India Strategy15oct20

India Strategy

January 2021

Entering virtuous cycle of Growth

Amnish Aggarwal [email protected] 91-22-6632 2214

January 15, 2021 1 India Strategy

January 2021

January 15, 2021 Entering virtuous cycle of Growth

Indian economy seems poised on much higher growth trajectory in the coming few years. We believe long term trends are emerging in Infra, Housing, IT Services, Pharma, Chemicals, BFSI, Agri and Ecom which will create a virtuous cycle of

growth. We believe pick up in these labor intensive segments will generate

employment and boost demand in the economy. Market has become much more broad based with participation of most sectors. we believe Ecom, Electric Vehicles, OTT, Green energy, make in India and Financialisation will be key market drivers in the coming decade. We remain overweight on Banks, Consumer, IT, Auto and Pharma. We turn equal weight on Capital Goods and underweight on Oil and Gas, Metals and NBFC.

We note that markets are driven by hopes of structural economic recovery and high

levels of global liquidity and record FII inflows even as DII remain sellers on the back of redemption pressures. While Covid 19 vaccination program take off in India give us confidence of growth revival, we don’t rule out markets taking a pause and near term correction around or after budget.

NIFTY target increased by 5% to 15137: NIFTY earnings have now entered an

upgrade cycle. We note that PL FY21/22/23 EPS are witnessing an upgrade of

5.8/5.6/4.5% while consensus EPS is rising by 8.9/8.7/4.1% respectively. PL Nifty estimates are higher than consensus by 8/5.2/3.4%. We take last 10-year average PE of 20x and based on our FY23 EPS of Rs756.8, we arrive at 15-month NIFTY target of 15137 (14407 earlier based on 20x FY23 NIFTY EPS).

Entering Virtuous cycle of growth

Headwinds Tailwinds Strong rebound in demand for Real estate Imposition of covid cess on corporate tax and Housing construction Increase in Capital gains tax rate on shares Beginning of vaccination program, significant Limited scope for GOI to boost economy decline in case additions in past 3 months Credit growth remains poor Strong rural demand momentum given High inflation in commodities will increase normal monsoons and higher crop prices project costs GST collections at all-time high, sustained Rising fury of covid 19 in Europe and USA pickup in demand across auto, durables Delay/Dilution of Agri reforms can reduce growth IT services growth and increase in employment generation Bottomed out interest rates Sharp decline in food inflation Source: PL

India starts Covid Vaccination

. India has seen considerable improvement with daily case addition between 15- Amnish Aggarwal 17k cases in past week/10 days, which is a great improvement from a high of [email protected] | 91-22-66322233 97k cases/day. Recovery rate at 96.5% remains amongst best in the world

while death rate is just 1.4%. Global recovery rate and death rate stand at 71.5% and 2.1% which is gradually improving

January 15, 2021 2 India Strategy

. Contrary to fears a couple of months back, India has been able to control spike post festival season, which also indicates probability of herd immunity.

. Second wave of Covid 19 has been far more severe in Europe and USA with many countries reporting case additions many times higher than first wave. While there seems significant panic about new mutated stain from UK, Covid 19 is likely to have its impact for some time more.

. India has entered select club of nations which is starting Vaccination. India has approved Covishield (manufactured by SII under license from UK) and Covaxin from Bharat Biotech. India will be vaccinating 30mn frontline workers in phase 1 and gradually the entire population. We believe vaccination program will take at 6-9 months for full coverage.

Rural demand intact, watch for Farm Bills

Delay/ dilution of farm bills have the Rural India is leading the way for recovery post lockdown. Normal monsoon, lower potential to derail the expected pest infestation, remunerative crop prices (9.7% food inflation), adequate soil growth in farm income and consequently rural demand in moisture and among the best water reservoir levels in last 5 years have led to medium term acceleration in agricultural activity. Rabi sowing has been encouraging and firm crop prices are positive, despite decline in vegetable prices in past few weeks. We believe suspension of implementation of new farm bills and farmer agitation is a setback for much awaited Agri reforms in the country. We believe Agri reforms are essential to improve the wellbeing of 60% of rural population. Near term rural demand scenario is intact given bountiful monsoons, rising importance of dairy farming and horticulture, increased labor and employment opportunities due to uptick in housing and infra and just 30-35% rural income dependence on agriculture.

3QFY21 shows broad based recovery

We estimate 1.9% YoY decline in sales, 12.4% growth in EBIDTA and 31.4% growth in PBT on strong 287bps margin expansion and strong festival demand. Ex BFSI EBIDTA and PBT growth is estimated at 19.2% and 31.4%. Ex Oil and Gas PBT growth is 17.7% while PAT growth is 47.2%.

3Q is led by strong demand from festival season which continued post festive season as well. Auto, Cement, Consumer Durables, Metals, Pharma and consumer are likely to post double digit topline growth. Aviation, Media, Oil and Gas and Education will be worst affected as segments like Multiplexes, travel, tourism are yet to recover from Covid impact.

Indian economy enters a new supercycle

We believe that Indian economy is entering a new supercycle of growth. We believe that there are enough green shoots like 1) 100-150bps increase in GDP estimates 2) all time high GST collections 3) rising order inflow of infra companies 4) increase in housing construction and real estate registrations 5) Power consumption 6) Petrol and Diesel sales 7) Auto Sales 8) Credit card transactions and 9) durable sales. Although sectors like travel, tourism, aviation, organized retail, multiplexes and restaurants remain under pressure, expect strong recovery in medium term.

January 15, 2021 3 India Strategy

Housing witnessing strong momentum

Recent data and channel checks indicate that the demand and construction for housing has started showing strong momentum from 2Q21. Affordability index of HDFC which has static since 2009, has declined by 25% since then. 35% improvement in affordability as per CRISIL led by 4% decline in interest rates (1% decline leads to 6% increase in affordability), decline in real estate prices and reduction in stamp duty on property transfer from 5% to 2-3% in several states.

Housing has huge multiplier impact on the economy as it results in higher demand for Cement, Steel, Electrical accessories, adhesives, construction chemicals, Paints, plywood and a host of ancillary industries. More importantly it increases demand for daily wage labor which creates employment at the bottom end of pyramid which boosts demand in the economy.

Government thrust on infrastructure spending

GOI had announced plans to invest Rs1000bn over FY20-25 I the areas of energy, roads, water, sanitation, Metros, railways and irrigation etc. Thrust on infrastructure creation has helped companies improve utilization to 80-90% pre-covid levels currently. NHAI has given orders for ~1330km and expects another 4500km ordering in current year. L&T has seen 36% increase in order inflow in 3Q21.

Industry is likely to end the year with utilization of 70% which gives us confidence regarding revival of private sector capex post 3Q22. However, some segments such as Digitization, Automation of packaging lines, Data centers, Cements, Chemicals, Pharma API, Healthcare, etc. are gaining traction in order inflows. We believe a combination of strong Govt thrust on infra creation and private sector capex revival will accelerate growth momentum and job creation in the economy. Weak fiscal situation remains a key monitorable to accelerate growth momentum.

Auto demand to sustain in FY22/23

Auto sales across segments (barring 3Ws) seen sharp recovery as demand sustained post festive. We believe the industry is well poised to witness healthy double digit growth across segments.

PV’s: We expect PV sales to grow ~18%/10% YoY in FY22/23 respectively led by Change in consumer behaviour with increasing shift towards personal mobility. This has resulted in increase in first time buyers to ~55% in H1FY21 (v/s ~43% in H1FY20 /40% in H1FY19). There has been a significant growth in PV’s rural mix over the years which is visible in case of MSIL where rural share of sales has increased to ~41% in H1FY21 (v/s 38%/35% in FY20/FY15 respectively).

CV Segment: We believe the worst is over for CV segment and expect growth of ~31%/14% YoY in FY22/23. Among CVs, we expect MHCV to grow by 89%/19% YoY while LCVs to grow by 10% YoY each for FY22/23. It will be driven by uptick in HCVs (construction, cement and heavy industries like steel) while momentum in ICVs, Tippers and LCVs continue. Fleet operator’s sentiments continue to improve as utilization level increased to ~90% now (v/s 45-50% in Q1FY21).

January 15, 2021 4 India Strategy

Exports present a big global opportunity

Auto component - Need capabilities for more exports share

India can be the beneficiary of China+1 strategy however this is not an overnight process and will take few years. China auto component industry is ~USD550bn (v/s ~USD50bn of India). Industry is expected to look at electronics in a big way as lot of new regulations require components like sensors. Many companies are doing JVs or pushing their vendors to set up their base in India which will increase localization. Steel, Tyres and mechatronics are currently new focus areas. Tools, dies and electronics are some areas were India is lacking behind while it is well placed in all other segments.

Pharma – Better compliance can improve India’s share

Indian firms have rapidly expanded their presence in the list of new generic approvals by the (FDA) in the last 5 years. Indian pharma companies received more than 300 approvals in CY19, which is an all-time high despite Indian companies receiving 46% of warning letter (highest in last 4 years) given by FDA with all majors CADILA, SUNP, DRRD, ARBP and CIPLA included in the list.

We believe with high investments made for the US market in the form of the number of ANDAs filed, R&D expenses and better compliance will increase pharma exports in coming years. We believe that global move at diversifying the sourcing away from china presents a strong growth opportunity for Indian pharma companies. With a better understanding of regulatory issues (post the barrage of FDA observations since CY15), we believe that Indian companies will come stronger and achieve better growth in coming years.

IT services - demand upcycle to increase hiring and wages

Strong demand for IT services and outcome based work from anywhere business model has resulted in higher offshoring and outsourcing. Recent large deal wins announced by IT companies, majority of them in ER&D services, indicate increased focus on outsourcing by US & European firms. Hiring activity index grew by 71% in the Apr-Dec 2020 period for the IT Services sector as per Naukri hiring index for Dec 2020. Strong hiring momentum will continue in CY21 with hiring activity index improving by 35% in Dec 2020.

Large outsourcing deal wins by Indian IT in past two quarters Number of IT Services outsourcing Clients Company deals TCS 2 Postbank Systems AG, Prudential Financial Infosys 2 Daimler, Rolls Royce, Vanguard Wipro 2 Marelli, Metro AG USD100mn+ deal from global oil & gas company, LTTS 2 Schindler KPIT 1 BMW Group Aesculap, a subsidiary of B. Braun, one of the world's Tata Elxsi 1 leading manufacturers of medical devices and pharmaceutical products Source: Company, PL

January 15, 2021 5 India Strategy

PLI schemes to aide Atmanirbhar Push

. As a part of its Atmanirbhar Bharat and with a view to enhance India’s manufacturing capabilities and enhance exports, the GOI announced Production Linked Incentive (PLI) schemes with a total allocation of Rs2 trillion spread over the next 5 years across various sectors.

. Details of three schemes – Large scale electronics manufacturing, bulk drug and medical devices (combined allocation of Rs513bn) have been announced.

. These sectors are chosen for their potential for indigenization (consumer durables), strategic nature (advanced cell chemistry and automobiles) and exports scale-up (textiles, mobiles, food processing, etc)

. Under PLI, 5-10% of sales will be provided as incentives beyond a set threshold

. Through PLI, GOI envisages to create an ecosystem that is likely to add 20lakh crore worth of manufacturing ecosystem and 3 crores well playing jobs.

Banks – Focus back on growth

Corporate deleveraging and NPA – we believe corporate/bank balance sheets have become much nimbler led by increased focus on cash flows and NPA resolutions. Some of the big NPA’s like Essar Steel, Essar Oil, Monnet Ispat, Ruchi Soya, Alok Inds, Bhushan steel, Lanco Infra, DHFL etc have seen resolution and some of them are in the process. We believe upturn in steel prices and housing demand will reduce pressure on banks and improve the lending growth with a lag.

. Banks have made 30-140bps of COVID/Contingency provisions even as they have strong PCR of 65-85% (excl. technical write-offs). Hence incremental provisioning should come down significantly in FY22 onwards.

. With strong liquidity with banks as liquidity coverage ratios (LCR) are in a range of 120-200% (mandate of 100%) as lending avenues are limited and risk aversion, overall banking system has grown at rate of 6-7% from last two years.

. Going ahead, we believe, focus will move back to growth opportunities especially continued traction in retail and renewed focus in SME/MSME segments which should drive earnings for the sector as interest rates are expected to remain benign.

Major Banks have significantly spruced up covid provisions Contingency Provisions Provision Liquidity Banks (% of loans) Coverage Coverage Ratio HDFCB 0.47% 84% 153% ICICIBC 1.44% 81% 145% Axis 1.60% 77% 117% KMB 0.67% 75% 182% IIB 1.06% 76% 140% SBI 0.26% 70% 159% PNB 0.21% 65% 194% IDFCB 1.95% 73% 138% Bandhan 1.96% 69% 148% RBL 1.18% 59% 171% Source: Company, PL

January 15, 2021 6 India Strategy

Interest rate outlook remains benign

With CPI inflation in range of 5-7%, RBI has maintained status quo on interest rates with benchmark repo rate at 4% with accommodative stance. It observes inflation should soften and come within a band of 2-4% - RBI target rate in 2HFY21 and FY22, keeping rates at lower level to support growth. In our view, rates will not move down but are likely to remain at similar levels for next 6-9 months. Banks have passed on 115bps of rate cuts on fresh rupee loans & 80bps on o/s loans against RBI cut of 115bps from Feb’20 onwards. Further lowering of rates seems a lower probability as Banks have also cut deposit rates by 100bps over year, moving to lowest rates historically (even on savings). Hence, we are likely to see benign rate scenario to continue until growth picks up.

Discretionary Consumption bottomed out

After declining by 23.9% in 1QFY21 and 7.5% in 2QFY21, real GDP growth is expected to break out into a positive territory in 3QFY21, as per RBI. Given expectations of sharp recovery, consumer discretionary sectors (direct play on disposable income) will again be in limelight. Post lockdown, we expect strong traction in restaurants, Airlines, travel & tourism, multiplexes (most cost effective “Out of Home” leisure alternative), Apparel, Footwear and entertainment. space. Overall, we believe consumer discretionary will be the biggest beneficiary as economy comes out of COVID-19 abyss sooner than expected.

Emerging trends for next decade

Each and every decade has brought about sea change in which people, countries and world has evolved. last decade started in Post Lehman world led by successive liquidity boosters saw Indian economy making strides in IT Services, Pharma, Private Banks, Insurance, Gas Distribution, shared mobility and organized retail. Although the decade ended with worst pandemic of last century, India emerged stronger than ever before due to strong IT services and great work of Pharma companies in developing vaccine. Private Banks, Consumption and IT were amongst best wealth creators during this decade.

Ecom, EV, OTT, Green energy, Although it is always difficult to comprehend the changes in the next decade given Financial services and Make are key fast paced technology, we believe this decade will see India making its mark in themes for coming decade global scene. Likely trends of the coming decade:

. E-commerce will result in a major shift in consumption behavior

. Electric Vehicles will transform the Auto Industry globally

. OTT to emerge as a major vehicle for content transmission

. Green energy – will emerge as a major portion of incremental capacity

. Make in India - White Goods, Electronics, Defense and Chemicals

. Financialisation of savings through Banks, Insurance and AMC’s

January 15, 2021 7 India Strategy

2021 Budget likely to be a tight rope walk

We believe with expected GDP decline of ~7-7.5% in FY21 and fiscal deficit in excess of 6.5%, Govt has a tight rope walk in the current budget. We believe very limited scope to give incremental tax incentives, except for promoting manufacturing in the country. We expect higher allocation for rural development, infra push, accelerated privatisation program and healthcare sector. Some of the highlights of 2021 is likely to be as Follows:

. Stimulus for economy – cash to stimulate demand

. New fiscal roadmap given slowdown and covid impact

. Covid cess to harness resources

. Increased push towards privatization

. Move towards universal PDS coverage

NIFTY target at 15137, near term correction looks likely

Worst is over and economy seems poised on much higher growth trajectory in the coming few years. We believe long terms are emerging in Infra, Housing, IT Services, Pharma, Chemicals, BFSI, Agri and Ecom which will create a virtuous cycle of growth. We believe pick up in these labor intensive segments will generate employment and boost demand in the economy. Market has become much more broad based with participation of most sectors. we believe Ecom, Electric Vehicles, OTT, Green energy, make in India and Financialisation will be key market drivers in the coming decade. We are adding Dalmia Bharat, Endurance, Zee Entertainment and HG Infra among top picks while we remove JK Lakshmi, KNR and Crompton Consumer, although we remain positive on these names for long term. We remain overweight on Banks, Consumer, IT, Auto and Pharma. We turn equal weight on Capital Goods and underweight on Oil and Gas, Metals and NBFC.

NIFTY target increased by 5% to 15137: NIFTY earnings have now entered an upgrade cycle. We note that PL FY21/22/23 EPS are witnessing an upgrade of 5.8/5.6/4.5% while consensus EPS is rising by 8.9/8.7/4.1% respectively. PL Nifty estimates are higher by 8/5.2/3.4%.

Base case: we take last 10-year average PE of 20x and based on our FY23 EPS of Rs756.8, we arrive at 15-month NIFTY target of 15137 (14407 earlier based on 20x FY23 NIFTY EPS).

Bull Case: we note that Nifty was trading at one year PE of 27x recently in the aftermath of Covid, which has distorted past peak PE multiples. We continue to take earlier peak of 25 and arrive at a 15-month target of 18921 (18094 earlier).

We note that markets are driven by hopes of structural economic recovery and high levels of global liquidity and record FII inflows even as DII remain sellers on the back of redemption pressures. While Covid 19 vaccination program take off in India give us confidence of growth revival, we don’t rule out markets taking a pause and near term correction around or after the next month budget.

January 15, 2021 8 India Strategy

Nifty 1-year forward PE, 25% premium to 10-year average and just 5% below 10 year high multiples

33.0

28.0 10 year Avg. 25.0 20.0x 23.0

18.0

13.0

8.0

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19

Jul-20

Apr-12

Oct-12

Apr-13

Oct-13

Apr-14

Oct-14

Apr-15

Oct-15

Apr-16

Oct-16

Apr-17

Oct-17

Apr-18

Oct-18

Apr-19

Oct-19

Apr-20

Oct-20

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19 Jan-20 Jan-21 Source: Bloomberg, PL

MSCI India Premium to MSCI Asia (Ex-Japan) continues to move down given firm global markets

100% 90% 80% 10 year Avg. 70% 55% 60% 50% 40% 30% 20% 29% 10%

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19

Jul-20

Apr-12

Oct-12

Apr-13

Oct-13

Apr-14

Oct-14

Apr-15

Oct-15

Apr-16

Oct-16

Apr-17

Oct-17

Apr-18

Oct-18

Apr-19

Oct-19

Apr-20

Oct-20

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20 Jan-21

Source: Bloomberg, PL

FY22/FY23 EPS growth at 33% and 16.3% respectively

FY20 FY21E FY22E FY23E

850 800 762 757 785 724 750 699 683 700 662 651 650 662 659 616 600 579 550 599 564 489 500 462 510 431 450 440 444

400

1-Jul-19

1-Jul-20

1-Apr-19

1-Oct-19

1-Apr-20

1-Oct-20

1-Jan-19

1-Jun-19

1-Jan-20

1-Jun-20

1-Jan-21

1-Mar-19

1-Mar-20

1-Feb-19

1-Feb-20

1-Nov-19 1-Dec-19

1-Nov-20 1-Dec-20

1-Aug-19 1-Sep-19

1-Aug-20 1-Sep-20

1-May-19 1-May-20

Source: Bloomberg, PL

January 15, 2021 9 India Strategy

Model Portfolio

PL Model Portfolio outperforms NIFTY by 8.3% since Nov 2018 even as it has moved in line with NIFTY since last Strategy report.

