Market Overview Monthly Insight Performance Startup Corner Book Review Prominent Headlines Sector Outlook: Cement Government Measures/Reforms World Economic Event Calendar Q&A with Vice Chairman Management Commentary Mutual Fund Overview Stock Picks Economy Review Technical View INSIGHT November 2020

Q&A with Vice Chairman Mr. Shankar Sharma, First Global

MRF LTD. | DIXON TECHNOLOGIES (INDIA) LTD. | PRIVI SPECIALITY CHEMICALS LTD. Market Economy 1 Overview 44 Review

Prominent Startup Headlines Corner PROMINENT October 2020 HEADLINES 4 53

Q&A Government with Vice Measures/Reforms Chairman Mr. Shankar Sharma, 6 First Global 54

Stock Mutual Picks Fund Overview • MRF Ltd. • Dixon Technologies (India) Ltd. • Privi Speciality Chemicals Ltd. 12 60

Monthly Technical Insight View Recommendation 21 Performance 65

Sector Book Cement Review - The Checklist Manifesto: How to Get Things Right 25 By Atul Gawande 69

Management World Commentary Economic 31 72 Calendar MarketOVERVIEW

fter having recovered 56% revival process, hence volatility in from the lows, markets markets. The US elections are also are now looking out for expected to add volatility for the affirmation of demand time being and while betting odds revivalA and more importantly are against Donald Trump at the sustenance of demand. While the moment, polls could be misleading markets have depicted V - shaped like that happened in 2016. However, recovery, the economy is probably the important thing to notice is that Paras Bothra going through a K - shaped one, whoever wins, barring the policies where recovery across varied sectors towards visa approval process, it are heterogeneous. The arguments would be positive towards India are true especially for sectors like since both contestants have agendas auto & consumer durables which against China. Besides, once election fear that there could be a lull after is over, the whole attention will the festival season is over. Besides, shift towards policies by US Fed to markets are already factoring in pullback economic growth. Majority demand revival in FY21 and earnings expect Fed to target inflation rate of growth in FY22, hence it is prone 2% while keeping rates ultra-low and to volatility in case of risks towards needless to say G-7 central banks that vulnerability of growth in FY22 would likely follow US Central bank. or postponement towards FY23. The The Reserve Bank of India (RBI) in risks of a second wave across Europe its monetary policy minutes have and potential surge in cases post highlighted that the members like festival season in India, could have Michael Patra expressed that it may serious ramifications to the demand take years for India’s GDP to regain

