Gandhi Prashanth Lalu Prasenjit Biswas, CMT, CFTe [email protected] [email protected] [email protected] [email protected] +91 79 6607 2231 +91 22 6218 6420 +91 22 6218 5497 +91 33 6625 9810

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Market Strategy January 2021

Disclosure/Disclaimer (Private Client Group) Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of BSE Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management. Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). We are registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise/warning/deficiency letters/ or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time. We offer our research services to clients as well as our prospects. This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of Kotak Securities Ltd. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completeness cannot be guaranteed. Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions -including those involving futures, options and other derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals. Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward- looking statements are not predictions and may be subject to change without notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. We and our affiliates/associates, officers, directors, and employees, Research Analyst(including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of Research Report or at the time of public appearance. Kotak Securities Limited (KSL) may have proprietary long/short position in the above mentioned scrip(s) and therefore may be considered as interested. The views provided herein are general in nature and does not consider risk appetite or investment objective of particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with KSL. Kotak Securities Limited is also a Portfolio Manager. Portfolio Management Team (PMS) takes its investment decisions independent of the PCG research and accordingly PMS may have positions contrary to the PCG research recommendation. Kotak Securities Limited does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any manner. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and take professional advice before investing. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. No part of this material may be duplicated in any form and/or redistributed without Kotak Securities' prior written consent. Details of Associates are available on www.kotak.com 1. “Note that the research analysts contributing to the research report may not be registered/qualified as research analysts with FINRA; and 2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account Any U.S. recipients of the research who wish to effect transactions in any security covered by the report should do so with or through Kotak Mahindra Inc. (Member FINRA/SIPC) and (ii) any transactions in the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc. (Member FINRA/SIPC) at 369 Lexington Avenue 28th Floor NY NY 10017 USA (Tel:+1 212-600-8850). Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This research report and its respective contents do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services. Accordingly, any brokerage and investment services including the products and services described are not available to or intended for Canadian persons or US persons.” Research Analyst has served as an officer, director or employee of subject company(ies): No We or our associates may have received compensation from the subject company(ies) in the past 12 months. We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months: No We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies). Research Analyst or his/her relative's financial interest in the subject company(ies): No Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: Bajaj Auto, Bharti Airtel, Britannia, ICICI Bank, Petronet LNG, SBI - Yes Nature of financial interest is holding of equity shares or derivatives of the subject company. Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No.

Kotak Securities – Private Client Group Please see the Disclosure/Disclaimer on the last page For Private Circulation 20

Market Strategy January 2021

Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report. "A graph of daily closing prices of securities is available at https://www.nseindia.com/ChartApp/install/charts/mainpage.jsp and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the "three years" icon in the price chart)." Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com/www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: INZ000200137 (Member ID: NSE-08081; BSE-673; MSE-1024; MCX-56285; NCDEX-1262), AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk factors before actually trading in derivative contracts. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected]. In case you require any clarification or have any concern, kindly write to us at below email ids:  Level 1: For Trading related queries, contact our customer service at '[email protected]' and for demat account related queries contact us at [email protected] or call us on: Toll free numbers 18002099191 / 1860 266 9191  Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at [email protected] or call us on 022-42858445 and if you feel you are still unheard, write to our customer service HOD at [email protected] or call us on 022-42858208.  Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Mr. Manoj Agarwal) at [email protected] or call on 91- (022) 4285 8484.  Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach Managing Director / CEO (Mr. Jaideep Hansraj) at [email protected] or call on 91-(022) 4285 8301.

Kotak Securities – Private Client Group Please see the Disclosure/Disclaimer on the last page For Private Circulation 21