Nifty PL Mcap Sectors Weightage Weightage Weights Model Portfolio (Rs bn) (%) (%) Performance v/s Nifty Automobiles 5.8 6.0 Overweight Ashok Leyland 351 1.3 Model Returns Nifty Perf. Eicher Motors 781 0.6 1.4 Portfolio Mahindra & Mahindra 1,019 1.3 1.6 Since Maruti Suzuki 2,424 1.7 1.7 42.39% 34.10% 8.28% Nov'18 Banks 26.2 28.0 Overweight Since Axis Bank 2,066 2.7 2.0 Last 11.59% 11.66% -0.07% HDFC Bank 8,078 10.2 11.5 Report ICICI Bank 3,749 6.1 7.5 Source: PL Kotak Mahindra Bank 3,691 4.4 5.5 Indusind Bank 732 0.9 1.5

Cement 1.5 1.6 Overweight UltraTech Cement 1,574 1.0 1.6

Construction & Engineering 4.2 4.2 Equalweight Larsen & Toubro 1,902 2.6 3.0 Siemens 578 1.2

Consumer 10.9 12.0 Overweight Asian Paints 2,485 1.9 1.3 Avenue Supermarts 1,827 1.5 Britannia Industries 869 0.7 3.4 Crompton Consumer Electricals 243 1.0 Hindustan Unilever 5,524 3.4 3.5 Titan Company 1,311 1.0 1.3

Healthcare 3.5 4.5 Overweight Cipla 664 0.7 1.0 Dr. Reddy's Laboratories 867 1.0 1.5 Lupin Labs 496 1.0 Sun Pharmaceutical Industries 1,450 1.0 1.0

Life Insurance 1.5 1.6 Overweight HDFC Life Insurance 1,424 0.9 1.0 SBI Life Insurance Co. 910 0.6 0.6

IT 17.5 17.7 Overweight HCL Tech 2,686 1.8 1.8 Infosys 5,729 8.2 8.4 L&T Infotech 747 1.3 TCS 12,133 5.3 6.2

Metals 2.6 2.0 Underweight Hindalco Industries 569 0.6 1.0 Jindal Steel & Power 305 1.0

NBFC 10.6 10.3 Underweight Bajaj Finance 2,942 2.1 2.3 HDFC 4,739 7.6 7.0 SBI Cards & Payment Serv. 899 1.0

Oil & Gas 11.9 11.1 Underweight Indraprastha Gas 384 1.0 Reliance Industries 12,722 10.0 10.1

Others 1.6 1.0 Underweight Bayer CropScience 256 1.0

Telecom 2.2 - NA

January 15, 2021 10 India Strategy

. Banks/Insurance/NBFC: Overweight/Underweight: We had turned overweight on Banks by 30bps last time while we are now increasing the same to 180bps as we believe that pick up in infra and some commodity segments will further benefits banks as they have already shored up their balance sheets, have strong digital presence and will gain share in coming years. We increase weight of Indusind bank as capital infusion by promoters and clarity on NPA will gradually re-rate the stock. We retain overweight on insurance but cut weights slightly given recent run up in stocks. In NBFC we increase weightage of Bajaj Finance and turn over weight on the stock.

. Healthcare: Overweight: We believe that Post Covid 19 scenario will renew focus on healthcare. We retain overweight on Healthcare with focus on Dr. Reddy, Lupin, Sun pharma and Cipla although we reduce weight by 60bps.

. Overweight on IT: we retain overweight on IT given multiple growth engines of 1) Digitisation 2) Ecom/retail 3) WFH/WFA and 4) 5G. we believe that IT will have strong growth for coming few years, however we reduce overweight to 20bps only post recent run up in stock prices.

. Automobiles: Overweight: We believe Auto is gradually coming out of cyclical down turn and strong rural outlook adds to the attractiveness. We increase weights on M&M, Eicher and Ashok Leyland and turn equal weight on Maruti.

. Consumer: Overweight: We retain over weight on consumer. We cut weights on TTAN, APNT and HUL post recent rally. We increase our weights by 50bps on Avenue Supermart and 70bps on Britannia Inds.

. Capital Goods – equal weight: We turn equal weight on the sector as we increase weight on L&T as a proxy on the infra push of the govt across segments as well as growing presence in IT services with LTI, LTTS and Mind tree. We retain Siemens in model portfolio as a play on Digitization.

. Metals/cement: we are overweight on cement given strong pick up in sales and localized nature of commodity. We retain Hindalco and JSPL in the metals space. Hindalco offers steady potential given Novelis is a strong play on Consumer, Auto and rising Aluminum use in EV.

. Oil and Gas: Underweight; we turn underweight on Oil and Gas although we retain overweight on RIL as a formidable play in Telecom, Technology and retail, we believe that the company needs to deliver on execution to move to next level, we cut overweight to 10bps from 140bps. We retain our positive stance on Gas companies and retain IGL in the model portfolio.

. We retain Bayer India in model portfolio given expected benefits from normal monsoons, higher sowing and robust Agri sentiment.

January 15, 2021 11 India Strategy

Nifty Valuation

Weight- Weight- FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E age (%) age (%)

Banking & Fin. 38.2% Cement 1.6% PER (x) 36.8 31.7 24.9 20.6 PER (x) 48.1 35.6 31.4 27.1 PAT Grow th (%) 62.4 16.4 27.1 20.8 PAT Grow th (%) 47.2 35.3 13.2 16.1

Technology 17.4% Others 0.6% PER (x) 32.8 30.5 26.0 23.6 PER (x) 53.5 119.9 49.0 35.0 PAT Grow th (%) 4.5 7.7 17.2 10.4 PAT Grow th (%) 146.4 (55.3) 144.7 39.8

Oil & Gas 11.9% Ports & Logistics 0.6% PER (x) 22.8 28.3 16.8 14.4 PER (x) 56.4 23.2 18.5 16.1 PAT Grow th (%) (27.4) (19.4) 68.0 17.1 PAT Grow th (%) (26.7) 142.6 25.6 15.1

Consumer 11.0% Agro Chemicals 0.4% PER (x) 49.2 50.5 42.3 37.8 PER (x) 15.7 12.3 10.1 8.5 PAT Grow th (%) 18.9 (2.6) 19.4 11.9 PAT Grow th (%) 23.5 27.7 21.5 19.0

Eng. & Power 4.2% PER (x) 13.1 13.0 10.8 9.8 Nifty as on Jan 15 14,434 PAT Grow th (%) (5.0) 0.7 20.1 10.1 EPS (Rs) - Free Float 439.9 489.1 650.5 756.8 Auto 5.7% Growth (%) (4.2) 11.2 33.0 16.3 PER (x) 74.2 32.7 19.1 16.9 PER (x) 32.8 29.5 22.2 19.1 PAT Grow th (%) (56.8) 126.7 71.5 13.1 EPS (Rs) - Free Float - Nifty Cons. 439.9 453.0 618.6 731.9 Pharma 3.5% Var. (PLe v/s Cons.) (%) - 8.0 5.2 3.4 PER (x) 43.6 29.6 26.7 23.9 PAT Grow th (%) 35.1 47.3 10.8 11.6 Sensex as on Jan 15 49,035 Metals 2.6% PER (x) 12.3 9.0 7.6 7.4 EPS (Rs) - Free Float 1,518.0 1,574.1 2,066.3 2,429.4 PAT Grow th (%) (34.4) 36.7 18.6 2.6 Growth (%) 14.0 3.7 31.2 17.6 PER (x) 32.3 31.2 23.7 20.2 Telecom 2.2% PER (x) (9.8) (49.4) 47.6 25.1 EPS (Rs) - Free Float - Sensex Cons. 1,518.0 1,496.5 2,021.5 2,389.3 PAT Grow th (%) (7,959.1) (80.2) (203.9) 89.8 Var. (PLe v/s Cons.) (%) - 5.2 2.2 1.7 Source: Company Data, Bloomberg, PL Note: Telecom Nos. is Bloomberg Consensus / Sector Weightages are updated as on January 15, 2021

January 15, 2021 12

India Strategy

Top Picks

CMP TP Mcap Mcap Revenue Gr. (%) Earnings Gr. (%) RoE (%) RoCE (%)* PER (x) P/BV (x)* Upside (Rs.) (Rs) (Rs bn) (US$ m) 2022E 2023E 2022E 2023E 2022E 2023E 2022E 2023E 2022E 2023E 2022E 2023E

Large Cap

RIL IN Reliance Industries 1,937 2,232 15.2% 12,486.9 1,70,702 33.4 13.4 105.0 34.8 9.0 10.7 6.3 7.0 30.7 22.8 2.5 2.3 HDFCB IN HDFC Bank 1,467 1,645 12.2% 8,072.9 1,10,360 17.1 17.3 20.9 20.8 17.4 18.2 2.0 2.0 21.3 17.6 3.6 3.1 INFO IN Infosys 1,345 1,611 19.8% 5,706.4 78,010 16.5 12.1 20.2 9.5 28.2 27.9 34.4 33.7 24.7 22.5 6.4 6.2 ICICIBC IN ICICI Bank 543 614 13.1% 3,745.2 51,199 15.2 16.3 20.4 22.1 12.0 13.1 1.4 1.5 20.1 16.4 2.6 2.3

MSIL IN Maruti Suzuki 8,025 8,465 5.5% 2,424.1 33,139 12.3 9.4 37.0 30.8 14.0 17.2 10.6 14.7 34.4 26.3 4.7 4.3

LT IN Larsen & Toubro 1,354 1,284 -5.2% 1,901.1 25,989 14.1 9.9 35.7 10.9 11.9 12.0 6.1 6.5 20.9 18.9 2.4 2.2

UTCEM IN Ultratech Cement 5,452 6,100 11.9% 1,573.7 21,513 8.3 8.8 13.6 21.8 12.0 13.0 12.1 13.6 28.3 23.2 3.2 2.8 DRRD IN Dr. Reddy's Laboratories 5,213 5,975 14.6% 866.4 11,844 15.5 8.4 20.5 14.5 18.2 18.0 20.4 20.8 25.1 21.9 4.2 3.6

BRIT IN Britannia Industries 3,609 4,301 19.2% 868.0 11,866 12.0 12.5 4.9 15.6 69.3 66.9 62.1 63.5 46.3 40.1 32.5 22.8 Mid Caps IGL IN Indraprastha Gas 548 603 10.1% 383.5 5,243 52.3 13.4 53.2 9.8 23.6 21.7 29.3 27.0 28.2 25.7 6.1 5.1 AL IN Ashok Leyland 120 133 11.5% 351.1 4,800 68.0 14.9 (507.8) 37.8 17.1 20.2 9.2 10.8 28.2 20.5 4.5 3.8

MPHL IN Mphasis 1,668 1,802 8.1% 310.3 4,242 13.8 11.9 21.5 13.1 22.5 21.6 28.5 27.3 20.9 18.5 4.4 3.7 BYRCS IN Bayer Cropscience 5,690 6,090 7.0% 255.7 3,496 8.0 8.0 6.4 16.7 21.0 19.7 23.8 21.4 35.4 30.4 6.6 5.4 Z IN Zee Entertainment Enterprises 225 290 28.8% 215.9 2,952 17.4 9.6 35.5 17.0 14.0 14.7 17.5 17.9 14.5 12.4 1.9 1.7 DALBHARA IN Dalmia Bharat 1,139 1,480 29.9% 212.8 2,910 16.3 11.2 (16.0) 37.3 13.2 13.9 13.0 14.8 32.0 23.3 1.8 1.6 HMN IN Emami 476 526 10.5% 207.8 2,840 12.6 10.5 13.8 12.7 34.6 32.0 25.6 29.9 28.5 25.3 8.8 7.5

ENDU IN Endurance Technologies 1,318 1,540 16.9% 185.3 2,534 15.4 17.8 46.3 33.4 18.1 20.9 20.8 24.9 28.5 21.4 4.8 4.1 Small Caps INOL IN Inox Leisure 333 393 18.0% 37.4 512 6,291.8 24.6 (150.1) 61.8 20.9 25.6 9.6 12.9 25.2 15.5 5.3 4.0 HGINFRA IN H.G. Infra Engineering 226 259 14.4% 14.7 201 43.9 11.5 40.7 13.4 19.5 18.3 20.4 19.7 7.0 6.2 1.2 1.0 * For Banks P/BV = P/ABV & RoCE = RoAA Added: Zee Entertainment Enterprise, Dalmia Bharat, Endurance Technologies, HG Infra Engineering | Removed: Crompton Greaves Consumer, KNR Construction, JK Lakshmi Cement

January 15, 2021 13

India Strategy

3QFY21 shows broad based recovery

. 3Q is led by strong demand from festival season which continued post festive season as well. Auto, Cement, Consumer Durables, Metals, Pharma and consumer are likely to post double digit topline growth. Aviation, Media, Oil and Gas and Education will be worst affected as segments like Multiplexes, travel, tourism are yet to recover from Covid impact.

. Firm global prices will result in 14.7% margin expansion for metals. Cement, Pharma, Consumer Durables and auto will also report meaningful margin expansion. Capital goods and media will show pressure on margins.

. Metals will report a 128% growth in EBIDTA while the growth for Auto, Consumer durables, Cement and Pharma is expected at 43.8%, 28%, 42.6% and 29.4%. Cap Goods, Aviation, Media, Education and Oil and Gas will report decline in EBIDTA.

. PBT is expected to grow by 64% for auto, 84% for cement, 33% for durables and 310% for metals and 39% for pharma. We believe economy is gradually picking pace post festival season and we expect some other segments like to start reporting positive growth from 4Q as the base become favorable.

PL Universe – Q3Y21E Revenue (%) EBITDA Growth (%) EBITDA Margin (bps) PBT Growth (%) PAT (%)

YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ Agri Chemicals 9.3 (7.2) 12.8 (5.8) 59 29 23.6 (12.6) 24.7 (16.9) Automobiles 14.4 31.7 43.8 54.8 282 206 64.3 111.9 45.5 100.3 Aviation (50.1) 78.6 (34.9) 189.5 517 848 (215.4) (69.9) (237.2) (69.9) Banks 12.6 0.7 35.4 7.6 Capital Goods 3.8 16.5 (8.3) 18.7 (124) 17 (18.1) 24.0 (17.5) (51.8) Cement 14.9 17.5 42.6 4.1 428 (283) 84.7 5.7 79.7 7.6 Consumer Durables 13.9 14.3 28.0 3.9 130 (119) 33.2 4.2 27.9 3.5 Consumer 10.6 14.1 10.3 11.6 (5) (53) 9.5 13.6 5.1 13.0 Education (23.6) (21.3) (29.8) 57.4 243 (1,382) (20.3) 31.4 (8.2) 26.4 Financial Services 4.1 3.9 (46.9) (1.6) Infrastructure 3.7 34.4 (1.1) 25.3 (84) (127) (6.4) 63.9 (18.0) 82.9 Information Tech. 3.5 3.4 9.7 (0.6) 126 (90) 10.1 1.5 10.1 1.5 Media (37.9) 24.6 (58.9) 74.1 (1,009) 564 (84.4) (169.7) (80.8) 850.7 Metals 12.4 11.4 128.7 63.8 1,477 929 310.8 111.3 346.6 116.1 Oil & Gas (20.2) 14.2 (10.8) (1.4) 118 (177) (8.9) (10.9) (8.7) (18.8) Pharma 10.2 1.3 29.4 (0.6) 322 (42) 39.0 (1.6) 64.4 (6.7) PL Universe (1.9) 13.0 12.4 11.9 287 (22) 31.4 22.3 20.2 11.5 PL Universe (Ex-BFS) (2.2) 13.2 19.2 20.9 308 109 31.4 26.2 26.1 16.2 PL Universe (Ex-Oil) 8.5 12.5 17.7 14.5 212 48 47.2 34.5 27.1 19.2 Source: Company, PL

January 15, 2021 14 India Strategy

Sales and EBIDTA bounce back post Unlock

Agri, Cement/Metals positive, Aviation, Infra Drag Unlock results in sharp sales rebound

All Sector Sales All Sector Sales - (Ex-Oil & Gas)

35.4%

34.8%

32.9%

30.7%

30.6%

30.2%

19.6%

15.2%

8.5%

6.4%

4.7%

3.0%

1.8%

1.9%

2.1%

1.4%

3.5%

6.9%

7.5%

6.8%

23.0%

32.8%

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21

Q2FY21

Q3FY21

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21 Q2FY21 Q3FY21 Source: Company, PL Source: Company, PL

Oil &Gas, Infra/ Cap Goods drag EBIDTA EBIDTA growth rebounds post unlock

All Sector EBITDA All Sector EBITDA - (Ex-Oil & Gas)

66.8%

62.0%

52.0%

44.9%

41.3%

41.7%

35.4%

24.2%

12.4%

17.7%

9.1%

9.0%

12.7%

11.8%

3.2%

9.7%

1.4%

6.7%

3.6%

15.5%

20.1%

15.1%

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21

Q2FY21

Q3FY21

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21 Q2FY21 Q3FY21 Source: Company, PL Source: Company, PL

Financials, Auto, Cap Goods impact PAT Banks, Cement and Metals drive PAT growth

All Sector PAT All Sector PAT - (Ex-Oil & Gas)

45.3%

38.8%

40.7%

38.4%

33.1%

27.1%

23.6%

22.6%

21.1%

21.3%

20.2%

19.4%

17.6%

14.1%

5.5%

8.8%

7.0%

3.0%

17.1%

48.6%

42.9%

Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q3FY20

Q1FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q2FY19 Source: Company, PL Source: Company, PL

January 15, 2021 15 India Strategy

3QFY21 Results – Trading BUY & SELL Ideas

Motherson Sumi Systems Muthoot Finance Jindal Steel & Power Tata Steel Ultratech Cement Ambuja Cement Indraprastha Gas Lupin L&T Finance Holdings Crompton Consumer GAIL Spicejet Havell's India Emami Interglobe Aviation Infosys Asian Paints HCL Technologies Titan Company L&T Tech. Serv. Cummins India Mindtree HG Infra Larsen & Toubro Kalpatru Power ICICI Bank State Bank of India SBI Life Insurance Co.

These are purely for tactical trades and do not reflect our long-term fundamental calls.

January 15, 2021 16 India Strategy

Market Rally: on a royal ride

Indian markets led by global liquidity, low interest rates and growing confidence on post Covid recovery are at a life time high. Strong demand for housing, auto, infra push by GOI and benefits of two consecutive normal monsoons is reflected in renewed optimism. The rally which started with IT, Pharma and RIL has become much more broad based with contribution from Auto, Consumer, Banking and commodities. We believe we are out of woods given weak second wave of covid and beginning of vaccination program in India.

Liquidity Rush and better than expected economic recovery takes markets to all time high

Sensex 49,269 60000 50000 Global Sell-off 40000 European Sub-prime Crisis 30000 Crisis COVID-19 20000 Outbreak Harshad Asian Financial Dot-com BOP 10000 Scam Crisis Bubble Crisis

01-Jul-96

01-Jul-03

01-Jul-10

01-Jul-17

01-Apr-91

01-Oct-94

01-Apr-98

01-Oct-01

01-Apr-05

01-Oct-08

01-Apr-12

01-Oct-15

01-Apr-19

01-Jun-92

01-Jan-93

01-Jun-99

01-Jan-00

01-Jun-06

01-Jan-07

01-Jun-13

01-Jan-14

01-Jun-20

01-Jan-21

01-Feb-90

01-Mar-94

01-Feb-97

01-Mar-01

01-Feb-04

01-Mar-08

01-Feb-11

01-Mar-15

01-Feb-18

01-Sep-90

01-Nov-91

01-Aug-93

01-Dec-95

01-Sep-97

01-Nov-98

01-Aug-00

01-Dec-02

01-Sep-04

01-Nov-05

01-Aug-07

01-Dec-09

01-Sep-11

01-Nov-12

01-Aug-14

01-Dec-16

01-Sep-18

01-Nov-19

01-May-95

01-May-02 01-May-09 01-May-16 Source: PL

Sensex has moved 90% higher from March lows, sharpest recovery of all times Event Trough Date Sensex level Recovery time (Days) Change Rupee Depreciation VIX BOP Crisis Jan-91 956.1 182 -39% 2% NA Harshad Mehta Scam Apr-93 2036.8 473 -54% 10% NA Asian Financial Crisis Oct-98 2764.2 265 -39% 18% NA Dot-com Bubble Sep-01 2600.1 833 -56% 10% NA Sub-prime Crisis Oct-08 8509.6 738 -59% 27% 85.1 European Crisis Dec-11 15175.1 680 -28% 20% 37.2 Global sell-off Feb-16 22951.8 417 -23% 10% 28.7 COVID-19 outbreak Mar-20 25981.2 - -38% 8% 83.6 11-1-21 Mar-20 49269.3 294 90% 3% 19.5 Source: PL