1 INSIGHT November 2020 lost output due to the coronavirus have generally blamed on low fiscal pandemic. According to him, “In In the absence of stimulus for India to be the major the absence of intrinsic drivers, the reason for divergence of growth rates recovery may last only until pent- intrinsic drivers, between India and developed world, up demand has been satiated and the recovery may the same theory doesn’t hold ground replenishment of inventories has last only until when comparing with emerging been completed. Empirical evidence pentup demand nations. China’s economy has revived suggests that consumption-led has been satiated strongly and IMF now expects 2020 recoveries are shallow and short- GDP growth to be at 1.9%, the fact that lived. Exports could be a driver, but and replenishment Bangladesh & Vietnam are expected with the WTO’s latest projection of inventories has to grow at 3.8% & 1.6% in 2020 has of a decline in world trade volume been completed. raised eyebrows. That highlights by 9.2 per cent in 2020, the role of Empirical evidence that India was hit by Covid when its exports in powering a durable revival suggests that economic growth was already low is likely to be circumscribed”. Other and hence the recovery is painful. MPC members like Mr. Jayanth consumption- However, these three countries are R. Varma also batted for keeping led recoveries competing to fill up the space vacated policies accommodative and the are shallow and by China as well as the opportunities narrow linkage between inflation shortlived. created as an alternative global & policy rates. According to him, supply chain. The Govt. has come up high long-term rates are inflicting with the production linked incentive damage to the economy in two (PLI) scheme and electronics & ways. “First, a significant part of the of World Economic Outlook (WEO) APIs are expected to be major easing of policy rates is not being has advocated for heightened public beneficiaries, with real orders and transmitted to longer term rates that investment as the private sector enquiries coming in for mobile form the benchmark for corporate shies away. It has also cautioned manufacturers (as suggested by borrowing and investment decisions. governments and central banks companies like Micromax & Lava). Excessive long-term rates exacerbate against premature withdrawals of Besides, the Govt. has also amended the collapse of investments in the support measures. While this would archaic labour laws and would be economy. Second, high long-term imply that Govt.’s fiscal deficit taken note in ease of doing business rates cause an appreciation of the real will scale disproportionately and rankings for sure. However, India is effective exchange rate by stimulating sovereign debts will rise, the same not the only one and Bangladesh & foreign capital inflows into our bond would be taken in positive note given Indonesia have also been bringing markets at a time when the collapse benefits of job creation. The Govt. reforms to attract FDI, although of investment has caused the current has communicated that another Vietnam leads by a fair margin. The account to swing into surplus,” Given stimulus package is in the making ministry of commerce however the steep nature of sovereign yield and it is expected to be addressed recently stated that for FY21 (April to curve, it hurts investments and thus towards creating infrastructure, August) total FDI inflow of US$ 35.73 it is essential for RBI to guide for which indeed is the right approach. billion is received against US$ 31.60 accommodative stance beyond six Besides, media articles also state that billion in FY20 and it is the highest months and keep even long-term the Govt. might tap external markets ever for first 5 months of a financial interest rates lower, so that India’s given strong forex reserves as well as year. An article in Mint highlights that private sector can get comfortable lower sovereign external debt (less Vietnam & India are the most cited enough to invest. A growth led by than 5% of GDP) for India. Besides countries when it comes to moving investments is sustainable while led it would also be competitive as out manufacturing from China, it’s by consumption is shallow, this has domestic interest rates are high (thus infrastructure & regulations are been shown by empirical data. resulting in higher interest payments major shortcomings albeit it still has labour cost advantage. Thus, the focus While interest rate is one of the for Govt.) and would also result in of the Govt. to now on infrastructure factors which corporate considers crowding in private debt & as well and ease regulations with these while committing for capex, the as investment. IMF however revised reforms are the most crucial steps. primary criteria is of demand and India’s GDP downwards by 5.8% (from capacity utilization in the economy Jun’20 WEO estimates) and expects Thankfully, the timing is right as which has been running low even to decline by 10.3% in 2020. This is the economy is recovering strongly before pre-Covid and thus demand against the background of a revision as suggested by the manufacturing pick-up and sustenance are also in world GDP growth estimates for as well as services PMI and people keenly watched by India Inc. 2020 from -5.2% to -4.4% led by have been spending less time at However, IMF in it’s October edition developed economies. While experts home and recreation & footfalls have

November 2020 INSIGHT 2 Source: Mint

steadily improved. India’s external five-quarter high of 4.91% in Q2FY21 muted numbers however demand sector is strong and September after 14.31% yoy decline in Q1FY21. Net remains strong from rural segment exports have grown 6% (in USD profit, adjusted for one-time profit and the same is depicted in tractor terms) and import cover is robust. or loss, in Q2FY21 grew at the fastest sales too. Two wheelers, cement, Various consumption indicators pace in four quarters at 6.23% from metals & paints also reported strong suggest demand revival, although a year ago, against 18.9% decline in numbers, although demand falling bank credit growth remains low and Q1FY21. Besides, growth in Q2FY21 short & inventory buildup in next so are employment opportunities came on the back of 10.74% growth quarter is a matter of concern and (compared to pre-covid), the in Q2FY20. Among sectors, cement this could affect production numbers recovery is not uniform across all & IT companies reported better than ahead. Clearly, the whole focus is on sectors. The swift recovery in the expected numbers. Management how far the demand sustains, the Indian economy is also reflected in commentaries remained upbeat fact that household savings have also September quarter earnings of India for IT sector amid increasing deals been hit severely amid low interest Inc., based on an analysis of 170 listed as clients have increased spend on rates and high inflation and abundant companies by Mint (excluding banks, cloud/digital transformation amid liquidity which is expected to financial services firms and oil and pandemic. FMCG companies reported continue, given the stance by RBI. gas companies). Net sales grew to a

Wishing you a very happy and prasperous diwali.