Financials, IT, RIL, Auto and Consumers lead index contribution

700.0 Index points 600.0

500.0 392.4

381.8 340.0

400.0 279.8

300.0 252.8

584.9

180.7 171.7

200.0 142.6

103.7

81.2

79.1

75.8

71.0

70.0

64.1

60.1

50.1 56.9

100.0 53.3

56.8

42.6

47.8

39.9

38.9

36.8

34.2

9.5 29.7

29.4

22.9

63.4

32.3

28.9

7.7

6.9

5.9

3.8

2.3

4.7

17.5

9.8

3.7

9.2

8.8

15.0

17.6

17.4

17.0

16.2

13.3

12.3 11.7 0.0

-100.0

IIB

RIL

ITC

Zee

EIM

DIVI BAF

TCS

KMB

GAIL BRIT

IOCL JSTL MSIL SBIN

BHIN INFO

UPLL

TATA

TTAN HCLT VEDL BPCL

TTMT

APNT AXSB NEST

COAL NTPC HNDL

BJFIN

HDFC SUNP

HMCL HUVR

CIPLA DRRD

SRCM

ONGC

PWGR WPRO

BJAUT

ADSEZ

HDFCB

UTCEM TECHM

BHARTI ICICIBC

SBILIFE GRASIM HDFCLIFE Source: PL

January 15, 2021 17 India Strategy

Despite rally, large section of PSU’s, Commodities and Banks trading below 2016-19 valuations FY16 Current 2008 2009-11 2011-13 2013-16 2016-19 2020 2021 onwards Valuations Nifty Index 15.1 16.3 14.7 18.5 21.7 21.2 19.9 22.9 16.9 Adani Ports & Special Economic Zone Ltd 36.3 28.8 18.5 18.3 18.1 17.3 17.9 18.2 13.1 Asian Paints Ltd 17.4 21.5 30.1 39.9 51.3 54.2 77.4 57.3 61.7 Axis Bank Ltd 10.7 13.1 9.9 14.0 77.5 62.4 15.1 55.8 13.4 Bajaj Auto Ltd 5.7 9.7 15.1 17.5 18.0 18.1 22.0 17.8 18.8 Bajaj Finance Ltd 9.9 5.9 6.7 13.3 28.4 33.2 40.8 46.8 33.9 Bajaj Finserv Ltd 14.8 5.5 6.6 9.9 24.7 27.3 28.5 37.9 23.6 Bharat Petroleum Corp Ltd 11.8 15.6 13.7 8.6 11.3 12.3 8.7 17.5 9.1 Bharti Airtel Ltd 16.6 20.9 45.4 29.3 100.0 59.9 19.2 -13.1 -0.2 Britannia Industries Ltd 21.5 28.8 23.3 28.3 48.6 46.0 41.1 41.8 41.8 Cipla Ltd/India 17.6 23.5 19.3 34.3 33.0 28.2 22.2 20.4 20.3 Coal India Ltd - 2.9 13.7 15.8 16.2 13.1 7.2 9.2 6.6 Divi's Laboratories 21.3 19.3 18.8 26.5 25.0 27.2 39.5 28.3 34.1 Dr Reddy's Laboratories Ltd -1,216.9 27.6 16.8 26.8 32.3 28.2 24.7 19.8 23.1 Eicher Motors Ltd 5.3 7.0 12.0 28.4 35.1 34.1 39.5 32.3 32.2 GAIL India Ltd 9.9 13.0 10.9 18.6 11.9 11.8 24.6 9.2 15.0 Grasim Industries Ltd 3.8 6.0 8.2 19.1 22.8 18.5 16.3 11.6 10.7 HCL Technologies Ltd 9.9 13.5 8.9 - 12.9 13.1 20.2 12.7 14.2 HDFC Bank Ltd 18.5 20.7 18.5 18.0 21.4 21.0 21.5 22.5 18.0 HDFC Life Insurance Co. Ltd. - - - - 30.7 46.3 79.1 75.0 69.5 Hero MotoCorp Ltd 9.4 16.0 17.5 17.4 18.9 18.5 22.8 15.8 20.1 Hindalco Industries Ltd 12.5 9.9 9.0 17.2 9.3 9.3 9.3 10.7 7.2 Hindustan Unilever Ltd 24.2 24.3 25.2 37.1 47.0 51.0 56.3 58.3 56.6 Housing Development Finance Corp Ltd 20.5 18.4 16.2 17.1 18.5 19.1 28.4 19.9 20.7 ICICI Bank Ltd 16.1 19.5 13.6 15.0 32.2 28.6 19.0 28.0 15.6 Indian Oil Corp Ltd 8.7 11.2 14.2 12.2 5.6 10.2 4.4 28.5 4.4 IndusInd Bank Ltd 9.0 12.3 14.4 17.6 26.3 24.2 18.2 26.5 13.1 Infosys Ltd 13.8 20.5 16.0 16.5 16.0 16.9 26.8 17.8 19.1 ITC Ltd 18.9 20.5 24.2 32.3 27.0 24.1 17.7 21.2 16.5 JSW Steel Ltd 17.8 16.2 25.2 55.9 10.1 10.6 12.6 13.2 9.4 Kotak Mahindra Bank Ltd 18.7 17.6 18.6 25.9 28.1 30.2 39.7 35.1 32.2 Larsen & Toubro Ltd 13.9 20.9 18.0 26.2 20.4 20.4 22.8 22.5 17.7 Mahindra & Mahindra Ltd 6.9 10.5 11.4 18.6 27.4 33.1 16.4 65.9 13.0 Maruti Suzuki India Ltd 10.4 17.2 15.9 17.5 29.1 32.1 38.0 38.9 34.8 Nestle India Ltd 20.6 27.6 38.0 61.6 43.2 56.7 239.5 53.9 111.8 NTPC Ltd 16.9 17.9 11.9 10.8 11.3 10.2 6.7 9.8 6.5 Oil & Natural Gas Corp Ltd 9.2 10.8 9.2 17.1 9.6 10.6 8.8 16.0 8.0 Power Grid Corp of India Ltd 20.1 17.6 12.5 11.5 11.1 10.1 8.3 9.1 7.5 Reliance Industries Ltd 13.7 14.8 11.5 10.3 13.2 16.5 21.5 20.8 23.7 SBI Life Insurance Co. - - - - 24.2 33.6 47.0 53.2 44.5 Shree Cement Ltd 3.4 17.3 11.8 - 46.7 43.7 36.9 41.7 35.0 State Bank of India 7.4 11.9 8.9 25.1 263.0 168.8 9.5 14.0 7.5 Sun Pharmaceutical Industries Ltd 16.4 18.1 20.6 37.2 46.0 36.7 22.2 22.1 19.9 Tata Consultancy Services Ltd 11.4 16.3 16.9 20.2 19.4 21.2 30.6 24.3 24.4 Tata Motors Ltd -6.0 5.3 6.5 11.6 0.4 10.5 19.7 -6.2 69.8 Tata Steel Ltd 6.0 -6.7 -1,398.0 -13.9 7.6 10.1 9.0 20.0 7.1 Tech Mahindra Ltd 7.3 12.9 7.2 15.6 12.7 13.4 18.9 15.4 13.4 Titan Co Ltd 22.2 21.2 29.4 38.8 46.7 63.2 95.5 90.5 91.5 UltraTech Cement Ltd 6.2 13.7 16.1 28.4 39.9 34.1 33.0 23.7 25.5 UPL Ltd 11.8 13.1 8.1 13.5 20.9 18.6 9.2 19.1 9.3 Wipro Ltd 10.6 15.6 13.2 15.1 14.9 14.9 23.7 14.8 15.0 Source: PL

January 15, 2021 18 India Strategy

FII inflows at Rs617bn in past 7 weeks

. NIFTY is now third best performing major indices in comparison to fifth worst performing market 2 months back. Growing confidence in economic recovery and better control on Covid 19 in comparison to major economies globally, has added to confidence. We believe markets are factoring in broad based economic recovery and leave little room for a negative surprise.

. Rally has become broad based with a lot of catch up by Metals, Realty, Capital Goods, power and banking. IT, Metals and Realty lead 12 months returns of 68.1%, 67.2% and 65.4% respectively. Capital Goods, Banking, Durables and auto have given between 40-50% returns during last 12 months.

. Mid cap and Small caps have outperformed NIFTY by 500-800bps during past 3 months and 800-1300bps in past 6 month and 6-14ppts in past 12 months.

. DII remained sellers with outflow of 617bn in past 7 weeks while FII’s pumped in Rs927bn, leading to market reaching all time high levels. Debt outflows continue, although the momentum will be on the lower side.

India is now third best performing market globally

50.0 41.2 40.0 30.0 19.3 18.1 20.0 15.6 15.5 9.9 (%) 7.5 5.7 10.0 3.4 2.2 - (10.0) (2.5) (3.1) (11.3)

(20.0)

S&P

USA

India

Brazil

FTSE

China

Japan

Russia

S.Korea

Australia

Germany Indonesia Hong Kong Hong Source: Bloomberg, PL

Metals, Realty, Banking and Cap Goods catch up the rally

CHG_PCT_6M CHG_PCT_1YR 67.5

80.0 67.2

65.4 61.8

70.0 68.1

50.8 48.8

60.0 47.9

50.0 43.5 36.3

40.0 32.5

(%)

24.8 22.2

30.0 18.3

16.9

13.1

10.4

10.0 9.2

20.0 7.8 2.7 10.0 0.8 -

Source: Bloomberg, PL

January 15, 2021 19 India Strategy

Small caps outperform Mid/large caps

CHG_PCT_3M CHG_PCT_6M CHG_PCT_1YR

50.0 32.0

40.0 30.3

26.6

24.8

23.8

23.1

22.0 21.8

30.0 20.1

18.7

18.2 18.1

(%) 20.0 47.5

10.0 42.4

36.7

34.9 35.4

- 34.8

Nifty

Sensex

BSE-500

BSE-100

BSEMid-Cap BSESmall-Cap

Source: Bloomberg, PL

Rs927bn FII inflows in last 7 weeks lead rally FII Debt outflows continue, momentum slows

DII Net Cash FII Net Cash 2,000

1,592 1,592 1,485 1,485 1,500 2,000 1,728

1,339 1,000

1,293

489

469 1,113

1,500 1,094

415

362

1,002

537

974

908

- 241

843 500 48

1,000 676

1,034 1,034

529

735

422

371

569

342

- 278

262 -

188

184 (Rs bn) (Rs

500 141

18 (Rs bn) (Rs

- -500 -

443

465

88 -

-1,000 - -

-500 -

219

303

362 -

-1,000 - -1,500

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020 CYTD 2021 CYTD CYTD 2021 CYTD Source: Bloomberg, PL Source: Bloomberg, PL

NIFTY movement has strong correlation with FII inflows

FII Net Cash % Nifty Chng. 71.5% 2,000 80.0%

1,500 60.0% 27.4% 31.4% 28.1% 17.2% 40.0% 1,000 11.5%14.8% 5.9% 2.8% 4.1% 3.9% 20.0% -4.1% 500 0.0% - -20.0% -500 -24.9% -40.0%

Source: Company, PL

January 15, 2021 20 India Strategy

Emerging trends for next decade

Each and every decade has brought about sea change in which people, countries and world has evolved. Over the years pace of change has accelerated led by faster dissemination of information and use of technology. Eighties belonged to Steel, Fertilizers, Textiles and Petrochemicals 1980-1990 – This decade is most important as it marked the beginning of liberalization in a small way post 1984. The most perceptible trends of that decade was import substitution in essentials like petrochemicals, Synthetic Textiles, Steel, Fertilizers etc. and initial success of Indian pharma companies and entry of several foreign players like Toyota, Suzuki, Honda, Nissin in the Indian Auto scene. IT, Consumer and Pharma were major wealth creators during nineties 1990-2000 – This decade saw major drive for liberalization post 1991 forex crisis. Indian IT services sector start finding its place and grew rapidly. MNC’s like Coke, Kellogg’s, Ford, GM etc. entered India. HDFC, ICICI, Axis, Indusind, Times, GTB, BOP and Centurion were granted license which started new generation private banks in the country. NSE was established and outcry based trading was phased out gradually. However, SEA crisis, droughts and slowdown impacted economy by the end of decade. IT, Consumer and Pharma companies were major wealth creators in this decade. PSU, Capital Goods, Infra, Commodities and Banks led 2000-10 2000-2010 – Indian economy grew faster led by global liquidity and growth before era eventual Lehman crisis. This decade saw big strides made by Private Banks, Insurers, Infra Companies and rising global aspiration of Indian industrial houses. Gas distribution, Mobile, organized retail, shopping malls etc. came up during the decade. PSU companies, Infra, Commodities, Capital Goods and Banks were prominent wealth creators during the decade. Post Lehman focus shifted to cash generation leading to major gains for 2010-2020 – Post Lehman world led by successive liquidity boosters saw Indian Consumer, IT and Private Banks economy making strides in IT Services, Pharma, Private Banks, Insurance, Gas Distribution, shared mobility and organized retail. Social aspects like Housing, clean fuel, sanitation, water, urban and rural infra, agriculture and healthcare started finding prominence at the policy level. Although the decade ended with worst pandemic of last century, India emerged stronger than ever before due to strong IT services and great work of Pharma companies in developing vaccine. Private Banks, Consumption and IT were amongst best wealth creators during this decade. Ecom, EV, OTT, Green energy, Financial services and Make are key Emerging trends in 2020-30- Although it is always difficult to comprehend the themes for coming decade changes in the next decade given fast paced technology, we believe this decade will see India making its mark in global scene. Likely trends of the coming decade:

. E-commerce will result in a major shift in consumption behavior

. Electric Vehicles will transform the Auto Industry globally

. OTT to emerge as a major vehicle for content transmission

. Green energy – will emerge as a major portion of incremental capacity

. Make in India - White Goods, Electronics, Defense and Chemicals

. Financialisation of savings through Banks, Insurance and AMC’s

January 15, 2021 21 India Strategy

Beginning of a growth super cycle

Indian economy has been facing tough times in the past few years which started with bank balance sheet getting impacted with NPA’s, Demonetization, GST, global slowdown and trade wars. Indian economy was sharply slowing down much before Covid 19. Even as majority were unsatisfied with the economic stimulus in comparison to what was granted in developed countries, Post unlock bounce back has surprised everyone. The recovery which has earlier described as pent up demand and then festival push does not seem to showing signs of a fatigue so far. We believe that the current upturn indicates the beginning of next super cycle of growth for Indian economy led by following set of factors:

. Uptick in Housing construction and real estate

. Strong Infra push by GOI for roads, Ports, CGD, water, sanitation etc

. Higher Rural Income due to likely benefits of normal monsoons, higher realisations, agri reforms, dairy, horticulture production and prices and above all demand for labor

. Strong demand for Indian IT services due to increased global focus on WFH, Ecom, Digitization, 5G etc.

. Make in India push in Defense, white goods (PLI), electronics, Pharma, auto ancillary and Chemicals etc.

. Commodity uptick will reduce pressure on Bank balance sheets which are in better shape due to NPA resolution over past few years

Housing witnessing strong momentum

January 15, 2021 22 India Strategy

Sharp fall in weighted avg price for MMR region

Source: Knight Frank

Housing absorption rate above 1 Improving Absorption-Supply ratio indicates a healthy trend as unsold inventory is getting absorbed in the Absorption-Supply ratio system 1.44 1.5 1.36 1.4 1.27 1.3 1.2 1.1 1.1 0.96 1 0.9 0.79 0.8 0.69 0.7 0.63 0.6 0.5 2013 2014 2015 2016 2017 2018 2019 H1 2020

Source: Anarock, PL

HDFC Affordability Index has Affordability improved after being static between 2009-15 improved from 4.4 in FY15 to 3.3 in FY20 Affordability Index

25 22

20 15.6 15 11.1 10 8.3 6.65.9 5.35.14.7 4.7 5 5.15.14.54.74.84.64.74.6 4.3 4.44.13.83.73.5 5 3.3

1996 1997 1999 2000 2001 2003 2004 2006 2007 2009 2010 2011 2013 2014 2016 2017 2019 2020 1998 2002 2005 2008 2012 2015 2018 1995 Source: HDFC, PL

January 15, 2021 23 India Strategy

Cement: Demand from individual Cement demand rose 4% YoY in Q3FY21E housing largely drove the demand. As against the expectation of 10% 15.0 10.0 decline in demand, we expect it to 10.0 settle with fall of 2%in FY21. Demand 4.0 4.0 5.0 is expected to grow at 8%/10% in 0.1 FY22e/FY23e, led by rise in housing - demand and growth in govt spending. (5.0) (2.7) (2.1) (10.0) (15.0) (12.5) (20.0) (25.0) (30.0) (30.2) (35.0) Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21E

Source: Company, PL

Electricals/ Durables: Most B2C B2C sales powering rebound in durables categories like wires, Switchgear, Fans, lighting, Kitchen Appliances, Consumer Durables (Rs bn) YoY gr % white goods etc. are reporting strong 25% 23% 80.0 20% 21% 22% 19% 18% 30% growth momentum 13% 11% 70.0 7% 10% 6% 20% 60.0 0% 10% -9% 50.0 0% -10%

40.0 34.3 -20% 30.0 -30%

20.0 -50% -40%

46.0 46.0

36.6 36.6

40.5 40.5

53.7 53.7

57.4 57.4

44.5 44.5

50.0 50.0

58.9 58.9

68.3 68.3

47.3 47.3

50.2 50.2

53.6 53.6 52.5 52.5 10.0 59.3 -50%

- -60%

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21 Q2FY21 Q3FY21E Source: Company, PL

Building materials like Plywood and Tiles are expected to return to double Building material sales set to accelerate digit growth rates Building Material Sales (Rs mn) YoY gr. (RHS)

1,20,000 21.3% 25% 20% 1,00,000 13.4% 11.4% 15% 80,000 5.3% 10% 5% 60,000 -2.5%

0% 73,702 73,702 40,000 -8.6% 70,515 -5% -13.4% -10% 20,000

-15%

80,628 80,628 83,571 85,541 76,588 76,588 81,457 95,329 - -20% FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23

Source: Company, PL

January 15, 2021 24 India Strategy

Government thrust on infrastructure spending

GOI has lined up aggressive Infra push across segments % of No FY20-25 Ministry/ Department FY20 FY21 FY22 FY23 FY24 FY25 total phasing (Rs bn) budget Energy 2,336 4,415 4,424 4,681 4,978 4,668 1,398 26,900 24.2% Power 1,641 2,256 2,217 2,235 2,252 2,110 1,393 14,104 12.7% Renewable energy 305 1,510 1,440 1,700 2,170 2,170 0 9,295 8.4% Atomic energy 116 215 283 331 327 283 0 1,555 1.4% Petroleum and natural gas 273 435 483 415 229 105 5 1,946 1.7% Roads 3,326 3,833 3,570 2,528 2,408 3,327 1,348 20,338 18.3% Railways 1,334 2,625 3,088 2,738 2,212 1,679 0 13,676 12.3% Ports 134 181 206 159 77 100 355 1,212 1.1% Airport 187 217 248 213 254 51 264 1,434 1.3% Urban Infrastructure AMRUT, SMART Cities, MRTS, affordable 2,982 4,622 4,041 2,349 2,172 1,599 1,429 19,193 17.2% housing, Jal Jeevan Mission Irrigation 1,145 2,006 1,757 1,374 1,153 705 806 8,945 8.0% Rural infrastructure 1,403 1,768 2,108 1,119 1,071 271 0 7,739 7.0% Rural infrastructure 1,036 1,163 1,099 271 271 271 0 4,110 3.7% Water and sanitation 368 605 1,009 848 800 0 0 3,630 3.3% Digital infrastructure 784 618 545 387 381 381 0 3,097 2.8% Agriculture & food processing infrastructure 36 39 36 19 12 6 1,539 1,687 1.5% Social infrastructure 566 783 850 553 461 259 460 3,934 3.5% Industrial infrastructure 191 431 448 351 230 105 1,393 3,150 2.8% Total (Rs Crores) 14,421 21,538 21,323 16,471 15,408 13,151 8,992 1,11,304 100.0% Source: PL Research

January 15, 2021 25 India Strategy

Auto demand to sustain in FY22/23

Auto sales across segments (barring 3Ws) seen sharp recovery as demand sustained post festive. We believe the industry is well poised to witness healthy double digit growth across segments. 8-9 new model launches in 2021 will create more avenues and demand for PV’s: We expect PV sales to grow ~18%/10% YoY in FY22/23 respectively led by PV’s Change in consumer behaviour with increasing shift towards personal mobility. This has resulted in increase in first time buyers to ~55% in H1FY21 (v/s ~43% in H1FY20 /40% in H1FY19). There has been a significant growth in PV’s rural mix over the years which is visible in case of MSIL where rural share of sales has increased to ~41% in H1FY21 (v/s 38%/35% in FY20/FY15 respectively). Low Fy21 base and pick up in core industries augurs well for demand in CV Segment: We believe the worst is over for CV segment and expect growth of coming year ~31%/14% YoY in FY22/23. Among CVs, we expect MHCV to grow by 89%/19% YoY while LCVs to grow by 10% YoY each for FY22/23. It will be driven by uptick in HCVs (construction, cement and heavy industries like steel) while momentum in ICVs, Tippers and LCVs continue. Fleet operator’s sentiments continue to improve as utilization level increased to ~90% now (v/s 45-50% in Q1FY21).

New models/ first time buyers fire PVs demand Recovery in 2Ws visible from FY22

PVs ('000 units) Growth (%) (RHS) Two Wheelers ('000 units) Growth (%) (RHS)

4,000 30 25,000 30.0 3,500 20.0 20 20,000 3,000 10.0 10 2,500 15,000 11,843 11,843 0.0 2,000 0 -10.0 1,500 10,000 -10 -20.0

1,000 5,000

13,797 13,797

14,808 14,808

15,975 15,975

16,454 16,454

17,586 17,586

20,190 20,190

21,174 21,174

17,417 17,417 14,804 14,804

-20 17,765 -30.0 11,741

500 13,397

2,502

2,630

2,665

2,511

2,599

2,799

3,045

3,283

3,374

2,723

2,178

2,570 2,827

0 -30 0 -40.0

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21E

FY22E

FY23E

FY21E FY22E FY23E Source: SIAM, PL Source: SIAM, PL

MHCV- expect ~50% CAGR over FY21-23 LCV- boost from increased last mile logistics

Dom M&HCV ('000 units) Growth (%) (RHS) LCV ('000 units) Growth (%) (RHS) 390 390

450 100 700 614 30 340 340 400 348

80 600 525 504.3

323 20

493

307 307

302

302 447

350 450

60 433

500 407

269

410

258 258

370 383

300 381 10

360 225 225 232 40 400 250 200 20 0

200 136 300 0 150 200 -10 100 -20 100 -20 50 -40

0 -60 0 -30

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

FY21E

FY22E

FY23E

FY22E FY23E FY21E Source: SIAM, PL Source: SIAM, PL

January 15, 2021 26 India Strategy

Exports present a big global opportunity

Auto component - Need capabilities for more exports share

India can be the beneficiary of China+1 strategy however this is not an overnight process and will take few years. China auto component industry is ~USD550bn (v/s ~USD50bn of India).

Industry is expected to look at electronics in a big way as lot of new regulations require components like sensors. Many companies are doing JVs or pushing their vendors to set up their base in India which will increase localization.

Steel, tyres and mechatronics are currently new focus areas. Tools, dies and electronics are some areas were India is lacking behind while it is well placed in all other segments.

Component Exports offer steady opportunity Europe and MA are major export destinations South Africa Australia Exports (Rs bn) (LHS) Growth Export mix America 6% 1% North 4% America 1200 1060 1026 35.0% 30% 1000 906 30.0% 25.0% 685 709 731 800 20.0% 600 510 15.0% 390 Asia 400 10.0% 29% 5.0% 200 0.0%

0 -5.0%

FY15

FY16

FY17

FY18 FY19

FY20 Europe H1FY20 H1FY21 31% Source: SIAM, PL Source: SIAM, PL

Pharma – Better compliance can improve India’s share

January 15, 2021 27 India Strategy

Share of ANDA approvals for Indian Companies

Other Indian Companies

26%

32%

33%

36%

38%

39%

44%

74%

68%

67%

64%

62%

61% 56%

CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19

Source: Company, PL

Share of Warning Letter by Indian companies

60%

50%

40%

30% 50% 46% 20%

10% 23% 22% 15%

0% CY15 CY16 CY17 CY18 CY19

Source: Company, PL

IT services - demand upcycle to increase hiring and wages

Hiring activity index grew by 71% in the Apr-Dec 2020 period for the IT Services sector as per Naukri hiring index for Dec 2020. Strong hiring momentum will continue in CY21 with hiring activity index improving by 35% in Dec 2020 over prior month. (Exhibit 3)

. TCS had net addition of 15,721 employees in 3QFY21, highest ever in a quarter (Exhibit 1)

. Not only Indian IT firms, but Global IT players such as Accenture, Cognizant, Capgemini is expected to report strong hiring in CY21. India accounts for more than 40% of 500,000 global head-count for Accenture.

January 15, 2021 28 India Strategy

. Consulting firms such as Ernst & Young Services said they will hire about 9,000 professionals in India in 2021, in various technology roles including artificial intelligence, machine learning, cyber security, analytics and other emerging technologies.

. Fiat Chrysler said that it plans to invest $150 million to set up a new Global Digital Hub in Hyderabad, their largest digital hub outside of North America and EMEA. The company said that this is likely to create 1,000 cutting edge technology jobs by the end of 2021.

. Indian IT services firms were the first to announce wage hikes & bonuses in FY21 amidst pandemic. TCS & Infosys have rolled out salary hikes & bonuses in 3QFY21. Wipro, LTI, Mindtree will roll out wage hikes in 4QFY21 and we expect rest of the companies to follow the suit.

Gig hiring in demand: Industry sources say that close to 75,000 jobs are on offer on a temporary basis, led by sectors such as e-commerce, offline retail, IT/ITeS and the financial services sector. Companies such as Ola, Uber, Swiggy, Zomato, Flipkart and Amazon are among the large players offering gig roles.

TCS 3Q21 - 15,721 employee’s addition highest ever/quarter

20,000 15,721 14,097 15,000 12,356 10,227 9,864 10,000 6,827 5,877 6,356 4,118 5,000 1,789

-5,000 -4,063 -4,788 -10,000 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21

Source: Company, PL

We note that IT services employs close to 4.5mn professionals and creates demand much more number of indirect jobs in related fields which join the Indian middle class. Strong growth and hiring prospects in Indian It services augurs well for employment generation and hence better growth momentum.

January 15, 2021 29 India Strategy

PLI schemes to aide Atmanirbhar Push

. As a part of its Atmanirbhar Bharat undertaking and with a view to enhance India’s manufacturing capabilities and enhance exports, the Government has announced Production Linked Incentive (PLI) schemes with a total allocation of Rs2 trillion spread over the next 5 years across various sectors.

. Details of three schemes – Large scale electronics manufacturing, bulk drug and medical devices (combined allocation of Rs513bn) have already been announced.

PLI scheme: Allocation of Rs2 trillion across sectors Allocation Sectors (Rs bn) Already Announced Domestic manufacturing of critical Key Starting Materials (KSMs)/Drug 69 Intermediates(DIs) and Active Pharmaceutical Ingredients (APIs) Large Scale Electronics Manufacturing including mobile phones and electronic 410 components Medical Devices 34 Total 513

Additional 10 key sectors identified Advance Chemistry Cell (ACC) Battery 181 Automobiles & Auto Components 570 Electronic/Technology Products 50 Food Products 109 High Efficiency Solar PV Modules 45 Pharmaceuticals drugs 150 Speciality Steel 63 Telecom & Networking Products 122 Textile Products: MMF segment and technical textiles 107 White Goods (ACs & LED) 62 Total 1,460

Grand Total 1,973 Source: Company, PL

. Under the scheme, 5-10% incentives shall be provided on revenues beyond a set threshold

. Through these schemes, the government envisages to create an ecosystem that is likely to add 20lakh crore worth of manufacturing ecosystem and 3 crores well playing jobs.

January 15, 2021 30 India Strategy

Agri incomes to sustain rural demand

Higher crop sowing and favorable Rabi sowing ends up 3% climate and monsoons indicate Normal area Area sown reported another bumper Rabi crop which will Crop Name for entire Rabi YoY gr. boost farm incomes season FY21 FY20 Wheat 303 335 327 2.7% Rice 42 19 18 2.7% Pulses 145 160 153 4.5% Coarse Cereals 57 48 52 -7.1% Oilseeds 73 82 78 5.2% Total 620 644 628 2.6% Source: GoI

Prices of major crops are firm, Crop prices, both in India and globally, are rising although there has been some Crop Nov-20 YoY gr. MoM gr. softening in vegetable prices off late Pulses Green Gram Moong 8,739 12.7% 1.4% Black Gram Urd beans 5,680 1.2% -1.2% Arhar (Tur) 8,145 17.2% 1.0% Cotton 5,184 13.3% 16.8% Soyabean 4,023 13.7% 8.5% Coarse Cereals Maize 1,876 -19.7% 15.0% Bajra 1,848 -20.6% 2.8% Jowar 2,657 -16.3% 1.3% Paddy 1,788 1.0% 4.0% Wheat 2,109 -15.9% -0.3% Vegetables Onion 3,041 -11.6% -0.2% Tomato 890 27.3% -14.8% Potato 1,390 166.7% 13.9% Cucumber 1,091 -5.8% -18.0% Spices Turmeric 5,336 -8.9% 4.4% Red Chilly 13,587 53.5% 14.7% Source: GoI

Delay in implementation of farm laws Crop Price index up QoQ for most products except cotton poses a threat to long term growth Crop price index Q3FY21 Q3FY20 YoY gr. Q2FY20 QoQ gr. prospects in Agri and consequently Wheat (USD) 5.8 4.5 31.2% 5.1 14.3% rural demand Rice (USD) 482.0 403.0 19.6% 479.0 0.6% Cotton (INR) 12,485 10,807 15.5% 13,104 -4.7% US Soya (USD) 481.0 359.0 34.0% 397.0 21.2% Brazil Soya (USD) 488.0 408.0 19.6% 413.0 18.2% US Corn (USD) 5.6 6.2 -10.2% 5.3 5.9% Brazil Corn (BRL) 160.0 88.0 81.8% 135.0 18.5% Source: Bloomberg

January 15, 2021 31 India Strategy

Banks – Focus back on growth

Corporate deleveraging and NPA – we believe corporate/bank balance sheets have become much nimbler led by increased focus on cash flows and NPA resolutions. Some of the big NPA’s like Essar Steel, Essar Oil, Monnet Ispat, Ruchi Soya, Alok Inds, Bhushan steel, Lanco Infra, DHFL etc have seen resolution and some of them are in the process. We note that maximum stress was in segments like Steel, Textiles, Real estate and power. We believe upturn in steel prices and housing demand will reduce pressure on banks and improve the lending growth with a lag.

. Banks have made 30-140bps of loans as COVID/Contingency provisions even as they have strong PCR of 65-85% (excl. technical write-offs). Hence incremental provisioning should come down significantly in FY22 onwards post peaking in FY21.

Major Banks have significantly spruced up covid provisions Contingency Provisions Provision Liquidity Banks (% of loans) Coverage Coverage Ratio HDFCB 0.47% 84% 153% ICICIBC 1.44% 81% 145% Axis 1.60% 77% 117% KMB 0.67% 75% 182% IIB 1.06% 76% 140% SBI 0.26% 70% 159% PNB 0.21% 65% 194% BOB 0.31% 73% FB 0.48% 65% 255% IDFCB 1.95% 73% 138% Bandhan 1.96% 69% 148% RBL 1.18% 59% 171% Source: Company, PL

Digitalization to change banking landscape

Technology penetration has resulted in share of digital transactions rising to over 52% in FY20 (FY14: 6%) while transactions through cheques have fallen from 78% to 33%. Technology will be the key differentiator and banks and other lending institutions with agile, scalable technology platforms will have an edge. Retail & SME lending will become data driven & digital. Increasing number of digital transactions will increase formalization of economy

January 15, 2021 32 India Strategy

Share of digital transactions up to 52% in FY20 from 6% in FY14 India - Trend in Retail payment FY14 FY20 Cheques 78% 33% Digital banking / NACH / ECS / cards 6% 52% Cards - ATM 16% 15% Total Retail Payments 100% 100% Source: NPCI, BIS, CITI, Investec

India’s share of digital transactions is now similar to that of US India US India US Retail payment composition FY14 FY20 FY19 Cheques 78% 53% 33% 43% Digital banking / NACH/ Cards 6% 45% 52% 56% ATM - Cash withdrawal 16% 1% 15% 1% Total 100% 100% 100% 100% Source: NPCI, BIS, CITI, Investec

Interest rate outlook remains benign

Interest rates have bottomed out but unlikely to move up

YoY Chg in Weighted Avg O/s Rupee TD Rate

1.0 PSBs Pvt Banks SCBs

0.5

0.0

-0.5

-1.0

-1.5

Apr-17

Oct-17

Apr-18

Oct-18

Apr-19

Oct-19

Apr-20

Oct-20

Jun-17

Jun-18

Jun-19

Jun-20

Feb-17

Feb-18

Feb-19

Feb-20

Dec-16

Aug-17

Dec-17

Aug-18

Dec-18

Aug-19

Dec-19 Aug-20 Dec-20 Source: RBI, PL Research

January 15, 2021 33 India Strategy

80-90bps interest rate cuts materialized, further cuts unlikely

YoY Chg in rates of Outstanding Re Loans

PSBs Pvt Banks SCBs 0.70 0.50 0.30 0.10 -0.10 -0.30 -0.50 -0.70

-0.90

Oct-18 Apr-19 Oct-19 Oct-20 Apr-18 Apr-20

Jun-18 Jun-19 Jun-20

Feb-18 Feb-19 Feb-20

Dec-17 Aug-18 Dec-19 Aug-20 Dec-18 Aug-19 Dec-20

Source: Industry, PL Research

Discretionary Consumption bottomed out

Railway passenger traffic is coming back at snail’s pace

Non-suburban passenger traffic (In mn)

350 316

311

308

307

300

294

293 289 300 286 250

200 179 150

100

32 27

50 16

6 0

8 -

-50 -

Jul-19 Jul-20

Apr-19 Oct-19 Apr-20 Oct-20

Jun-19 Jan-20 Jun-20

Feb-20 Mar-20

Sep-19 Nov-19 Dec-19 Sep-20 Nov-20 Dec-20 Aug-19 Aug-20 May-20 May-19 Source: Industry, PL

Discretionary consumption is gradually picking up and will be a function of covid being under control. We note that employment and job additions in most sectors have recovered considerably except retailing, hotels, restaurants, oil and Gas, Education and Media and Entertainment. We believe increase in job opportunities will add to the disposable income of the consumers and boost demand for discretionary products.

January 15, 2021 34 India Strategy

TV advertising to gradually gain traction

400 352 350 297 306 300

250 190 200

(Hours) 150

100

0 4QFY20 1QFY21 2QFY21 3QFY21

Source: TAM, PL

Naukri hiring activity index shows smart gains except in O&G, Hotels, Airlines, Retail and Media Industry* Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 IT-Software / Software Services 3,133 3,353 3,525 3,089 1,803 1,472 1,755 1,749 1,986 2,375 2,533 2,779 3,081 BPO/ITES/CRM/Transcription 2,120 2,279 2,259 2,140 929 839 1,244 1,315 1,527 1,527 1,971 1,719 1,819 Construction/Engineering/Cement 862 952 906 633 216 282 374 475 490 583 583 555 663 Auto/Auto Ancillary 1,151 1,276 1,330 915 265 327 580 661 771 994 985 820 1,088 Banking/Financial Services/Broking 2,701 3,062 2,946 2,465 993 858 1,192 1,378 1,437 1,910 1,832 1,772 2,088 Oil & Gas/Power/Infrastructure 712 820 830 543 334 249 300 347 313 408 386 332 431 Telecom/ISP 586 611 558 451 277 300 285 322 507 470 349 350 439 Insurance 1,147 1,552 1,306 936 633 476 637 659 795 1,017 910 759 1,100 Industrial Products/Heavy 1,127 1,133 1,099 772 272 351 546 695 773 1,041 967 835 1,036 Machinery Pharma/Biotech/Clinical Research 1,905 1,845 1,875 1,448 1,026 1,125 1,426 1,316 1,243 1,794 1,494 1,477 1,885 Hotels/Restaurants/Airlines/Travel 2,060 2,185 2,087 1,047 221 207 430 407 417 616 818 738 826 FMCG/Foods/Beverages 1,832 2,001 2,118 1,446 654 700 1,103 1,209 1,227 1,754 1,591 1,404 1,701 Chemicals/Petrochemical/Plastic 1,116 1,256 1,366 964 574 487 815 939 937 1,439 1,246 1,018 1,356 Education/Teaching/Training 3,945 4,630 4,608 3,797 1,785 1,582 2,711 2,118 2,312 3,258 3,234 2,697 3,279 IT-Hardware & Networking 1,125 1,179 1,231 1,057 557 558 764 835 829 1,354 1,055 949 1,050 Retailing 1,556 1,643 1,797 1,135 399 308 545 532 813 935 1,051 981 1,084 Media/Doctor/Entertainment 1,027 1,109 1,050 698 299 438 420 572 589 816 758 637 596 Medical/Healthcare/Hospital 5,186 5,448 5,938 4,706 2,133 4,060 4,499 4,612 5,279 5,091 4,866 5,044 5,736 Real Estate/Property 2,194 2,452 2,501 1,640 420 594 947 1,021 1,364 1,963 1,983 1,939 2,068 Source: Naukri JobSpeak Index, December 2020

Note: The Naukri JobSpeak is a monthly Index that calculates and records hiring activity based on the job listing on the Naukri website month on month. The job speak index includes jobs that might be for replacement hiring. July 2008 is taken to be the base with an index value of 1,000 and the subsequent monthly index is compared with the data for July 2018.

January 15, 2021 35 India Strategy

2021 Budget likely to be a tight rope walk

We believe with expected GDP decline of ~7% in FY21 and fiscal deficit in excess of 6.5%, Govt has a tight rope walk in the current budget. We believe very limited scope to give incremental tax incentives, except for promoting manufacturing in the country. We expect higher allocation for rural development, infra push, accelerated privatisation program and healthcare sector. Some of the highlights of 2021 is likely to be as Follows:

. Stimulus for economy – cash to stimulate demand

. New fiscal roadmap given slowdown and covid impact

. Covid cess to harness resources

. Increased push towards privatization

. Move towards universal PDS coverage

Income tax

Personal Income Tax - Given fiscal considerations during the current year and implementation of model code on taxation we expect little changes in income tax slabs and rates in the current year except some minor tinkering in exemption in home loans.

Corporate taxes - covid cess of 2-3% is expected to shore up finances.

Automobile

. Vehicle scrappage policy: We expect announcement around much awaited scrappage policy. For it to be attractive the scrapping should be1) made mandatory for vehicle older than 15 years and 2) it should offer attractive incentive to scrap vehicles. Positive for M&HCV in particular.

. Incentives for local manufacturing for import substitute: The automobile OEMs too are focusing on reducing reliance on imports and building supply chains with vendors in India in segments, particularly in the electronics and allied products segments, where India has limited capabilities. We expect granular details on PLI to come out with budget.

. Incentive for development of EV ecosystem: Industry expects that government should incentivize and promote practical EV solution and the charging infrastructure and providing incentives on capital investments for charging networks. Also, reduction in import duty on lithium-ion cells to encourage production of lithium-ion batteries domestically.

. Spends on agri/rural: We expect thrust on rural economy and agri- infrastructure to continue in the upcoming budget as well which should benefit rural dominated segments like 2Ws, Tractors and entry level cars.

January 15, 2021 36 India Strategy

Aviation

. 100% FDI in aviation

. Bring ATF under GST/ Reduction in taxes

. Reduction of taxes and levies on airport charges, parking and landing, navigation charges etc.

. Continued allowance for UDAN – regional connectivity scheme

Banks

. The budget should lay out a roadmap on privatization plan of PSBs as GOI holding in many banks including large ones (ex-SBI) is in range of 65-92%, while also allocate money for capitalization of mid-sized PSBs as risks of COVID are not clear on asset quality.

. Creating bad bank – Although the demand for bad bank has been there for long time, but time is right post PSBs consolidation as many PSBs have +90% PCR and large NPAs. This should be spearheaded by GOI by allocation of capital for the purpose

. Demand boost in housing – Either GOI can increase the limit of 80C which includes housing loan principal or either carve out housing loan as separate section for principal & interest payments. This will boost housing & housing loan creating demand and help revival in real estate sector.

. Additional sectors in PLI scheme or large scheme for manufacturing – Capex will have boosted from the GOI’s PLI scheme, which will help improve loan growth as banks have huge liquidity but avenues of loan growth are fading.

Cement

. Increase in deduction limit under section 24B on payment of interest on housing loan from current Rs2 lac. This would accelerate housing demand given the elevated incentives.

. Higher allocation under infrastructure and Housing for All scheme would support the demand.

Consumer Durables

. Individual Tax rate cut can increase disposable income and boost consumer durables demand

. Development of component ecosystem to reduce dependency on imports and turnaround times for products

Education

The draft of New Education Policy (NEP) was adopted by the Government in July 2020 while National Curriculum Framework (NCF) is expected to be released by April/May 2021. While NEP & NCF is not integral part of budget, any fresh updates/announcement on that front will be eyed.

January 15, 2021 37 India Strategy

FMCG

. Increase in excise duty on cigarettes by 5-10%

. Increased incentives for food processing and storage

Insurance

. Hike FDI limit for insurance companies from 49% to 74% with Indian management control.

. Insurance pension/retirement plans to get carve out similar to NPS to boost long term savings. Also will bring parity with NPS which enjoys Rs50,000 additional tax saving benefit.

Metals

. Higher allocation under infrastructure and Housing for All scheme would support demand for long steel.

Oil & Gas

. Budget provision for LPG and kerosene for FY22.

. Changes in excise duty rates of petrol and diesel.

. Timeline to bring natural gas under GST.

Pharma

. Additional one-time provisions towards vaccination programs for healthcare workers, frontline workers, and the elderly population

. Healthcare allocation could increase by 10% to Rs759bn.

. Details of incentives under the new Remission of Duties or Taxes on Export Product (RoDTEP) scheme could be lower per exporter than the old Merchandise Export from India Scheme (MEIS).

NBFC

. Budget for FY22 to continue TLTRO, PCGS and SLS liquidity and guarantee schemes to ensure near-term funding availability and expects to provide a guidance on the medium-term support framework for the sector.

. Insignificant materialization on expanding the investment scope to lower-rated papers to deepen the bond markets as mentioned in last budget. Opportune time to push forward this reform.

. Near-term easing of overseas funding regulation – i.e. FPI/ECB investment guidelines, until the domestic funding challenges improves.

. Long-standing expectation of a permanent NBFC refinance window from the RBI or the designation of an existing institution/creation of a new institution.

January 15, 2021 38 India Strategy

Covid-19 – India starts vaccination

. India has seen considerable improvement with daily addition between 15-17k cases in past week/10 days, which is a great improvement from a high of 97k cases/day. Recovery rate at 96.5% remains amongst best in the world while death rate is just 1.4%. Global recovery rate and death rate stand at 71.5% and 2.1% which is gradually improving

. Contrary to fears a couple of months back, India has been able to control spike post festival season, which also indicates probability of herd immunity.

. India has entered select club of nations which is starting Vaccination. India has approved Covishield (mfg by SII under license from UK) and Covaxin from Bharat Biotech. India will be vaccinating 30mn frontline workers in phase 1 and gradually the entire population. We believe vaccination program will take at 6- 9 months for full coverage.