Paras Bothra President - Equity Research (Retail) Email - [email protected] Phone: +91 22 6611 1700 Direct: +91 22 6611 1786 Mobile: +91 98203 97061

3 INSIGHT November 2020 f we get semi urban ndian IT industry PROMINENT and rural India moves from being Igrowing, if we get Ireactive problem the right infrastructure solvers to proactive HEADLINES spend, have the problem definers and government spends on solution providers, OCTOBER 2020 productive resources then our per capita and are able to attract revenue productivity manufacturing into will improve. We will atmanirbhar India, we can grow at become much better India, can’t be 7-9%. This well take known and the growth Aprotectionist. 2-3 years of extensive will be spectacular. If it is focused on execution of items increasing India’s that have already been Narayana Murthy production for the identified. co-founder Infosys rest of the world, then you absolutely have Aditya Puri olar energy can to ensure you don’t Former CEO HDFC Bank address India’s do these other things, Senergy security because it destroys n India, the insurance in a very significant the environment in penetration in terms way, India has set an which India can be Iof the premium is ambitious target of progressive on this. 3.76 per cent of the having 100 GW of GDP, whereas the solar energy capacity Raghuram Rajan global average stands by 2022. This (target) Former RBI governor at 7.23 per cent of GDP is for energy security, as of March 2019. In but also for climate ndia has not had as fact, many developed change, and this is much capital from nations have insurance one area where we Ioutside as China penetration that is can improve the has had, but I do think more than the global carbon intensity, the in the next ten years average. This shows a economy can improve that would change, and massive opportunity for the energy intensity of India is increasingly the insurance players in the economy by using seen as an attractive India. more and more solar place to invest for energy. foreign capital. I always Subhash C Khuntia believed you have to Insurance Regulatory and Suresh Prabhu Development Authority of invest in India when former Union Minister India (IRDAI) chairman things look more challenging. The “right tmanirbhar sectors” to invest in he bankruptcy Bharat Abhiyan India now include framework can package is aimed be improved A digital, e-commerce, T at making India a global technology, by enabling bankers hub of manufacturing pharmaceutical and to take economically and services. Becoming consumers. efficient decisions, more self reliant does which entail assessing not mean going back Uday Kotak the fair value of to the Nehruvian era of CII President sinking firms with the closing our economy necessary haircut. and import substitution. ndia will position India can be connected Krishnamurthy itself as the tech to the global supply Subramanian garage of the world chain in the same way I Chief Economic Advisor in the next few years. it was but will focus on India’s problems are making India a global far more complex hub of manufacturing and it provides an and services, and our opportunity to use focus primarily will technology, data and be on advancing our innovate at scale. economy and making it an export hub. Amitabh Kant NITI Aayog CEO Anurag Singh Thakur Minister of State for Finance

November 2020 INSIGHT 4 f the upcoming US reserving Presidential Election medium-term Iends in a contested Pgrowth potential outcome, this could of above 7% is not just cause a dramatic fall in important, but perhaps the stock markets. The the only solution to our We are almost at the fall will depend on how macro challenges and long the dispute lasts. the best response to doorstep of revival process He explained that if it is geopolitical tensions and it’s very important taken to the Supreme too. In a country, where Court, the process of a large part of the that the financial entities determining a winner population including have adequate capital (to could be “drawn out” many northern states and create more and large parts of support growth). Both uncertainty. rural areas have a per fiscal and monetary policy capita GDP of less than Mark Mobius $1,000, we should not were counter-cyclical and Founder, Mobius Capital fall for the ‘5% is the Partners accommodative and both new normal’ narrative. were working in close he current market Navneet Munot symmetry… Reserve Bank of has interesting Executive Director and opportunities to Chief Investment Officer, India governor Shaktikanta T SBI Mutual Fund generate alpha. Metal Das companies are offering very good value even hat we are Shaktikanta Das if one were to assume seeing around Reserve Bank of India governor mid-cycle earnings. Wworld is that The market is deeply these direct support polarised and consumer measures—which put names have become income in the hands of very expensive. low-income households or into SMEs— seem Prashant Jain to have a much bigger Executive Director and impact in terms of The “worst is behind us” and Chief Investment Officer bringing back a faster (CIO) of HDFC Mutual Fund the economic recovery has recovery. been faster than expected. e are positive Gita Gopinath Stating that the December on pharma Chief Economist of the due to steady International Monetary Fund quarter growth could W (IMF) earnings visibility. outperform the expansion The auto sector is also coming out of he government logged in the corresponding the downturn. We needs to be bold quarter a year ago. Benign may see a recovery Tat this point of in two-wheeler and time. Economic theory interest rate regime will four-wheeler space is one thing, but we continue going forward due to the need for need things to happen personal mobility. Low on the ground right and that rates will go up ticket consumption also now, the economy only after economic activity looks good to us and was slowing down the cement sector is a even before COVID-19 gathers more pace and better way to play infra and the September inflation pressure rises. push. performance of many sectors was better than Keki Mistry Mahesh Patil that in the same month vice chairman and CEO, HDFC Ltd CIO (equity), Aditya Birla last year… Sun Life AMC Sanjay Kirloskar Kirloskar Brothers Chairman and Managing

5 INSIGHT November 2020 was very easily. 2009 data showed that India emerged as the fastest and easiest with the least damage with least stimulus compared to any major economies in the World. The reason behind the strong come back of India in 2009 was that in 2007, India grew at 10%, Corporate India was in very good health, debt levels were nowhere close to where it was now and fiscal deficit was under 1%. On all economic parameters India was in general very good shape just like a person falls ill. In general sense, every person can fall ill but the fittest person will recover the first. Indian economy in 2007 was that kind of fit person went through huge problem came out very quickly. But this time, Indian economy was already a sickly patient which is why the road to recovery is very long and pain full one and in reasonable part it could be irreversible damage to the economy. I don’t want to be sound alarming but I am practical and realistic and this Q&A with Vice Chairman is what I see. So, therefore we need to temper our ambition at this point Mr. Shankar Sharma, in time since the government fiscal situation as we all know is highly Vice Chairman & Jt. MD; First Global problematic and that was even prior to COVID-19. If you look into the fiscal deficit numbers and that the target government needed to meet in January, February and March, it is not Q. Talking about problem existed prior to COVID itself. going to be met hence already you are indigenous reforms, The reality is that the problem was for in trouble, outbreak of COVID-19 has long time and looking even 8 months Atmanirbhar reform, PLI only exaggerated the problem. So, it back when the growth was already is going to be the long and rocky road scheme and agri reforms, terrible, so the economy is in very back to the recovery for sure. what do you think about dire states and there is no mistake the pulse of the economy on it and don’t think that it will come at present and how do you out from this situation very easily. My experience in investing as only told think the economy is going me that if you are foolish and wish to shape up with the kind full you are going to be bankrupt and The reason behind of reforms that have been if you are realistic you will find ways the strong come around the situation. So, investment initiated by the government back of India in apart from the fiscal deficit requires realism, it doesn’t require optimism or pessimism. The way I 2009 was that in constraints we have now? see it is very simple that this economy 2007, India grew at The fact of the matter is that the is going take very long time even to 10%, Corporate India Indian economy has never been in come back to where it was in January was in very good this kind of situation since many 2020. We will reach to January 2020 decades barring 1991, when it was level may be in next 6 months to health, debt levels in a huge crisis and India had to sell 1-year time. The problem is that in were nowhere close gold to support the economy. Today large part the probable damage is to where it was now the situation is not so bad like 1991 structural and not cyclical damage. and fiscal deficit was but it is very dire. The problems And if you contrast this problem with under 1%. have been exaggerated because of the problem in 2008, the reason why the outbreak of COVID-19 but the India came out from the crisis in 2008