US and Europe face severe second wave of Covid 19 First Wave Case Additions/Day Recent High High Bottom USA 78935 25800 308011 Brazil 70869 3100 87134 Russia 11656 4600 29935 Spain 10857 130 38869 UK 7860 350 68053 France 7500 115 88790 Germany 6800 270 31553 Italy 6554 137 40896 Source: Worldometers, PL

Daily case additions have seen considerable reduction in past 3 months

Daily Addition Daily Total count

120000 12000000 100000 10000000 80000 8000000 60000 6000000 40000 4000000 20000 2000000

0 0

29-06-2020 06-07-2020 13-07-2020 17-08-2020 24-08-2020 31-08-2020 07-09-2020 05-10-2020 12-10-2020 19-10-2020 26-10-2020 23-11-2020 30-11-2020 07-12-2020 14-12-2020 08-06-2020 15-06-2020 22-06-2020 20-07-2020 27-07-2020 03-08-2020 10-08-2020 14-09-2020 21-09-2020 28-09-2020 02-11-2020 09-11-2020 16-11-2020 21-12-2020 28-12-2020 04-01-2021 11-01-2021 01-06-2020 Source: Online Sources, PL

January 15, 2021 39 India Strategy

High frequency indicators show sustained pickup

GST settles above Rs1000bn monthly run rate

. 3Q GST collections have been Rs3354bn with collections in each of these months exceeding Rs1050bn. Similar number in 3Q20 was 3021bn, showing YoY growth of ~11%. Dec collections are higher by 11.6%

. Compensation cess increased by just 4.6% during 3Q21 to Rs248bn, manly as cigarette volumes remained under pressure as passenger vehicles volume were quite healthy.

3Q GST collections improve 11%, Compensation cess grows just 4.6%

GST Collections (Rs Bn)

1,200 1,100 1,000 900 800 700 (Rs bn) (Rs 600 500 400

300

Jul-18

Jul-19

Jul-20

Apr-18

Oct-18

Apr-19

Oct-19

Apr-20

Oct-20

Jun-18

Jan-19

Jun-19

Jan-20

Jun-20

Feb-19

Mar-19

Feb-20

Mar-20

Aug-18

Sep-18

Nov-18

Dec-18

Aug-19

Sep-19

Nov-19

Dec-19

Aug-20

Sep-20

Nov-20

Dec-20

May-18 May-19 May-20 Source: GOI, PL Research

Railway freight tonnage up 9% YoY, aided by firm demand

Railway Freight Tonnage YoY Growth - RHS

130 16 15 20 9 7 6 9 120 3 4 4 4 10 3 3 3 2 2 1 3 110 -8 -5 -6 -7 -8 0 100 -14 -10 90 -21 (%) -20

80 (mntonnes) -35 70 -30

60 -40

Jul-19

Jul-20

Apr-19

Oct-19

Apr-20

Oct-20

Jan-19

Jun-19

Jan-20

Jun-20

Feb-19 Mar-19

Feb-20 Mar-20

Dec-18

Aug-19

Sep-19

Nov-19 Dec-19

Aug-20

Sep-20

Nov-20 Dec-20 May-19 May-20 Source: Indian Railways, PL

January 15, 2021 40 India Strategy

Electricity generation in India rose 6% YoY in Dec’20e

Electricity Generation in India YoY Growth - RHS

135 20 130 11 10 15 7 9 125 4 6 5 4 6 10 2 3 4 120 1 1 5 -1 -3 -2 -2 -3 115 -6 0 -8 110 -11 -5 -12 (%) 105 -10 (bn units)(bn 100 -15 -23 95 -25 -20 90 -25

85 -30

Jul-19

Jul-20

Apr-19

Oct-19

Apr-20

Oct-20

Jan-19

Jun-19

Jan-20

Jun-20

Feb-19

Mar-19

Feb-20

Mar-20

Dec-18

Aug-19

Sep-19

Nov-19

Dec-19

Aug-20

Sep-20

Nov-20

Dec-20 May-19 May-20 Source: CEA, PL

Steel consumption improved due to revival across the sectors

Steel Consumption YoY Growth - RHS 10.5 23 40 15 9.5 9 9 4 8 7 7 7 9 4 7 9 5 6 4 5 20 8.5 2 1 0 1 -8 -9 -7 7.5 0 -22 6.5 -30 -20 5.5 -52 (%) 4.5 -40 3.5

(mntonnes) -60 2.5 -87 -80 1.5

0.5 -100

Jul-19

Jul-20

Oct-18

Apr-19

Oct-19

Apr-20

Oct-20

Jan-19

Jun-19

Jan-20

Jun-20

Mar-19

Mar-20

Feb-19

Feb-20

Nov-18

Dec-18

Nov-19

Dec-19

Nov-20

Aug-18

Sep-18

Aug-19

Sep-19

Aug-20

Sep-20 May-19 May-20 Source: JPC, PL

Diesel consumption fell 7% YoY in Nov’20

Diesel Consumption YoY Growth - RHS

9.0 30 20 6 9 6 7 8.0 4 3 2 3 3 1 1 -1 0 -2 10 -5 -3 -6 7.0 -7 -7 0 -15 -20-21 -10 6.0 -24 -29 -20 (%) 5.0 -30 (mntonnes) -40 4.0 -56 -50

3.0 -60

Jul-19 Jul-20

Apr-19 Apr-20 Oct-19 Oct-20

Jun-19 Jan-19 Jan-20 Jun-20

Feb-19 Mar-19 Mar-20 Feb-20

Nov-18 Dec-18 Aug-19 Nov-19 Dec-19 Aug-20 Sep-20 Nov-20 Sep-19 May-20 May-19 Source: PPAC, PL

January 15, 2021 41 India Strategy

Peak Power demand up 3.5% in Novt20

25.0% 20.0% 15.0% 8.1% 10.0% 3.4% 10.7% 5.0% 9.6% 9.3% 3.5% 6.5% 2.0% 0.0% 3.5% 3.6% -5.0% 0.6% 1.8% -2.7% -10.0% -3.7% -15.0% -20.0% -25.0%

-30.0% -24.9%

Jul-17

Jul-18

Jul-19

Jul-20

Jan-18

Jan-19

Jan-20

Mar-18

Mar-19

Mar-20

Sep-17

Nov-17

Sep-18

Nov-18

Sep-19

Nov-19

Sep-20

Nov-20

May-17

May-18 May-19 May-20 Source: CEA, PL Research

Most segments, except, cigarettes, personal care are growing now. 2Q21 FMCG sales growth better than 3Q20 Paints, Food products, Hygiene are growing in double digits FMCG YoY Sales Growth 20.0% 14.4% 15.0% 12.0% 10.3% 10.0% 8.5% 10.3% 10.3% 6.3% 6.2% 5.0% 4.1% 0.0% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21E -5.0% -10.0% -7.2% -15.0% -15.2% -20.0%

Source: Company, PL

Credit slowdown continues while deposit growth has kept up

25% Deposit growth Credit growth

20%

14.2% 15% 11.33%

10% 6.1%

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18 Dec-19 Dec-20 Source: RBI, PL

January 15, 2021 42 India Strategy

IIP impacted post Festival season

With economic activity slowly picking up, capacity utilization for industry has reached ~80-90% pre-Covid levels. Overall capacity utilization is expected to end FY21 at 70% and surplus will get used in FY22. We expect 2H22 to see early signs of broader pick up in capex cycle. Govt led infra projects are key to capex revival.

IIP contracted at slower pace, led by Infra, Durables

10.0 IIP 0.0 4.5 4.9 4.5 4.2 3.2 1.3 2.1 2.1 -1.4 0.4 0.5 -10.0 -4.6 -1.9 -6.6 -8.0 -20.0 -10.4 -15.8 -18.7 -30.0

-40.0 -33.9 -50.0 -60.0 -57.3

-70.0

Jul-19

Jul-20

Apr-19

Oct-19

Apr-20

Oct-20

Jun-19

Jan-20

Jun-20

Feb-20

Mar-20

Aug-19

Sep-19

Nov-19

Dec-19

Aug-20

Sep-20

Nov-20 May-19 May-20 Source: MOSPI, PL

. IIP in recovery mode: IIP recovered to 4.2% in October but contracted by 1.9% in Nov due to as festival linked holidays impacted output. Mining output declined by 7.3% on a low base, electricity output remained in positive territory at 3.5% growth.

. Use-base classification: Intermediate goods reported positive growth in October but turned negative in Nov. Infra, Consumer Durables and Non- durables recorded smart growth of 9.9%, 185 and 7.1% in October but slowed down with growth of 0.7% and -0.7% respectively.

IIP shows festival impact in Nov after robust growth in October Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep’20 Oct’20 Nov20 General 2.1 0.4 2.1 4.5 -18.7 -57.3 -33.9 -15.8 -10.4 -8.0 0.5 4.2 -1.9 Mining 1.9 5.7 4.3 10.0 -1.3 -26.9 -20.5 -19.6 -13.0 -9.8 1.4 -1.3 -7.3 Manufacturing 3.0 -0.3 1.6 3.2 -22.8 -66.6 -38.4 -16.0 -11.1 -8.6 -0.2 4.1 -1.7 Electricity -5.0 -0.1 3.1 8.1 -8.2 -22.9 -14.9 -10.0 -2.5 -1.8 4.9 11.2 3.5 Use-Based Basic goods -0.2 2.4 1.8 8.3 -4.0 -26.6 -19.7 -14.5 -10.9 -11.1 -1.5 -3.4 -2.6 Intermediate goods 17.2 13.1 15.6 19.4 -18.6 -63.9 -40.6 -23.0 -12.5 -6.8 -1.0 2.1 -3.0 Capital goods -8.9 -18.3 -4.4 -9.5 -38.8 -92.7 -65.2 -37.4 -22.8 -15.4 -1.3 3.5 -7.1 Infra/Construction Goods -0.7 0.2 -0.3 -0.1 -24.3 -85.0 -40.7 -18.8 -10.6 -2.3 2.5 9.9 0.7 Consumer Durables -1.4 -5.6 -3.7 -5.8 -36.8 -95.7 -69.4 -34.3 -23.6 -10.3 3.4 18.0 -0.7 Consumer Non-durables 1.1 -3.2 -0.6 1.5 -22.3 -48.1 -11.1 14.3 6.7 -3.3 2.4 7.1 -0.7 Source: MOSPI, PL

. While GOI has earmarked more than 1000bn under MNREGA for small rural projects, significant increase in outlays looks uncertain given fiscal constraints.

January 15, 2021 43 India Strategy

PMI shows some fatigue, sentiment improves

Composite PMI index softened to 54.9 from 58.9 in October and 56.4 in November. Services PMI eased from 54.1 in October to 52.3 in Dec20 as growth in new businesses and output softened. New hiring stagnated due to labour shortage, liquidity crunch and muted demand. Real estate, I&C and business services contracted the most. Transport, consumer service and finance & insurance fared better.

Consumer sentiments after collapsing to 97.9 in May steadily recovered to 115.9 by Sept and remained flattish as reflected in current situation index (CSI). Future expectation index (FEI) after sharply falling post Covid has bottomed out as it recovered by 240bps from the bottom to current level of 52.3 showing growing confidence in the post covid recovery despite incidence of job losses and tepid household income for 1H21.

Both Manufacturing and service PMI slows in Nov/Dec

Composite PMI Manufacturing PMI Services 70 56.4 58.9 54.9 60 51.4 52.7 51.8 50.8 47.2 46 50 52.5 37.8 53.7 37.2 54.1 52.3 40 30.8 30 20 14.8 7.2 10

Jul-19

Jul-20

Oct-19

Apr-20

Oct-20

Jun-19

Jan-20

Jun-20

Mar-20

Feb-20

Nov-19

Dec-19

Nov-20

Dec-20

Aug-19

Sep-19

Aug-20

Sep-20 May-20

Source: PL

CSI flattish; FEI has bottomed out and shows recovery

Current Situation Index Future Expectation Index

145.0 133.4 128.4 135.0 124.8 118.0 125.0 114.5 115.1 115.2 115.9 115.9 115.0 104.6 105.4 97.9 105.0 97.3 95.7 89.4 95.0 85.7 83.7 85.6 85.0 75.0 63.7 65.0 53.8 49.9 52.3 55.0

45.0

Jul-19

Jul-20

Apr-19

Oct-19

Apr-20

Oct-20

Jun-19

Jan-20

Jun-20

Mar-19

Feb-20

Mar-20

Nov-19

Dec-19

Nov-20

Aug-19

Sep-19

Aug-20

Sep-20 May-19 May-20 Source: RBI, PL

January 15, 2021 44 India Strategy

CPI – Core inflation flattish, Food inflation dips 610bps

. CPI eases due to higher food inflation in the base: CPI dipped sharply from 6.9% in Nov to 4.6% in Dec as food inflation moderated from 9.5% in Nov to 3.4% in Dec on a high base of 14.2% in Dec19. Inflation in Clothing, tobacco and housing was steady. Fuel and lighting inflation increased sharply from 1.6% to 3% MoM. Food inflation softened sharply due to 10% decline in vegetable prices. Inflation in misc items remained firm at 6.6% due to firm prices of metals, plastic, textiles rubber etc

. Core inflation moderates 10bp: Core inflation moderated by 10bps to 5.7% in Dec’20 from 5.8% in Nov’20 driven by sharp decline in food inflation due to softening vegetable prices. We however note that RBI had increased its target for inflation higher by 130-140bps and expects it to be higher than long period target of 4%.

CPI has moderated due to sharp decline in food inflation Dec’19 Jan’20 Feb’20 Mar’20 Apr’20 May’20 Jun’20 Jul’20 Aug’20 Sep’20 Oct’20 Nov’20 Dec’20 Consumer Price Index (CPI) Weight 2.3 2.1 6.6 5.9 7.2 6.3 6.2 6.7 6.7 7.3 7.6 6.9 4.6 Food, Beverages and Tobacco 45.9 12.2 11.8 9.5 7.8 10.5 8.4 7.9 8.5 8.3 9.7 10.1 8.9 3.9 Pan Tobacco and Intoxicants 2.4 3.4 3.6 4.1 4.7 5.9 6.3 11.3 10.5 11.2 10.8 10.6 10.4 10.7 Clothing and Footwear 6.5 1.5 1.9 2.0 2.1 3.5 3.4 2.7 2.8 2.8 3.0 3.1 3.4 3.5 Housing 10.1 4.3 4.2 4.2 4.2 3.9 3.7 3.5 3.3 3.1 2.8 3.3 3.2 3.2 Fuel and Light 6.8 0.7 3.7 6.4 6.6 2.9 1.6 0.5 2.7 3.1 2.9 2.1 1.6 3.0 Miscellaneous 28.3 4.2 4.7 4.5 4.4 5.4 5.8 6.1 6.8 7.0 6.9 6.9 7.0 6.6 Consumer Food Price Index 14.2 13.6 10.8 8.8 11.7 9.2 8.7 9.3 9.1 10.7 11.1 9.5 3.4 Source: MOSPI, PL

Food Inflation declines as monsoon impact and high base set in

CPI Core Inflation Food Inflation

16.0 13.6 14.0 12.0 11.7 8.7 11.1 10.0 7.9 9.3 8.0 6.7 7.2 6.2 4.62 6.0 5.3 5.7 4.8 5.8 4.6 4.0 3.4 2.0 3.47

0.0

Jul-20

Oct-19

Apr-20

Oct-20

Jan-20

Jun-20

Feb-20

Mar-20

Nov-19

Dec-19

Aug-20

Sep-20

Nov-20 Dec-20 May-20 Source: MOSPI, PL

January 15, 2021 45 India Strategy

Trade deficit rising on lower exports

. Trade Deficit in Nov20 increased 15% MoM due to lower exports and higher imports of gold and oil. However, on YoY basis trade deficit is lower 23% at USD9.9bn as oil imports are lower by 4.8bn USD, Gold and non-oil non gold imports are flattish.

. YTD exports have declined 14% while imports have declined 32% due to a decline of 47% in Oil imports while Non-oil non gold imports declined by 25%, gold imports declined 14%. Oil imports during April-Nov20 have resulted in savings of USD41bn

. Services trade balance is up 7.9% at USD49bn.

. Overall trade balance during April-Oct 20 shows a surplus of USD16.9bn as against a deficit of USD50bn during same period last year

Oil Imports remain a saving grace with savings of USD41bn YTD Merchandise Trade Nov’19 Dec’19 Jan’20 Feb’20 Mar’20 Apr’20 May’20 Jun’20 Jul’20 Aug’20 Sep’20 Oct’20 Nov’20 (USD bn) Exports 26.0 27.4 26.0 27.6 21.4 10.4 19.1 21.9 23.6 22.7 27.6 24.9 23.5 YoY % 0% -2% -2% 3% -35% -60% -36% -12% -10% -13% 6% -6% -9% Imports 38.1 38.6 41.1 37.5 31.2 17.1 22.2 21.1 28.5 29.5 30.3 33.6 33.4 YoY % -13% -9% -1% 2% -29% -59% -51% -48% -28% -26% -20% -10% -13% - Oil 11.1 10.7 13.0 10.8 10.0 4.7 3.5 4.9 6.5 6.4 5.8 6.0 6.3 YoY % -18% -1% 15% 14% -15% -59% -72% -55% -32% -41% -36% -38% -43% - Gold 2.9 2.5 1.6 2.4 1.2 0.0 0.1 0.6 1.8 3.7 0.6 2.5 3.0 YoY % 7% -4% -32% -9% -63% -100% -98% -77% 4% 171% -53% 36% 3% - Non Oil Non Gold 24.1 25.4 26.6 24.4 19.9 12.5 18.6 15.6 20.2 19.3 23.9 25.1 24.1 YoY % -12% -12% -5% -1% -30% -52% -34% -41% -29% -29% -13% -3% -2% Trade Deficit (12.1) (11.3) (15.2) (9.9) (9.8) (6.8) (3.1) 0.8 (4.8) (6.8) (2.7) (8.7) (9.9) YoY % -31% -22% 1% 1% -11% -56% -80% -105% -64% -50% -77% -21% -23% Source: Ministry of Commerce, PL

Services balance remains steady Services Oct'19 Nov'19 Dec'19 Jan'20 Feb'20 Mar'20 Apr'20 May'20 Jun'20 Jul'20 Aug'20 Sept'20 Oct'20 Exports (Receipts) 17.7 18.0 20.0 19.0 17.7 18.2 16.5 16.8 17.0 17.0 16.4 17.3 16.6 YoY % 5% 8% 12% 7% 7% 1% -9% -10% -8% -11% -10% -1% -6% Imports (Payments) 10.9 11.5 12.6 12.0 11.1 11.1 9.3 9.9 10.0 10.0 9.6 10.1 9.5 YoY % 8% 13% 10% 9% 13% -2% -18% -20% -15% -22% -20% -9% -12% Services balance 6.8 6.5 7.4 7.0 6.7 7.1 7.1 6.8 7.0 7.0 6.8 7.2 7.1 YoY % 2% -1% 14% 4% -2% 7% 7% 10% 4% 12% 10% 11% 3% Source: Ministry of Commerce, PL

January 15, 2021 46 India Strategy

Sectoral Snapshots

Agri Inputs

Agrochemical industry is expected to grow mid to high single digits in Q3, driven by healthy demand from wheat, pulses and horticulture crops. While growth was expected to be strong, unseasonal rains and extended monsoon impacted the season across various states. Unseasonal rains also lowered Kharif crop yield and farmer-to-retailer recovery was compressed. Internationally, raw material price from China and container cost across ports globally continue to surge due to shortages. Fertilizer’s demand momentum remains strong but high base led to flat industry volumes for Q3 @ 6mn tonnes. Phosphatic fertilisers input cost has bottomed out and gradual hardening will likely impact margins, going forward.

(Click on the Link for Detailed Report)

Automobiles

Continuing the trend of 2Q, strong retail momentum witnessed for Tractors and PVs (~32% YoY/ 5% YoY), whereas 2W retails were lower ~14% YoY.

We expect gross margins to contract 150bp YoY/ 100bp QoQ to 28.6% for OEMs (exJLR) led by steep increase in RM prices in 2Q and 3Q. On the other hand, aggregate fixed cost can decline 250bp YoY/ 120bp QoQ to 16.7% led by cost rationalization and operating leverage. This should result in EBITDA margins for our coverage universe (ex-JLR) to expand 90bp YoY/ +20bp QoQ at 12% led by op. leverage, low discounts and cost control.

Top picks - MM and AL among OEMs and Exide, ENDU and MSS among Ancillary.

(Click on the Link for Detailed Report)

Aviation

In 3Q, scale up of operations continued to gather momentum with the industry reaching c.67%-70% of pre-covid capacity in December benefiting from 1) rising consumer confidence and 2) easing lockdown restrictions. In December, average daily departures increased 57% over September. Benefitting from pricing discipline during festive season and charter flights, yields are likely to remain strong (up 4%/ 8% for INDIGO/ SJET). We expect LCCs under our coverage i.e. INDIGO/ SJET to report 49.4%/ 51.8% YoY decline in sales and an adj. loss of Rs3.8bn/Rs479mn respectively. Improving scale of operations, various cost initiatives and appreciating rupee will enable narrowing of losses QoQ. INDIGO continues to be better placed in the industry on the back of its Balance Sheet strength and lost cost structure.