November 2020 INSIGHT 6 people has never seen in the history Now, how should you sustain this of world at least for last 100 years. So, momentum. We have already played The pharma sector the war economy situation is different on Pharma and played everything has no linkage situation which was not nationwide that could be played. Now the thing or region wide, only affecting very is the area of the market which have with the economic small parts of the country and rest of not done well or the areas which growth. The rally of the country operate normally. Hence, did well in 2009. In 2019, NBFCs pharma companies’ there is no comparison between the performed well particularly Bajaj shares doesn’t two problems. Pharma is doing well Finance, some banks and FMCGs. In mean that economic doesn’t mean anything at all for real 2019, market didn’t give exceptional economy. So, the stock market is very gain, it was only up by around 8-9%, growth has come different from the real economy and which was a terrible market for India, back. Larger point not to mix the two things at all. but globally in my personal portfolio in war situation, there was gain of 60% in 2019. The the whole economy reason behind the performance was Q. When GDP grows at 6%, doesn’t shutdown. Russia which was up by 48%, Brazil corporate grows at 12-15% was up by 35%, Spain was up by 28%, In war situation and market gyrates 40%, so US was up by 30%, so globally the the border areas there are lot of speculative performance was unbelievable and shut down and the globally there was bull market in 2019. angle to it, so how you business continues Indian market in 2019 was up by 8-9% define this market which to be normal, so this which was largely contributed by swing 40% here and there HUL, Asian Paints and Banks, and rest type of situation and now at this juncture of the economy was already hurting. never came where after recovering almost If somebody recall, after the budget the wheels of the 2019 July the market crashed and closer to its highs. How economy become Sensex crashed from 39,000 level to much speculative angle is jammed. 32,000. Then at 32,000 level there was built into the markets now Corporate tax rate cut announcement and how does one position and then market pulled back on himself considering the February to same level of July 2019. Again, from February 2020, it came risk which is their in the down to 27,000 and then scaled back Q. Can’t we draw parallels economy? to 38,000 level. So, in this entire between the COVID health I can give you our example, like in movement the net displacement was crisis and war kind of February we saw very clearly that zero. There was much noise but if you see we are in the same level where situation, post which lot market was going to enter into some kind of problematic area, which is we were in last year June. So, it is an of infrastructure activities why we raised our cash, brought optical illusion at least for the Nifty or take place and economy protection and done lot of strategies, grow faster after the war, result being only 7% down in our PMS and like infrastructure as in the month of March. From the late post-war theme, pharma of March or the first of April, again we went back to 100% investment could be the next theme and from there we are now up about The stock market is post COVID-19 crisis and 50-55%. In CY2020 to date, we are up very different from start of new bull market? by 25-30%, while Nifty is still -5% and the real economy The pharma sector has no linkage NSE 500 -5%. The reason behind for this performance was that you should and not to mix the with the economic growth. The two things at all. rally of pharma companies’ shares be realistic. We understand that it is doesn’t mean that economic growth a serious problem and never went has come back. Larger point in war on propaganda spread by other fund situation, the whole economy doesn’t managers like the COVID virus will shutdown. In war situation the border be inactive during summer at the areas shut down and the business temperature of 42 degree Celsius. In continues to be normal, so this type late February we realized that it was a of situation never came where the problem and took corrective actions wheels of the economy become and we survived and made significant jammed. So, war is a completely money for our clients and therefore different thing and this kind of crisis, by par we are the best performing PMS in the country as of today.