(Click on the Link for Detailed Report)

January 15, 2021 47 India Strategy

Banks

Banks will show sustained double digit NII growth despite slower loan growth and relatively lower provisioning. The SC has not lifted its direction on NPA recognition, hence we will see another quarter of low slippages leading to better asset quality. Although, focus will be on loan restructuring, pro-forma slippages/stress and collection efficiency being full billing quarter. Banks will continue to make provisions albeit lower and now are in strong position having 30-140bps of contingency provisions. Our preference continues with HDFCB & ICICIBC as front line picks, while IIB, SBI and Federal could shine on back of results.

(Click on the Link for Detailed Report)

Capital Goods

For 3Q, we expect product companies to report higher growth compared to project companies as order inflows remain healthy in all segments and many supply side issues already being addressed. For project companies labour availability has been rising (80-90% pre-Covid levels in Sept’20 vs 60-70% in Aug’20), led by timely disbursal of payments from Government authorities supporting working capital requirement and healthy ordering momentum both from domestic as well as international markets.

We expect ordering activity to pick-up in 3Qled by government spending in Railways, Metro, drinking water/sanitation, Oil & Gas, Roads, Power T&D and Healthcare. With large stimulus package announced globally due to pandemic, we expect healthy ordering from SAARC, MENA, Latin America and European regions.

Our top picks in the sector are L&T, KPP, and Voltamp.

(Click on the Link for Detailed Report)

Cement

We reiterate our positive view on the sector in wake of strong demand outlook across the sectors and reasonable valuations. We also initiated coverage on Dalmia Bharat (DALBHARA) with BUY rating, underpinned by strong earnings growth and compelling valuations. We continue to like Ultratech cement (UTCEM), Ambuja cement (ACEM) and JK Lakshmi cement (JKLC).

(Click on the Link for Detailed Report)

Consumer Durables

With 2Q demand momentum persisting in 3Q, we expect consumer durables universe to register healthy growth rates benefitting from 1) good festival season sales 2) dipping mercury levels aiding winter portfolio and 3) smart share gains by large organized players. We expect Sales/EBITDA/PBT/Adj. PAT growth of 13.9%/ 28.0%/ 33.2%/ 27.9% across our coverage universe. We maintain our positive stance on consumer durables given huge penetration scope and market consolidation. We prefer Crompton Consumer and Polycab as our top picks at this point of time

(Click on the Link for Detailed Report)

January 15, 2021 48 India Strategy

Consumer Staples

3QFY21 performance is likely to show signs of recovery led by sustained rural demand and gradual pickup in urban demand post unlock and normalization of supply chain. We believe that margins for select players will start correcting QoQ given rising commodity costs and comeback of ad spends, marketing and overheads. Sales and PBT is expected to increase by 10.5% and 22.1% respectively. EBITDA margins likely to expand ~280bps. Adj PAT to grow 20.7%. We remain constructive on consumer space given strong tailwinds of demand from rural India and increased transition towards organized and large players in post covid scenario.

HUL, Avenue Supermart and Britannia are our top picks in coverage universe.

(Click on the Link for Detailed Report)

Financial Services

Opening up of businesses, collections closer to pre-Covid levels and adequate provisioning buffers for any untoward stress indicate positive undercurrents. Closer to higher single digit AUM growth, NIM improvement underpinned by reduced B/S liquidity and peaked out credit costs sum up Q3FY21 earnings expectations. Gold and housing financiers should continue to outshine other asset classes both in terms of growth and asset quality. Yet, H2FY21 should provide better clarity on asset quality picture across all NBFCs as 90dpd and credit bureau score freeze lift. While most NBFCs have witnessed average 50% price momentum in past three months led by high systemic liquidity and GoI measures, the sustenance of higher valuation multiple will be interplay of two factors: (a) continued healthy growth backed by structural demand and (b) ultimate credit loss. We prefer players with resilient balance sheets led by capital and provisioning sufficiency that would act as shock absorbers in the current uncertain periods.

We like MUTH and CIFC from the coverage universe.

(Click on the Link for Detailed Report)

Infrastructure

In the post pandemic scenario, Infra companies have shown sharp recovery driven by a) sharp bounce back in labour availability to pre-covid levels, b) sustained awarding momentum across roads, urban infra and water infra segments, c) timely disbursal of payments from Govt. authorities and low-interest Covid loans, d) sharp turnaround in real estate with MMR region eyeing multi-year high registrations over Oct-Dec’20 period and e) V-shaped recovery for road asset portfolio with toll revenues during Q3 witnessing a 10-15% sequential growth.

In our view, infra companies provide a good investment opportunity on the back of a) Persistent government push on infrastructure spending (Rs111trn capital investment under NIP over next 5-6 years), b) order book-to-sales ratio at ~4x provides strong revenue visibility, (c) most companies have a healthy balance sheet with comfortable leverage position.

January 15, 2021 49 India Strategy

Our top picks in the sector are PNC Infratech, HG Infra and Capacite Infra.

(Click on the Link for Detailed Report)

Information Technology

We expect IT sector to maintain its strong performance in FY22 as 1) Sector has entered into Technology Upcycle, 2) Digital becoming mainstream and 3) Strong order book & deal pipeline,4) Accelerated demand for cloud adoption, 5) Broad based demand across all industry verticals. ISG Index reported that Global IT Managed Services had a strong quarter with ACV of $7Bn+ in 4QCY20 (up 9% QoQ). TCS management expects tech spend to strengthen in CY21 with strong multi-year technology transformation opportunity. We expect Infosys to post sector leading growth in FY22 & remains our top pick. For Wipro, we believe that the gap in growth rate will reduce when compared to peers. For HCLT, tailwind of strong cloud adoption & increasing discretionary spends will help its ERD segment to perform better. Among Midcaps, we continue to like LTI, MTCL, LTTS, Coforge, Mphasis.

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Life Insurance

Life insurers will see a steady quarter with new business growth in range of -30% to 20% YoY, while margins will continue to make an uptick as protection improves, while specific savings product continue see good flow. We expect our coverage universe to report flattish YoY growth in APE & 12% YoY rise in VNB with small uptick in margins. We prefer SBI Life given its risk-reward in the sector.

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Media, Education & Others

Radio space: For our coverage universe, we expect a ~35-45% fall in top-line in 3QFY21 (versus ~50-60% fall in 2QFY21) as we expect recovery in ad-volumes as compared to the preceding quarter. MBL’s sequential recovery in top-line is expected to be in the range of 30-40% while ENIL is expected to post a sharp jump given non-FCT revenue accrual in 2H.

Multiplex space: While multiplexes were allowed to open from 15th Oct with 50% capacity given lack of fresh content, footfalls are expected to be at sub-optimal levels in 3QFY21. Though both multiplex players have undertaken tight cost control measures, sequentially EBITDA losses are likely to be higher amid rise in operating expenses post re-opening with no corresponding revenue accretion. We thus, expect PVR and Inox to report Ind-AS adjusted EBITDA loss of Rs1,296mn and Rs737mn respectively

January 15, 2021 50 India Strategy

Education space: Higher grade schools in some parts of Maharashtra are already open while schools in Gujarat are expected to open (for higher grades) around mid- January. Further, in states like Karnataka, Kerala and Assam gradual re-opening has been witnessed indicating that next academic cycle is expected to be on schedule. Navneet is expected to report a fall in top-line while S Chand is expected to report a growth of 35% YoY in a seasonally weak quarter.

Travel & tourism space: Given domestic aviation traffic for Oct/Nov was up 34%/21% MoM to 5.3mn/6.4mn respectively and daily departures were in the range of ~50-60% of pre-COVID capacity we expect sales recovery evident in the month of Oct to sustain over the next 2 months. Consequently, we expect sharp sequential jump in sales (up 89.4% QoQ; down 55.0% YoY) for VIP.

Non-suburban PRS traffic was down by 39% YoY during the first 80 days of 3QFY21. Further, the fall was only 8.7% YoY during 11-20th Dec 2020 indicating sharp recovery. We expect IRCTC’s revenues to decline 75.3% YoY (up 100% on QoQ basis) to Rs1,770mn with an EBITDA margin of 18.6% in 3QFY21

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Metals

We continue to like 1) HNDL (with TP of Rs305) on the back of strong outlook on Novelis operations and attractive valuations (EV/EBITDA at 5.5x FY22e), 2) JSP (with TP of Rs400) given better profitability in both steel and power biz, attractive valuations (EV/EBITDA at 4x FY22e) and comfortable debt gearing (Net debt/EBITDA<2x) and 3) NMDC (with TP of Rs145) due to better outlook on domestic iron ore prices, compelling valuations (EV/EBITDA at 3x FY22e) and divestment of steel plant. We upgrade Tata Steel (TATA) to Hold with TP of Rs745, led by strong mining margins (due to integrated operations), steep reduction in debt and divestment of European plants.

(Click on the Link for Detailed Report)

Oil & Gas

Q3FY21 Oil sector earnings are likely to be impacted by lower inventory gains even though core performance is likely to improve sequentially. The OMCs results are also expected to get hit by lower inventory gains, appreciating exchange rate and muted refining margins. The upstream earnings will be hit from lower gas realization despite marginally higher crude prices. RIL’s standalone earnings are likely to improve given higher petrochemicals profitability. Gas stocks are expected to report an improvement in QoQ level, as and how economic activities gather steam.

(Click on the Link for Detailed Report)

January 15, 2021 51 India Strategy

Pharma

Loss of revenue for the healthcare sector during COVID-19 lockdown has been partially compensated by low margin opportunities like PCR testing, Remdesivir, Favipiravir, and consumer durable items. The only part of the business that has shown resilience and reported growth during these difficult times have been Chronic therapies like Cardiac, Anti-diabetic and VMN which together constitute 33% of IPM. While the US(Gx) maintained their long-term growth trend but travel restrictions on FDA officers delayed the resolution of many key plants which ultimately delayed approvals for new products. With the vaccination drive to commence shortly in Indian, listed entities like ARBP, DRRD, and CADILA are still a few months away to receive the nod from the regulator for their vaccines.

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January 15, 2021 52

India Strategy

PL Valuation

Automobiles Ashok Leyland BUY 120 133 11.5 351.1 143.9 241.7 277.7 -3.1 12.5 17.2 5.3 22.7 30.3 -1.0 4.2 5.8 23.0 26.5 31.4 -4.4 17.1 20.2 -1.0 9.2 10.8 (115.0) 28.2 20.5 5.2 4.5 3.8 73.3 16.7 12.2 Bajaj Auto HOLD 3,580 3,215 (10.2) 1,036.0 265.2 306.6 330.6 46.4 52.4 54.7 44.2 50.5 52.9 160.4 181.0 189.1 740.4 800.7 844.6 22.4 23.5 23.0 19.9 21.3 20.9 22.3 19.8 18.9 4.8 4.5 4.2 23.4 20.3 19.3 Eicher Motors Acc 2,857 2,901 1.5 779.5 91.4 114.9 129.7 14.5 23.5 28.1 19.0 29.5 35.4 53.3 86.2 103.1 405.6 477.8 567.0 13.8 19.5 19.7 13.9 21.1 21.5 53.6 33.2 27.7 7.0 6.0 5.0 37.7 23.8 19.2 Hero Motocorp Acc 3,203 3,344 4.4 641.2 297.3 332.3 358.5 26.6 34.8 40.0 36.4 45.5 51.7 132.8 173.9 199.8 744.0 812.9 907.6 18.3 22.3 23.2 14.7 17.9 19.4 24.1 18.4 16.0 4.3 3.9 3.5 15.1 11.8 10.4 Mahindra & Mahindra BUY 820 851 3.9 977.9 458.3 518.5 580.4 40.7 42.6 48.3 65.4 65.0 74.4 34.1 35.7 40.5 308.2 333.9 362.4 11.4 11.1 11.6 11.0 9.8 10.5 24.0 23.0 20.2 2.7 2.5 2.3 14.4 14.4 12.6 Maruti Suzuki BUY 8,025 8,465 5.5 2,424.1 701.3 787.6 861.6 51.5 70.5 92.3 64.2 86.6 112.7 170.5 233.5 305.4 1,633.9 1,707.4 1,852.8 10.5 14.0 17.2 6.7 10.6 14.7 47.1 34.4 26.3 4.9 4.7 4.3 37.4 27.4 21.0 Tata Motors HOLD 260 172 (34.0) 936.5 2,708.0 2,883.2 3,104.4 26.9 130.5 137.3 320.7 355.1 372.2 7.5 36.3 38.2 182.8 219.1 257.2 4.2 18.1 16.0 2.5 6.3 5.9 34.8 7.2 6.8 1.4 1.2 1.0 5.4 5.0 4.8 TVS Motors Sell 507 408 (19.5) 241.0 158.1 179.2 193.6 5.8 8.3 9.3 13.6 16.7 18.0 12.2 17.5 19.6 84.3 97.9 113.4 15.2 19.3 18.5 14.4 18.4 18.5 41.7 28.9 25.9 6.0 5.2 4.5 19.0 15.1 13.7

Auto Ancillary Bharat Forge HOLD 614 515 (16.0) 285.7 68.9 91.8 105.1 1.8 8.9 11.4 8.1 15.3 19.0 3.9 19.1 24.5 113.5 129.6 150.1 3.5 15.7 17.6 3.0 10.7 13.5 157.2 32.2 25.0 5.4 4.7 4.1 39.7 20.7 16.5 CEAT Acc 1,255 1,297 3.3 50.8 67.1 79.2 87.1 2.8 3.1 3.5 7.7 9.4 10.7 69.8 76.6 86.5 771.3 833.9 904.4 9.4 9.5 9.9 8.9 10.0 10.6 18.0 16.4 14.5 1.6 1.5 1.4 9.0 7.5 6.4 Endurance Technologies BUY 1,318 1,540 16.9 185.3 64.6 74.5 87.8 4.4 6.5 8.7 9.9 12.5 15.6 31.5 46.2 61.6 237.4 272.0 318.2 14.0 18.1 20.9 15.2 20.8 24.9 41.8 28.5 21.4 5.6 4.8 4.1 18.1 13.8 10.6 Exide Industries BUY 200 236 17.9 170.3 96.0 110.6 121.3 7.6 10.2 11.7 13.3 16.9 18.8 8.9 12.0 13.8 78.5 85.5 93.8 11.7 14.7 15.4 14.6 18.5 19.3 22.5 16.7 14.5 2.6 2.3 2.1 12.6 9.8 8.7 Motherson Sumi Systems BUY 163 203 25.1 513.2 654.5 771.4 859.8 10.2 21.7 27.9 46.7 69.6 85.0 3.2 6.9 8.8 38.5 43.2 49.2 8.6 16.8 19.1 8.6 17.1 22.2 50.5 23.7 18.4 4.2 3.8 3.3 12.3 8.0 6.4

Airlines InterGlobe Aviation UR 1,631 NA NA 627.6 146.4 315.2 349.9 -44.6 19.4 24.6 11.8 76.1 86.2 -115.8 50.4 63.9 36.5 86.9 150.8 -122.6 81.6 53.8 -93.1 112.2 77.3 (14.1) 32.4 25.5 44.6 18.8 10.8 38.3 5.5 4.4 SpiceJet BUY 90 100 11.4 53.7 60.8 106.2 116.1 -11.4 -0.6 3.5 8.8 21.6 25.7 -19.0 -1.0 5.8 -45.3 -46.2 -40.4 53.0 2.1 -13.4 70.7 -17.5 -41.2 (4.7) (91.8) 15.4 (2.0) (1.9) (2.2) 7.0 2.9 2.4

Banks Axis Bank Acc 675 750 11.1 2,064.9 295.4 338.8 390.2 70.5 120.8 170.5 260.7 296.5 338.9 24.0 39.5 55.7 333.4 366.8 412.8 7.5 11.3 14.3 0.7 1.1 1.4 28.2 17.1 12.1 2.0 1.8 1.6 - - - Bank of Baroda BUY 75 82 9.1 347.7 298.1 316.6 345.0 38.3 40.2 48.7 206.0 213.2 228.5 8.3 8.7 10.5 150.4 158.1 166.7 5.2 5.2 6.0 0.3 0.3 0.4 9.1 8.6 7.1 0.5 0.5 0.5 - - - Federal Bank Acc 73 81 10.4 146.2 53.5 58.7 67.4 15.1 18.3 22.6 36.9 39.9 46.8 7.6 9.2 11.3 80.4 88.1 97.4 9.9 10.9 12.2 0.8 0.9 0.9 9.7 8.0 6.5 0.9 0.8 0.8 - - - HDFC Bank BUY 1,467 1,645 12.2 8,072.9 656.7 768.8 901.6 312.8 379.1 458.0 560.3 664.1 776.6 56.9 68.9 83.2 367.5 423.4 491.6 16.8 17.4 18.2 1.9 2.0 2.0 25.8 21.3 17.6 4.0 3.5 3.0 - - - ICICI Bank BUY 543 614 13.1 3,745.2 381.8 439.9 511.7 150.3 186.6 227.8 351.7 383.1 432.1 22.5 27.0 33.0 208.3 232.8 262.6 11.4 12.0 13.1 1.3 1.4 1.5 24.2 20.1 16.4 2.6 2.3 2.1 - - - IDFC First Bank sell 48 32 (34.0) 274.8 69.5 82.4 94.1 5.4 7.2 9.9 23.5 26.1 27.6 1.0 1.3 1.7 31.5 32.8 34.5 3.2 3.9 5.2 0.4 0.4 0.5 47.4 38.2 27.7 1.5 1.5 1.4 - - - IndusInd Bank Acc 966 1,026 6.2 730.7 132.3 149.2 172.9 35.6 51.6 70.9 112.6 119.8 131.6 49.0 68.2 93.7 544.9 601.1 679.8 9.3 11.8 14.5 1.1 1.4 1.8 19.7 14.2 10.3 1.8 1.6 1.4 - - - Kotak Mahindra Bank HOLD 1,864 1,912 2.6 3,689.5 177.9 205.2 234.7 94.2 115.0 136.6 151.6 175.0 201.2 47.5 57.9 68.8 409.1 467.1 535.9 12.9 13.1 13.6 2.2 2.4 2.5 39.3 32.2 27.1 4.6 4.0 3.5 - - - Punjab National Bank HOLD 36 37 2.9 404.5 316.0 321.8 329.5 29.2 46.5 48.5 226.7 239.0 230.2 3.2 4.1 4.3 80.3 84.0 87.8 3.7 4.8 4.8 0.3 0.4 0.4 11.1 8.7 8.3 0.4 0.4 0.4 - - - State Bank of India BUY 304 325 7.0 2,711.7 1,072.7 1,210.5 1,351.8 174.6 192.7 235.4 680.5 765.0 825.2 19.6 21.6 26.4 250.4 268.0 289.9 7.3 7.6 8.6 0.4 0.4 0.5 15.5 14.1 11.5 1.2 1.1 1.0 - - - South Indian Bank Acc 9 10 7.5 16.8 25.6 27.9 30.3 2.0 2.8 5.5 16.0 16.8 17.5 1.1 1.5 3.0 29.3 30.6 33.4 3.7 4.8 9.0 0.2 0.3 0.5 8.3 6.1 3.1 0.3 0.3 0.3 - - -

Financial Services Bajaj Finance Acc 4,884 5,491 12.4 2,929.9 176.0 218.9 268.4 48.9 87.8 94.0 129.3 151.2 165.8 81.5 146.4 156.7 620.3 761.2 912.1 14.1 21.2 18.7 2.8 4.3 3.8 59.9 33.4 31.2 7.9 6.4 5.4 - - - Cholamandalam Investment andBUY Finance Company 424 492 16.1 353.0 44.2 54.1 64.8 13.4 17.4 21.4 27.1 35.0 42.2 16.1 20.6 25.3 118.5 137.2 160.6 14.6 16.1 17.0 2.0 2.3 2.6 26.4 20.6 16.8 3.6 3.1 2.6 - - - HDFC Acc 2,633 2,895 10.0 4,644.0 143.6 165.9 190.2 100.4 125.9 146.0 158.7 186.8 213.5 56.9 70.1 81.3 449.7 497.8 557.1 21.8 18.9 19.2 1.8 2.0 2.0 46.2 37.5 32.4 5.9 5.3 4.7 - - - L&T Finance Holdings SELL 105 88 (16.1) 211.0 59.2 63.3 67.5 9.4 18.6 23.7 39.9 43.7 46.5 4.7 9.3 11.8 78.0 87.2 99.0 6.7 11.2 12.7 0.8 1.4 1.6 22.4 11.4 8.9 1.3 1.2 1.1 - - - LIC Housing Finance HOLD 431 455 5.7 326.2 48.2 54.7 62.3 23.7 28.4 32.3 41.4 46.7 49.8 47.0 56.3 64.0 396.5 441.9 495.1 12.4 13.4 13.7 1.0 1.1 1.1 9.2 7.7 6.7 1.1 1.0 0.9 - - - Mahindra & Mahindra FinancialReduce Services 188 181 (3.9) 174.1 54.4 60.5 69.1 8.5 14.5 20.7 39.0 40.6 43.3 9.2 11.7 16.8 124.5 129.7 139.9 6.3 9.2 12.5 1.1 1.6 2.0 20.6 16.1 11.2 1.5 1.5 1.3 - - - Manappuram Finance Acc 169 196 16.0 142.7 38.0 43.0 51.2 15.2 18.0 21.8 25.2 28.0 32.9 18.0 21.3 25.9 76.7 94.7 117.2 24.8 24.9 24.5 4.7 4.5 4.5 9.4 7.9 6.5 2.2 1.8 1.4 - - - SBI Card & Pyament ServicesAcc 955 1,081 13.2 897.5 42.8 49.3 52.8 10.4 20.0 23.5 38.7 40.5 42.3 11.1 21.3 25.0 66.5 85.2 106.9 18.0 28.1 26.0 3.8 6.0 5.8 86.2 44.9 38.3 14.4 11.2 8.9 - - - Shriram Transport Finance Acc 1,205 1,387 15.2 273.3 80.5 87.6 96.7 20.5 27.2 33.1 60.5 65.9 72.9 90.3 119.7 145.6 883.8 1,003.1 1,148.2 10.8 12.7 13.5 1.9 2.7 3.1 13.3 10.1 8.3 1.4 1.2 1.0 - - - January 15, 2021 53

India Strategy

Sector / Price Upside Mcap (Rs Revenues (Rs bn) PAT (Rs bn) EBITDA (Rs bn) EPS (Rs) BVPS (Rs) RoE (%) RoCE (%) PER (x) P/BV (x) EV/EBITDA (x) Rating TP (Rs) Company Name (Rs) (%) bn) 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E Capital Goods ABB HOLD 1,285 880 (31.5) 272.2 69.4 78.9 88.4 2.7 4.1 4.6 3.8 5.9 6.6 12.8 19.5 21.5 175.5 190.8 207.6 7.5 10.7 10.8 7.7 12.2 12.4 100.5 65.7 59.7 7.3 6.7 6.2 66.9 43.2 38.5 Bharat Electronics Acc 133 110 (17.9) 325.2 136.8 154.7 176.8 16.7 20.5 24.1 24.6 29.7 34.8 6.9 8.4 9.9 45.1 50.8 57.6 16.0 17.6 18.3 20.1 21.7 22.6 19.4 15.8 13.5 3.0 2.6 2.3 12.8 10.6 9.2 BHEL HOLD 39 34 (13.9) 137.2 215.1 292.6 322.3 -0.2 9.8 11.9 4.4 16.3 18.6 -0.0 2.8 3.4 83.8 86.6 90.0 -0.1 3.3 3.9 -0.2 3.1 3.6 (863.9) 13.9 11.6 0.5 0.5 0.4 28.5 8.1 7.1 Cummins India Acc 602 472 (21.6) 166.8 49.5 53.0 56.7 5.3 5.9 6.4 5.2 6.0 6.5 19.1 21.4 23.0 157.1 164.4 172.2 12.4 13.3 13.7 8.3 9.4 9.6 31.5 28.1 26.1 3.8 3.7 3.5 31.0 26.8 25.1 Engineers India BUY 78 104 33.3 49.2 29.5 31.1 36.5 4.5 5.5 7.4 3.9 4.5 6.6 7.1 8.6 11.7 41.6 46.4 52.8 17.8 19.6 23.5 14.5 15.1 19.8 11.0 9.0 6.7 1.9 1.7 1.5 4.7 3.5 2.0 GE T&D India HOLD 124 86 (30.6) 31.9 31.1 37.2 42.3 0.3 1.0 1.3 1.6 2.5 2.9 1.2 3.9 5.2 42.0 45.1 49.1 3.0 9.0 11.0 5.2 9.6 11.2 100.4 31.7 24.1 3.0 2.8 2.5 21.9 13.9 12.0 KEC International Acc 353 339 (4.1) 90.8 128.9 144.8 165.1 5.8 7.3 8.6 12.6 15.1 17.2 22.5 28.2 33.5 127.9 151.9 180.4 19.0 20.2 20.2 20.8 22.4 22.8 15.7 12.5 10.5 2.8 2.3 2.0 9.0 7.4 6.5 Kalpataru Power TransmissionBUY 334 437 30.8 51.7 80.0 94.2 110.5 4.6 5.8 7.1 8.5 10.2 11.9 29.7 37.5 45.9 254.2 286.4 325.8 12.3 13.9 15.0 14.9 16.4 17.5 11.3 8.9 7.3 1.3 1.2 1.0 7.2 6.0 5.2 Larsen & Toubro BUY 1,354 1,284 (5.2) 1,901.1 1,356.1 1,547.6 1,701.0 66.9 90.8 100.6 137.0 164.8 180.9 47.7 64.7 71.7 516.0 569.9 629.4 9.6 11.9 12.0 5.1 6.1 6.5 28.4 20.9 18.9 2.6 2.4 2.2 22.6 18.8 17.5 Power Grid Corporation of IndiaBUY 203 205 0.9 1,062.0 392.9 434.4 461.8 109.8 128.4 138.8 342.6 378.8 402.7 21.0 24.5 26.5 132.8 144.1 156.3 16.4 17.7 17.7 11.1 11.9 12.1 9.7 8.3 7.7 1.5 1.4 1.3 7.0 6.4 6.0 Siemens Acc 1,623 1,516 (6.6) 577.9 99.5 130.8 152.8 7.7 11.3 13.5 10.0 14.7 17.1 21.6 31.8 37.9 266.6 291.4 321.0 8.3 11.4 12.4 8.1 12.0 13.0 75.1 51.1 42.8 6.1 5.6 5.1 51.9 35.9 30.4 Thermax Acc 991 798 (19.4) 111.6 52.0 60.7 70.0 2.5 3.7 4.4 3.6 5.1 5.9 22.6 33.3 39.2 286.1 311.3 341.0 8.2 11.1 12.0 7.1 10.6 11.5 43.8 29.8 25.3 3.5 3.2 2.9 27.5 19.3 16.7 Triveni Turbine BUY 92 85 (7.5) 29.9 7.3 9.0 10.3 1.2 1.2 1.3 1.6 1.6 1.8 3.6 3.6 4.1 19.1 21.8 24.9 20.2 17.4 17.6 24.9 20.7 21.0 25.8 26.0 22.4 4.8 4.2 3.7 17.0 17.4 15.0 Voltamp Transformers BUY 1,220 1,283 5.2 12.3 8.2 9.6 11.2 1.0 1.1 1.2 0.9 1.1 1.3 102.6 106.8 123.4 816.5 896.6 989.2 13.2 12.5 13.1 9.9 11.5 12.0 11.9 11.4 9.9 1.5 1.4 1.2 13.4 10.4 9.1

Consumer Durables Bajaj Electricals BUY 742 647 (12.8) 84.4 46.9 56.3 62.4 1.0 2.4 3.1 2.5 4.1 4.8 8.4 21.3 27.1 130.9 150.3 171.8 6.7 15.2 16.8 10.7 19.3 22.0 88.3 34.8 27.4 5.7 4.9 4.3 34.9 21.1 17.7 Crompton Greaves ConsumerBUY Electricals 387 400 3.4 242.8 44.6 52.5 59.4 4.8 5.8 6.8 6.5 7.8 8.9 7.6 9.3 10.8 28.0 34.3 40.1 29.5 29.8 29.1 36.8 36.0 36.5 51.1 41.7 35.8 13.8 11.3 9.7 36.4 30.2 26.1 Havells India UR 981 NA NA 614.1 95.9 113.8 129.1 8.6 10.6 12.4 13.3 15.4 17.8 13.7 16.9 19.8 83.2 94.6 107.7 18.1 19.0 19.6 23.6 23.7 26.0 71.5 58.1 49.5 11.8 10.4 9.1 44.8 38.3 32.7 Voltas UR 888 NA NA 293.6 74.6 88.2 98.6 5.7 7.9 8.9 6.7 9.3 10.5 17.2 23.7 27.1 141.8 160.5 180.8 12.7 15.7 15.9 18.0 21.4 21.4 51.6 37.4 32.8 6.3 5.5 4.9 42.3 30.3 26.4

Cement ACC BUY 1,740 1,870 7.5 327.1 136.3 157.0 161.9 14.5 15.6 15.9 22.3 23.7 24.2 77.0 83.0 84.6 677.0 736.9 796.7 11.9 11.7 11.0 13.3 12.9 12.0 22.6 21.0 20.6 2.6 2.4 2.2 12.2 11.3 11.0 Ambuja Cement BUY 264 285 7.8 524.4 252.0 284.9 305.7 23.1 21.6 24.5 51.8 53.4 58.2 11.7 10.9 12.4 114.4 122.3 129.6 9.9 9.2 9.8 17.1 17.1 17.4 22.7 24.3 21.4 2.3 2.2 2.0 8.7 8.1 7.1 Dalmia Bharat BUY 1,139 1,480 29.9 212.8 105.4 122.6 136.3 7.9 6.7 9.1 27.2 26.3 29.8 42.4 35.6 48.9 613.6 647.2 694.1 17.4 13.2 13.9 15.4 13.0 14.8 26.9 32.0 23.3 1.9 1.8 1.6 8.5 8.4 6.7 Heidelberg Cement India HOLD 222 228 2.9 50.2 21.5 23.7 25.8 2.8 3.0 3.4 5.3 5.5 6.1 12.3 13.1 14.9 62.8 67.4 73.3 20.4 20.2 21.1 25.5 25.7 29.0 18.0 16.9 14.9 3.5 3.3 3.0 8.9 8.1 6.8 JK Lakshmi Cement BUY 338 425 25.8 39.8 43.0 44.7 45.3 3.0 3.1 3.5 7.4 7.4 7.5 25.2 26.7 29.6 170.7 196.4 225.0 15.9 14.5 14.1 16.7 16.7 17.7 13.4 12.7 11.4 2.0 1.7 1.5 6.4 5.7 4.9 Shree Cement Reduce 24,414 23,401 (4.1) 880.8 133.0 149.4 165.3 21.9 24.6 25.5 41.3 42.3 47.1 608.3 683.0 705.6 4,189.9 4,760.5 5,353.6 15.5 15.3 14.0 15.9 15.4 14.0 40.1 35.7 34.6 5.8 5.1 4.6 20.8 20.0 17.8 The Ramco Cements Reduce 819 807 (1.5) 193.0 56.3 64.5 73.0 9.2 7.6 8.4 16.1 14.7 15.9 38.9 32.2 35.8 247.6 276.8 309.6 17.0 12.3 12.2 15.2 11.7 12.4 21.1 25.5 22.8 3.3 3.0 2.6 13.6 14.7 13.2 Ultratech Cement BUY 5,452 6,100 11.9 1,573.7 425.0 460.3 500.9 49.0 55.6 67.7 100.5 105.9 118.6 169.6 192.6 234.5 1,511.9 1,693.0 1,916.0 11.8 12.0 13.0 11.7 12.1 13.6 32.1 28.3 23.2 3.6 3.2 2.8 16.8 15.4 13.1

Consumer Staples Asian Paints UR 2,591 NA NA 2,485.2 194.6 229.4 261.2 27.7 34.1 41.2 43.7 51.2 59.6 28.9 35.6 42.9 124.0 145.2 170.6 25.1 26.4 27.2 31.1 31.5 31.8 89.8 72.8 60.4 20.9 17.8 15.2 56.2 47.7 40.7 Avenue Supermarts BUY 2,821 3,296 16.8 1,827.3 241.1 332.2 421.4 11.2 19.3 25.3 17.4 29.2 38.2 17.3 29.8 39.0 188.4 218.2 257.2 9.6 14.7 16.4 11.4 18.2 20.8 163.1 94.7 72.3 15.0 12.9 11.0 103.3 61.9 47.2 Britannia Industries BUY 3,609 4,301 19.2 868.0 126.9 142.1 159.8 17.9 18.7 21.7 24.4 27.1 30.6 74.3 78.0 90.1 114.2 110.9 158.5 50.9 69.3 66.9 49.0 62.1 63.5 48.6 46.3 40.1 31.6 32.5 22.8 35.7 32.2 28.2 Colgate Palmolive HOLD 1,562 1,570 0.5 424.9 48.0 52.1 56.8 9.5 10.0 10.7 14.6 15.5 16.6 34.8 36.7 39.3 53.7 58.6 62.2 62.0 65.3 65.0 81.8 86.1 85.5 44.9 42.6 39.8 29.1 26.6 25.1 29.1 27.3 25.4 Dabur India Acc 541 539 (0.4) 955.6 94.0 104.3 115.9 16.8 19.8 23.2 20.2 22.9 26.0 9.5 11.2 13.1 43.6 50.8 58.7 23.5 23.7 24.0 23.5 23.4 23.4 56.8 48.3 41.2 12.4 10.6 9.2 45.6 39.8 34.6 Emami BUY 476 526 10.5 207.8 27.8 31.3 34.6 6.4 7.3 8.2 8.6 9.3 10.0 14.7 16.7 18.8 42.8 53.9 63.8 34.7 34.6 32.0 25.2 25.6 29.9 32.4 28.5 25.3 11.1 8.8 7.5 23.8 21.3 19.3 Hindustan Unilever BUY 2,351 2,502 6.4 5,525.2 448.4 503.1 558.0 78.9 95.2 110.2 111.8 132.0 149.6 33.6 40.5 46.9 201.7 208.5 213.6 28.5 19.8 22.2 36.6 25.1 27.7 70.1 58.0 50.2 11.7 11.3 11.0 48.7 41.0 36.0 ITC BUY 218 254 16.7 2,685.4 454.9 516.9 565.1 136.4 153.8 162.1 170.1 197.7 210.4 11.1 12.4 13.1 53.4 56.2 59.2 21.0 22.7 22.7 23.6 26.5 26.7 19.7 17.5 16.6 4.1 3.9 3.7 14.4 12.4 11.6 Jubilant FoodWorks UR 2,733 NA NA 360.7 31.6 41.9 49.7 2.3 5.1 6.6 7.6 11.9 14.1 17.1 38.8 49.8 99.5 132.3 170.1 18.1 33.5 32.9 31.0 50.9 47.3 159.9 70.4 54.9 27.5 20.7 16.1 46.1 29.2 24.3 Kansai Nerolac Paints UR 634 NA NA 341.6 43.8 52.2 60.6 5.2 6.3 7.8 8.0 9.7 11.7 9.7 11.8 14.5 75.5 83.3 92.8 13.3 14.8 16.5 17.1 19.2 21.4 65.5 53.8 43.7 8.4 7.6 6.8 41.5 34.3 27.9 Marico HOLD 417 410 (1.6) 537.9 77.1 86.2 96.5 11.2 12.2 13.9 15.9 17.3 19.5 8.7 9.5 10.8 25.1 27.1 29.4 35.8 36.2 38.2 41.9 43.4 46.6 47.9 44.1 38.6 16.6 15.4 14.2 33.4 30.6 27.0 Nestle India HOLD 17,834 17,640 (1.1) 1,719.5 134.4 150.5 168.2 22.3 24.6 27.8 33.1 36.6 40.3 231.2 255.4 288.5 227.6 274.7 339.5 108.0 101.7 94.0 139.1 131.6 120.5 77.2 69.8 61.8 78.4 64.9 52.5 51.2 46.3 41.7 Pidilite Industries UR 1,747 NA NA 887.4 67.6 84.7 96.8 11.0 14.3 16.6 15.1 19.9 23.0 21.7 28.1 32.7 109.3 129.3 152.9 22.0 23.6 23.1 25.4 28.2 27.7 80.5 62.1 53.5 16.0 13.5 11.4 58.9 44.5 38.2 Titan Company UR 1,477 NA NA 1,311.5 186.1 258.9 297.2 8.2 21.3 26.1 14.9 32.0 37.3 9.3 23.9 29.4 88.1 107.6 132.0 11.3 24.5 24.5 15.2 32.7 31.4 159.0 61.7 50.3 16.8 13.7 11.2 87.5 40.2 33.9

Education Navneet Education Acc 88 93 6.3 20.1 12.8 16.0 18.0 1.4 2.0 2.3 2.4 3.2 3.7 6.2 8.9 10.2 45.7 51.5 58.1 14.9 18.2 18.6 16.9 20.6 21.0 14.1 9.9 8.6 1.9 1.7 1.5 9.2 7.2 6.3 S Chand and Company BUY 66 86 30.1 2.3 6.2 7.2 8.4 0.5 0.5 0.9 1.3 1.4 1.7 12.9 15.7 24.8 246.9 262.5 287.4 5.4 6.1 9.0 6.4 7.2 8.7 5.1 4.2 2.7 0.3 0.3 0.2 3.2 2.8 2.2

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Sector / Price Upside Mcap (Rs Revenues (Rs bn) PAT (Rs bn) EBITDA (Rs bn) EPS (Rs) BVPS (Rs) RoE (%) RoCE (%) PER (x) P/BV (x) EV/EBITDA (x) Rating TP (Rs) Company Name (Rs) (%) bn) 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E Information Technology Cyient BUY 494 606 22.8 54.3 40.7 45.0 50.2 3.6 4.4 4.9 5.7 7.1 7.6 31.8 39.6 43.4 251.6 274.9 300.5 13.4 15.3 15.4 12.2 15.4 15.7 15.5 12.5 11.4 2.0 1.8 1.6 8.4 6.5 5.9 HCL Technologies BUY 990 1,152 16.4 2,686.0 755.1 854.4 948.4 124.2 146.4 156.3 193.0 215.8 232.2 45.8 53.9 57.6 228.7 268.5 311.8 21.8 21.7 19.9 26.1 25.4 23.5 21.6 18.4 17.2 4.3 3.7 3.2 13.5 11.7 10.5 Infosys BUY 1,345 1,611 19.8 5,705.5 1,006.0 1,171.9 1,313.4 192.3 231.2 253.2 276.2 313.8 334.8 45.3 54.5 59.7 176.5 209.3 217.9 27.3 28.2 27.9 34.7 34.4 33.7 29.7 24.7 22.5 7.6 6.4 6.2 19.6 16.8 15.6 Larsen & Toubro Infotech BUY 4,288 3,714 (13.4) 746.1 123.9 146.6 170.9 18.0 20.7 25.3 26.4 29.0 32.9 101.3 116.8 142.8 374.1 447.2 536.7 30.2 29.0 29.6 39.2 37.6 35.5 42.3 36.7 30.0 11.5 9.6 8.0 26.7 24.1 21.0 L&T Technology Services BUY 2,518 2,509 (0.4) 261.9 54.6 65.7 77.7 6.5 8.7 10.5 9.9 13.0 15.1 62.3 83.5 100.4 323.4 373.7 434.8 20.5 24.0 25.1 24.0 29.2 29.3 40.4 30.2 25.1 7.8 6.7 5.8 25.1 18.5 15.5 Mindtree BUY 1,697 1,792 5.6 279.2 80.0 94.1 102.1 10.2 12.3 13.4 15.6 18.4 19.9 62.1 74.7 81.4 238.8 293.2 354.4 28.9 28.1 25.2 36.5 35.4 31.4 27.3 22.7 20.8 7.1 5.8 4.8 16.8 14.0 12.5 Mphasis BUY 1,668 1,802 8.1 310.5 98.1 111.6 124.9 12.2 14.8 16.8 18.1 21.2 23.6 65.5 79.6 90.1 325.2 382.8 450.7 20.5 22.5 21.6 26.5 28.5 27.3 25.4 20.9 18.5 5.1 4.4 3.7 15.9 13.2 11.3 Coforge BUY 2,638 2,966 12.4 163.0 46.1 54.7 65.6 5.2 6.7 7.9 8.2 9.8 11.6 84.1 109.4 129.0 431.6 496.9 631.4 20.6 23.4 23.9 25.2 28.5 29.1 31.4 24.1 20.5 6.1 5.3 4.2 18.0 14.8 12.2 Persistent Systems BUY 1,629 1,526 (6.4) 124.5 41.2 46.8 53.4 4.6 5.3 5.8 6.8 7.7 8.5 57.5 65.7 72.6 354.2 402.3 455.4 18.1 18.2 17.7 19.4 19.5 19.5 28.3 24.8 22.4 4.6 4.0 3.6 16.6 14.0 12.2 Redington (India) BUY 138 138 (0.0) 53.8 534.7 589.6 635.5 4.9 6.4 7.0 9.8 11.7 12.6 12.5 16.5 18.0 120.0 132.1 145.4 10.9 13.1 13.0 11.8 13.6 13.9 11.0 8.4 7.7 1.2 1.0 1.0 5.6 4.7 4.1 Sonata Software BUY 400 437 9.2 41.6 35.5 40.3 44.4 2.3 2.9 3.0 3.3 3.8 4.1 21.9 27.8 29.2 92.1 103.2 114.9 24.9 28.5 26.8 32.0 35.8 34.1 18.3 14.4 13.7 4.3 3.9 3.5 10.1 8.4 7.6 Tata Consultancy Services BUY 3,233 3,586 10.9 12,253.6 1,641.6 1,898.6 2,144.9 333.1 403.1 453.1 460.6 530.9 597.7 87.9 106.4 119.5 260.9 313.3 378.9 36.0 37.0 34.5 45.9 46.1 43.0 36.8 30.4 27.0 12.4 10.3 8.5 25.6 22.0 19.2 TeamLease Services BUY 2,700 2,931 8.5 46.2 47.0 53.6 62.9 0.9 1.2 1.4 1.1 1.5 1.8 53.2 69.9 84.4 387.8 457.7 542.1 14.7 16.5 16.9 5.9 7.7 8.8 50.7 38.6 32.0 7.0 5.9 5.0 40.4 30.0 24.0 Tech Mahindra BUY 1,007 1,099 9.1 879.2 380.0 415.8 460.2 43.4 51.5 56.5 65.3 73.9 83.2 49.7 58.9 64.6 283.7 330.4 383.3 18.2 19.2 18.1 19.9 20.6 20.2 20.3 17.1 15.6 3.6 3.0 2.6 12.3 10.5 8.9 Wipro BUY 439 493 12.4 2,603.4 617.9 676.9 738.3 109.1 124.0 133.6 149.8 166.6 175.8 18.4 21.8 23.5 94.0 116.4 136.4 19.6 20.3 18.6 19.2 19.8 18.3 23.9 20.1 18.7 4.7 3.8 3.2 14.6 12.5 11.2 Zensar Technologies BUY 237 257 8.5 53.4 39.8 41.2 45.1 4.2 3.7 4.1 7.1 6.8 7.6 18.6 16.1 18.2 107.1 119.6 133.8 18.7 14.3 14.5 21.4 17.6 17.6 12.8 14.7 13.0 2.2 2.0 1.8 7.3 7.3 6.3