7 INSIGHT November 2020 Sensex perspective. But in between trade with everybody holding stake been a rally, however one cannot call many companies have made money of about 50-60% in banks and NBFCs it a broad bull market by any stretch and there is no doubt. So, let us talk and from there the sector is down by of imagination. Because for that to about the broad mainline indexes 50% and fund was down by 30%. That happen there has to be a steep rally that have not gone anywhere except was foolish in my view because it was just such that when you look down up down, up down and back up. The clear that there was some economic from a mountain high. Even if BSE next leg is in my view from a Nifty or problem because of COVID and if it is hits 45,000, there could be some Sensex perspective is more likely to an economic problem then the most affirmation of a bull market. From an be down than to be up and it will not impact was on the leveraged sectors index perspective, we are not in a bull be caused by Pharma or Reliance. It and the only leveraged sector is market rather in a sideways market will be caused by the ones that did whose business is based on leverage and we have been in one for the last well last year which are Banks, NBFCs that is banks. So, therefore, it is again two years. Going back 5-6 years from and FMCGs. The special character of phase II of this problem will occur today, everybody knows that equity a market is that everything works for and it will occur back with the same markets in India has disappointed some time but nothing works all the stocks which hurt you in March 2020, hugely because one could always time. In CY2020, the worst sectors i.e, Banks and NBFCs. The good banks find 5 stocks which can move 500% are Banks and FMCGs which have not are doing well and I don’t see any but on a balanced basis from a fund done anything. HUL, Kotak Mahindra problem there. Because of the weight management perspective, nobody has Bank and HDFC bank are in the same of these sectors are barely significant made money, markets have yielded level of June 2019. Banks are still not in the Index. Banks and Financials poorer to FD returns in last six years. out of the woods and economy pain is have weightage of 30-35%, FMCG That is a reality and that is why we not getting over any time soon. When 7-8% weightage and after including witness consistent outflows from you see economy pain of this kind Reliance the combined weightage mutual funds. This kind of 40-50% and this is why I tweeted on 1st of reaches to 60%. So, these 3 segments rally in markets accompanied with JANUARY 2020 that Banks and NBFCs accounts 60% of Index weightage and net negative mutual fund flows is are crowded trade and let us see now the question is about Reliance unprecedented, in my view. I can’t what happens this year. I didn’t know and where it will go from current recall any time when markets have how badly and how rightly it turned level. Everybody is hoping that it will rallied so much and people have out within 3 months. It was crowded be double from here but my mind withdrawn money. Thus, there is a says it can’t be possible because the large-scale disenchantment with the fact of the matter is that it has already equity markets in general. Therefore, become a Rs 200 billion company unless this market broadens on the When you see and from here to add another Rs way up, I’m not willing to believe economy pain of 100 billion is a tough fight. So, in my that we are on a structural bull view given the weightage of these market. Rather I would call it a this kind and this 3 segments in the index there is no sideways range bound market. Let is why I tweeted further upside in the Index level. us be conservative and there will be on 1st of JANUARY opportunities to make money in few 2020 that Banks and stocks but not on a broader basis. NBFCs are crowded Q. How does one play the market? Whether trade and let us see Q. Markets move against we are already in a bull what happens this you to the point of exit market or a cyclical rally year. I didn’t know and then reverts. How per se and followed by a how badly and how can one deal with such consolidation? rightly it turned out psychological things? We are playing the rewards and not within 3 months. It The problem is very common and one risks and being extremely cautious was crowded trade of the tips being that whichever stock and evaluate everyday where is the has hit stoploss and whatever capital with everybody risk in our portfolio. So, we ended is left of the stock, one shouldn’t holding stake of September 6% up while Nifty is have the view that he/she have to about 50-60% in down 1%. Now, it is very important make money from that stock only to protect this kind of return since banks and NBFCs and there’s no rule in the market in reality one rupee of profit doesn’t and from there the which states that. For instance, if one give that kind of satisfaction as much has a trading portfolio of 6-7 stocks sector is down by as pain given by one rupee of loss, and whichever one hits stoploss, 50% and fund was especially when it is earned. Hence, redistribute the leftover capital down by 30%. going ahead, one needs to be a lot among the rest of the stocks in the more cautious than needed to be in portfolio. That way the game is still the months of April & May. There has on and one can still profit from the

November 2020 INSIGHT 8 apply new age tools like complex organism and the amount of machine learning, AI and testing required is of different order altogether and there is no time when FMCG there is algorithms? 70% probability you can be confident that it is perfect. From 2015 we started to work on that these sectors This is a journey which goes on a this and experimented with lot of daily basis. are likely to see approaches, none of which was multiyear de-rating the traditional approach of money because the top line management which has of course Q. How do we outperform growth has not been has no predictability and akin to gambling or toss of coin. From 2018- in the given circumstances? very satisfactory. In 19 we found shape emerging and Do we look at beaten down the last 5 years the started to get results and see things sectors, cyclical sectors top line growth has which humanely was not possible like auto ancillary, cement, been 5-7%, it is the and that came from the ML system. steel, commodities, which bottomline which In First Global itself, in the last 22 years, we developed our own system could be beneficiary of has expanded more, and this ML system was implemented unlocking of economy? that is only because in the last two and two and half A rule of thumb is that 80% of of margin expansion. years. By 2019, we were confident your portfolio should be in current So, in the last 5-7 of having a process that nobody in fashion, 20% should be what is years margins has this world has and no one comes not fashionable such that, the close to our technology on this and unfashionable portion shouldn’t be gone from 15% to a different league altogether. Today ignored and when it is beaten down, nearly 25%. Hence in on global basis, we are up 30% on an the chances of going down further my view one might unleveraged basis in 2020 and not are low in that space. However, bulk see price earning too many funds have delivered same. of the investments should still be in multiple, price to This ML has completely transformed what is currently doing well. the way we used to invest, at the same book value multiples time, it needs a human overlay. So, it derating for all these is a human plus machine model. Q. Your view on various companies. sectors. Would you suggest to buy companies which are Q. When it comes to fast growing, witnessing machines, is it the price very good earnings growth pattern or data related market moves. Besides, if one takes like pharma, IT etc? a stock at Rs 100 level and stoploss to it you follow or fundamentals? In our PMS we won’t deny that triggered at Rs 80 and again the stock we don’t have any banks, NBFC hits back near Rs 100, one shouldn’t Fundamentals. For instance, if you and FMCGs. Point is that these take position in the stock and will are looking at margins of different sectors still got a lot of challenges. only take fresh position above Rs 100 kinds for a company, it is worthwhile Particularly FMCG there is 70% say Rs 120, that way you don’t have to look at a change in margins and the probability that these sectors are any memory left of a position taken in impact of that directly on the stock likely to see multiyear de-rating the stock at Rs 100 and it gets wiped price. This is not possible humanely. because the top line growth has not out. Hence, a new level, it is a fresh For every delta in EBITDA, I know been very satisfactory. Like in HUL thought and strategy and approach the effect in stock prices hence the in the last 5 years the top line growth and it’s a new trade. If one would have change in strategy on that basis. Now has been 5-7%, it is the bottomline thought about the previous levels margins are just one such factor and which has expanded more, that is then he/she won’t be able to take a there could be 100 such factors which only because of margin expansion. fresh position and later on regret. are taken into account. The market So, in the last 5-7 years margins has doesn’t react equally to all changes to gone from 15% to nearly 25%. Even fundamentals, it reacts differently to global Unilever is also at 25% where Q. How do you approach same parameter at different points consumer is of $30000-50000 per the markets to have in time. Market is not linear and capita. While consumer of domestic sometimes joining two dots yields business is of $1000-2000 per capita, generated such significant the third one and sometimes it returns, phenomenally hence obviously the same margin doesn’t. Sometimes, interest rate cuts expansion cannot continue and will ahead of benchmarks? fuels market rallies and sometimes come down. Hence in my view one Besides, how do you opposite happens. So, it is a very might see price earning multiple,