Infrastructure Ahluwalia Contracts (India) BUY 274 288 5.1 18.3 17.9 27.3 31.0 0.8 1.8 2.1 1.6 3.1 3.6 11.7 27.4 31.0 131.5 158.4 188.7 9.3 18.9 17.8 13.9 25.6 24.6 23.4 10.0 8.8 2.1 1.7 1.4 10.5 5.2 4.5 Ashoka Buildcon BUY 94 147 56.3 26.5 44.3 55.5 59.0 -0.8 0.8 0.7 12.8 16.0 17.0 -3.0 2.7 2.6 10.8 12.5 14.1 -23.2 23.2 19.4 13.7 16.9 16.7 (31.8) 34.9 36.5 8.7 7.5 6.7 6.8 5.7 5.7 Capacite's Infraprojects BUY 178 270 51.6 12.1 11.0 23.0 26.6 0.2 1.4 1.8 1.6 3.6 4.2 2.3 20.3 27.0 138.5 156.4 180.1 1.7 13.8 16.0 4.7 15.1 15.9 76.6 8.8 6.6 1.3 1.1 1.0 8.0 4.3 3.5 H.G. Infra Engineering BUY 226 259 14.4 14.7 21.8 31.3 34.9 1.5 2.1 2.4 3.5 4.5 5.0 23.0 32.3 36.7 149.8 182.1 218.8 16.6 19.5 18.3 18.3 20.4 19.7 9.8 7.0 6.2 1.5 1.2 1.0 5.4 4.4 3.9 IRB Infrastructure DevelopersBUY 116 152 30.8 40.8 54.9 59.9 64.3 3.9 6.6 8.0 25.3 27.6 29.6 11.1 18.8 22.8 197.3 212.1 230.9 5.7 9.2 10.3 6.8 7.3 7.8 10.4 6.2 5.1 0.6 0.5 0.5 9.8 9.0 8.3 ITD Cementation India BUY 70 67 (4.0) 12.0 28.3 36.3 41.3 0.4 1.1 1.7 2.6 3.6 4.5 2.3 6.7 10.0 63.6 70.3 80.2 3.7 10.0 13.2 9.6 14.7 17.4 30.0 10.4 7.0 1.1 1.0 0.9 5.6 4.4 3.5 J.Kumar Infraprojects BUY 147 176 19.9 11.1 22.1 33.0 38.7 0.7 2.2 2.8 3.0 5.1 5.9 9.0 29.4 37.1 249.8 277.9 313.7 3.7 11.1 12.5 6.2 12.9 14.1 16.3 5.0 4.0 0.6 0.5 0.5 4.5 2.7 2.2 KNR Constructions BUY 367 336 (8.4) 51.6 23.9 34.3 39.8 2.2 3.3 3.9 4.8 6.3 7.4 15.8 23.2 27.7 130.9 153.5 180.4 12.8 16.3 16.6 14.5 17.7 18.0 23.2 15.8 13.3 2.8 2.4 2.0 11.2 8.4 7.1 NCC BUY 62 83 33.5 37.9 84.3 102.8 114.0 2.6 4.6 5.5 9.6 12.7 14.1 4.2 7.6 9.0 86.5 92.6 100.0 5.0 8.5 9.3 10.9 14.1 14.7 14.7 8.2 6.9 0.7 0.7 0.6 6.2 4.8 4.4 PNC Infratech BUY 189 219 15.8 48.5 49.6 62.9 70.0 3.8 5.2 5.6 6.8 9.0 10.0 14.7 20.5 22.0 113.3 132.7 153.6 13.9 16.6 15.4 17.4 19.9 18.7 12.8 9.2 8.6 1.7 1.4 1.2 7.1 5.3 4.6 Sadbhav Engineering BUY 61 87 41.7 10.5 21.6 26.6 33.7 0.7 1.0 1.6 2.6 3.2 4.1 3.9 5.9 9.1 125.8 131.0 139.4 3.2 4.6 6.8 4.4 5.5 7.2 15.6 10.4 6.7 0.5 0.5 0.4 7.7 6.2 5.5

Logistics & Ports Container Corporation of IndiaBUY 433 468 8.2 263.7 59.1 68.5 76.1 7.3 11.4 12.7 12.3 17.1 19.0 12.0 18.7 20.8 172.4 183.6 196.1 7.1 10.5 11.0 7.1 10.9 11.4 36.0 23.1 20.8 2.5 2.4 2.2 19.4 13.9 12.3

Media Entertainment Network (India)Acc 166 210 27.0 7.9 3.0 5.4 6.2 -0.9 0.2 0.5 -0.2 1.4 1.8 -18.4 4.8 11.1 173.2 177.0 187.1 -10.6 2.7 5.9 -14.2 4.0 8.4 (9.0) 34.2 14.9 1.0 0.9 0.9 (40.7) 5.3 3.6 Inox Leisure BUY 333 393 18.0 37.4 0.3 19.2 23.9 -3.0 1.5 2.4 0.6 5.7 7.4 -26.4 13.2 21.4 51.1 63.3 83.8 -51.7 20.9 25.6 -6.2 9.6 12.9 (12.6) 25.2 15.5 6.5 5.3 4.0 100.4 11.1 8.6 PVR BUY 1,475 1,704 15.6 81.2 2.2 34.1 41.4 -7.4 1.3 2.9 -3.4 10.6 13.5 -135.0 22.7 52.3 183.7 202.4 250.7 -73.5 11.2 20.8 -16.1 9.3 13.1 (10.9) 65.0 28.2 8.0 7.3 5.9 (37.9) 12.3 9.6 Music Broadcast HOLD 23 23 (1.5) 8.0 1.4 2.6 3.0 -0.2 0.3 0.6 0.0 0.8 1.1 -0.5 1.0 1.6 15.3 16.3 17.9 -3.1 6.1 9.1 -5.5 5.7 9.4 (49.1) 23.3 14.2 1.5 1.4 1.3 265.2 8.9 5.9 Zee Entertainment Ent. BUY 225 290 28.8 215.9 71.3 83.7 91.8 11.0 14.8 17.4 15.6 22.1 24.8 11.4 15.5 18.1 104.5 116.6 130.2 11.3 14.0 14.7 12.6 17.5 17.9 19.7 14.5 12.4 2.2 1.9 1.7 12.8 8.6 7.3

Metals Coal India HOLD 143 143 (0.2) 882.8 922.5 1,017.9 1,111.8 138.3 137.9 168.9 226.3 240.1 284.3 22.4 22.4 27.4 58.8 65.4 73.5 40.4 36.0 39.5 33.6 29.7 33.1 6.4 6.4 5.2 2.4 2.2 1.9 3.1 2.5 1.8 Hindalco Industries BUY 253 305 20.4 562.4 1,174.1 1,383.7 1,445.1 32.5 57.4 53.7 140.2 180.3 177.9 14.6 25.8 24.2 275.9 300.2 322.8 5.4 9.0 7.8 6.8 9.2 8.5 17.3 9.8 10.5 0.9 0.8 0.8 7.0 5.1 4.9 Hindustan Zinc Reduce 274 262 (4.6) 1,158.5 219.3 244.6 254.4 83.8 96.8 92.8 111.4 128.4 123.5 19.8 22.9 22.0 93.9 96.2 98.4 20.9 24.1 22.6 21.3 25.0 22.8 13.8 12.0 12.5 2.9 2.8 2.8 8.4 7.1 7.2 Jindal Steel & Power BUY 299 400 33.9 305.0 442.0 451.7 456.6 68.0 33.4 29.7 144.8 117.2 106.4 66.6 32.7 29.1 362.6 395.3 424.4 19.7 8.6 7.1 15.5 12.0 10.4 4.5 9.1 10.3 0.8 0.8 0.7 4.0 4.3 4.1 JSW Steel Reduce 394 380 (3.6) 952.9 785.5 971.7 1,086.0 79.5 107.6 113.7 206.3 265.5 284.9 32.9 44.5 47.0 182.3 224.8 267.9 19.7 21.9 19.1 15.3 18.7 19.3 12.0 8.9 8.4 2.2 1.8 1.5 7.4 5.5 4.8 NMDC BUY 122 145 19.5 356.8 156.2 170.1 158.3 62.1 53.7 45.5 84.9 73.4 61.8 21.2 18.3 15.5 103.8 117.2 127.7 21.4 16.6 12.7 27.5 21.2 16.0 5.7 6.6 7.8 1.2 1.0 1.0 3.9 4.4 5.1 Steel Authority of India Reduce 70 66 (6.6) 289.8 693.2 732.4 768.5 47.3 50.6 36.7 138.8 143.4 123.0 11.5 12.3 8.9 107.8 120.0 128.9 11.2 10.8 7.1 10.3 10.6 8.3 6.1 5.7 7.9 0.7 0.6 0.5 5.7 4.9 5.3 Tata Steel HOLD 706 745 5.6 808.2 1,486.1 1,546.5 1,527.6 114.7 130.1 107.8 291.1 306.0 271.8 100.2 113.6 94.2 732.8 836.2 920.2 14.6 14.5 10.7 10.8 11.5 9.6 7.0 6.2 7.5 1.0 0.8 0.8 5.9 5.3 5.7

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Sector / Price Upside Mcap (Rs Revenues (Rs bn) PAT (Rs bn) EBITDA (Rs bn) EPS (Rs) BVPS (Rs) RoE (%) RoCE (%) PER (x) P/BV (x) EV/EBITDA (x) Rating TP (Rs) Company Name (Rs) (%) bn) 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E 21E 22E 23E Oil & Gas Aarti Industries UR 1,257 NA NA 218.9 35.6 52.5 71.9 5.0 7.4 14.1 8.9 12.4 21.1 28.4 42.5 80.9 179.6 217.9 290.7 16.4 21.4 31.8 14.4 18.3 27.9 44.2 29.5 15.5 7.0 5.8 4.3 26.6 19.4 11.4 Bharat Petroleum CorporationBUY 415 479 15.5 815.5 2,117.5 2,742.2 3,189.7 75.8 98.3 109.8 144.7 158.8 167.2 38.5 50.0 55.8 230.3 258.0 292.1 17.5 20.5 20.3 10.0 10.6 10.5 10.8 8.3 7.4 1.8 1.6 1.4 7.5 6.7 6.0 GAIL (India) UR 139 NA NA 624.7 488.5 575.3 878.4 35.2 53.6 74.0 52.1 72.9 100.4 7.8 11.9 16.4 100.7 109.0 120.5 7.9 11.3 14.3 6.5 10.1 14.4 17.8 11.7 8.4 1.4 1.3 1.1 12.7 7.5 5.3 Hindustan Petroleum CorporationBUY 229 280 22.5 348.4 2,018.5 2,483.5 2,771.0 69.5 63.9 62.3 120.9 127.2 132.8 45.6 41.9 40.9 220.7 248.9 276.4 22.2 17.9 15.6 11.3 7.9 6.5 5.0 5.5 5.6 1.0 0.9 0.8 6.5 7.7 6.9 Indian Oil Corporation BUY 101 114 12.5 930.0 4,104.5 5,105.7 5,634.7 131.5 161.1 162.6 282.0 354.3 364.2 14.3 17.6 17.7 115.3 128.1 141.1 13.1 14.4 13.2 8.3 10.4 9.7 7.1 5.8 5.7 0.9 0.8 0.7 6.5 5.5 5.4 Indraprastha Gas BUY 548 603 10.1 383.5 45.7 69.7 79.0 8.9 13.6 14.9 12.8 20.2 22.8 12.7 19.4 21.3 74.4 89.9 107.0 17.3 23.6 21.7 19.5 29.3 27.0 43.2 28.2 25.7 7.4 6.1 5.1 28.2 17.7 15.4 Mahanagar Gas BUY 1,091 1,275 16.9 107.7 25.3 34.6 36.9 5.8 8.7 9.4 8.6 12.5 13.4 58.8 87.9 95.1 340.1 401.6 468.2 18.4 23.7 21.9 21.5 28.5 25.7 18.6 12.4 11.5 3.2 2.7 2.3 10.6 6.9 6.1 NOCIL BUY 146 169 16.2 24.1 7.9 10.2 13.4 0.7 1.1 1.8 1.2 1.9 2.8 4.4 6.9 10.9 74.3 79.5 87.9 6.1 8.9 13.1 8.3 12.0 17.5 32.8 21.2 13.3 2.0 1.8 1.7 19.0 11.5 7.0 Oil & Natural Gas CorporationBUY 101 114 12.4 1,275.6 3,432.6 4,187.0 4,607.0 144.1 262.7 255.6 463.2 632.6 680.6 11.5 20.9 20.3 221.6 233.7 245.5 5.9 9.2 8.5 5.2 6.4 5.8 8.9 4.9 5.0 0.5 0.4 0.4 4.7 4.2 4.3 Oil India Acc 118 117 (0.4) 127.4 86.6 108.4 124.3 10.1 14.9 18.2 19.0 28.3 34.3 9.4 13.8 16.8 228.9 236.6 245.9 4.1 5.9 7.0 1.8 3.4 4.4 12.6 8.5 7.0 0.5 0.5 0.5 9.7 6.6 5.5 Petronet LNG BUY 260 399 53.6 389.6 383.2 445.4 458.2 27.4 32.7 36.7 44.3 50.1 53.9 18.3 21.8 24.4 70.9 76.3 82.4 26.5 29.6 30.8 34.8 37.0 36.7 14.2 11.9 10.6 3.7 3.4 3.2 7.7 6.4 5.6 Reliance Industries BUY 1,937 2,232 15.2 12,486.9 2,585.2 3,447.5 3,909.4 198.6 407.0 548.7 356.0 535.0 629.9 30.8 63.1 85.1 647.9 762.0 831.7 4.7 9.0 10.7 4.0 6.3 7.0 62.9 30.7 22.8 3.0 2.5 2.3 39.2 23.4 18.4

Pharma Aurobindo Pharma HOLD 936 920 (1.7) 548.4 259.6 284.1 304.4 33.5 37.7 41.4 53.8 61.5 65.9 57.1 64.4 70.7 336.0 397.4 465.2 18.3 17.6 16.4 19.0 19.4 18.5 16.4 14.5 13.2 2.8 2.4 2.0 10.4 8.8 8.0 Cadila Healthcare Sell 488 357 (26.9) 499.5 153.1 160.9 170.6 19.9 20.8 20.3 34.8 36.9 35.8 19.5 20.4 19.8 93.8 110.1 125.8 19.9 20.0 16.8 16.4 17.4 15.3 25.1 24.0 24.6 5.2 4.4 3.9 16.3 15.0 15.2 Cipla Acc 824 879 6.7 664.1 189.2 195.6 200.8 24.3 27.5 30.3 40.9 41.6 43.3 30.2 34.1 37.6 204.5 206.4 208.0 15.1 16.6 18.2 18.4 18.6 20.9 27.3 24.2 21.9 4.0 4.0 4.0 16.5 16.1 15.5 Dr. Reddy's Laboratories BUY 5,213 5,975 14.6 866.4 192.0 221.7 240.4 28.7 35.1 40.2 47.0 54.3 60.7 172.6 207.9 238.0 1,072.6 1,242.3 1,436.5 17.2 18.2 18.0 18.8 20.4 20.8 30.2 25.1 21.9 4.9 4.2 3.6 18.0 15.3 13.5 Dr. Lal PathLabs UR 2,295 NA 191.3 14.6 15.4 17.7 2.5 2.8 3.2 3.8 4.2 4.8 30.2 33.7 39.0 135.3 162.2 193.4 23.3 22.6 21.9 27.9 27.0 26.3 76.0 68.1 58.9 17.0 14.2 11.9 48.5 43.6 37.8 Eris Lifesciences BUY 624 671 7.6 84.7 12.0 13.5 15.1 3.6 3.8 4.2 4.2 4.5 4.8 26.7 28.3 30.9 95.2 91.8 89.4 28.0 30.3 34.1 28.8 30.9 34.3 23.4 22.0 20.2 6.6 6.8 7.0 19.9 18.6 17.3 Glenmark Pharmaceuticals Sell 512 449 (12.3) 144.5 108.8 122.8 136.0 9.0 9.8 10.6 19.1 18.8 18.0 32.0 34.9 37.4 245.2 278.1 313.5 13.9 13.3 12.6 13.9 12.2 10.7 16.0 14.7 13.7 2.1 1.8 1.6 9.4 9.2 9.5 Indoco Remedies BUY 307 352 14.6 28.3 12.4 15.3 17.5 1.0 1.4 1.8 2.0 2.4 2.8 10.9 15.7 19.6 75.4 93.6 112.7 14.6 18.6 18.9 14.4 16.8 17.5 28.1 19.6 15.7 4.1 3.3 2.7 14.3 11.7 10.0 Ipca Laboratories Acc 2,108 2,413 14.5 266.4 52.5 58.1 67.7 11.5 9.5 11.3 15.4 13.5 16.0 91.1 75.1 89.4 369.2 436.3 517.7 27.8 18.6 18.7 29.8 20.5 21.0 23.1 28.1 23.6 5.7 4.8 4.1 16.9 19.1 16.0 Jubilant Life Sciences Acc 976 964 (1.3) 155.5 98.1 100.1 117.1 8.6 9.0 12.1 18.1 17.8 22.1 54.3 56.6 76.0 403.1 456.9 530.0 14.4 13.2 15.4 13.3 12.9 16.2 18.0 17.2 12.8 2.4 2.1 1.8 9.8 9.7 7.6 Lupin BUY 1,093 1,214 11.1 495.2 156.3 187.5 215.0 10.2 20.5 22.9 24.0 39.1 44.0 22.6 45.2 50.5 282.2 319.9 362.9 8.1 15.0 14.8 8.6 16.2 17.3 48.5 24.2 21.6 3.9 3.4 3.0 19.3 11.4 9.9 Sun Pharmaceutical IndustriesHOLD 604 602 (0.4) 1,449.9 327.6 380.7 409.2 63.0 64.0 68.8 78.9 91.4 98.0 26.2 26.7 28.7 156.6 180.9 207.1 15.2 15.8 14.8 12.2 15.3 15.0 23.0 22.6 21.1 3.9 3.3 2.9 18.4 15.4 13.8 Thyrocare Technologies UR 948 NA 50.1 5.1 6.2 6.6 1.2 1.7 1.8 1.9 2.5 2.7 23.6 32.4 33.6 93.0 120.4 149.0 29.1 30.4 24.9 36.6 39.2 32.7 40.1 29.2 28.2 10.2 7.9 6.4 25.7 18.5 17.1

Mid Caps IRCTC BUY 1,441 1,629 13.0 230.6 6.8 28.6 31.6 0.5 8.2 9.2 0.2 10.2 11.4 3.3 51.0 57.2 87.2 122.9 162.9 3.8 48.5 40.0 -1.5 58.2 47.7 441.4 28.3 25.2 16.5 11.7 8.8 1,103.0 21.0 18.4 V.I.P. Industries Acc 351 384 9.3 49.6 6.4 15.0 18.0 -1.3 1.1 1.9 -0.8 2.6 3.6 -9.1 7.9 13.7 34.1 39.0 49.7 -26.8 20.3 27.6 -24.0 23.1 36.1 (38.4) 44.3 25.6 10.3 9.0 7.1 (59.6) 20.2 14.1

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Notes

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Notes

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PL’s Recommendation Nomenclature

Buy : > 15% Accumulate : 5% to 15% Hold : +5% to -5% Reduce : -5% to -15% Sell : < -15% Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly

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