9 INSIGHT November 2020 for arriving at intrinsic in the small and midcap value and when interest space with a favorable risk I believe one should rate coming to near zero reward ratio then what not invest more than level for major developing should be your maximum 65% in stock market. nations probably PE investable surplus? Balance should be multiple got re-rated I believe one should not invest more properly allocated because of it. Your views than 65% in stock market. Balance which need to be regarding this? should be properly allocated which need to be dynamically adjusted If interest rate goes down then PE dynamically adjusted based on the market condition. multiple should go up as it is an based on the For e.g. say one has a portfolio inverse relationship. The reality is market condition. of 50% equity and the balance these companies have got nothing proportionately allocated and I will never advise to do with interest rate. Their high meanwhile if the market tanks and to invest more PE multiple is based on high returns the equity portfolio shrinks to 35- of equity. High return on equity is than 20% of one’s 40%. Here one has the opportunity based on high margin and high asset investable surplus to pull money from other investment turnover. All these factors are going in one company. avenues to equity and recurrent ones to be more and more challenging to portfolio which ultimately turns out My single most achieve and therefore to my view I to be more that the original 50%. important learning think that the best days of the sector My single most important learning are behind us. in 30 years is if at the in 30 years is if at the bottom of the bottom of the market market one has liquidity then one one has liquidity can win ahead of anybody else in the then one can win Q. Should one focus more market. Secondly, I will never advise ahead of anybody on the momentum sectors to invest more than 20% of one’s investable surplus in one company else in the market. like pharma, IT, Specialty chemicals now? because the reality is no one can predict how far the prices will rally. Some of them are good but some can Therefore, it is always favorable to be scam also, so one need to be very start with 20 stocks with allocation of price to book value multiples de- careful in these sectors and wait till 5-8% depending on one’s confidence. rating for all these companies. next quarter but broadly it seems OK Ultimately after 1-2 years amongst Secondly these companies have done for now. the selected stock, hardly 2-3 stocks well within this period because the might double its return while the rest buyer was unorganized, through would provide a return at par with distributors, the Kirana stores or Q. There is a group of the market and 2-3 companies might small grocery stores. Once the proponents who talk about turn out be a disaster. buyer becomes organized like it is now getting through e-commerce, that one should remain Reliance Jio and other players, one fully invested of your Q. In the last 3-5 months would see more power coming in the investable surplus at all somewhat $20 trillion has hand of the buyers as it has happened point of time and never been pumped in by the globally and when that happens it time the market while some will squeeze the margin of the FMCG central banks around the school of thought believes companies. Third, store brand is a world in the system which huge threat, where they will provide out of the total investable seems like 20-30% of the their store brand rather than the surplus one should not global economy and if a popular brand which are almost 40% invest more than 65-75% small fraction of money cheaper. So, considering all these and always keep a cash factors it can be said that the best comes to India then our cushion of 25-30% because days of this sector are behind us. domestic market could Same can be said for the banks also at any point a drawdown in reach an elevated level even that the best period is behind us. the form of GFC, Dotcom though economic situation boom, 9/11, Covid and so improves or not. Your view on keeps on coming. So in this regard? Q. For the FMCG which theory you advocate? companies, cashflows are Any market which runs without Secondly if you come fundamental should not be discounted at discount rate across an investable idea

November 2020 INSIGHT 10 participated. A fundamental of a predication or view on US election. than a human driven approach that country in order to improve has to we have used for 25 years. As it is have a genuine economic activity. not possible for retail investor than Reality is unless India itself puts Q. View on bitten down the best approach is to do a medium money in the economy, the economy stocks like SAIL and the level research and invest in at least will not revive. 20 companies or more for long term. steel sector So, if you have invested in good In the steel sector some of the stocks companies from your research, you Q. Why there is only have done reasonably well like Tata will get at least 2-3 stocks from them one story of Mr. Rakesh Steel, JSW Steel. So, it is not wise to that will give good return for lifetime. Jhunjhunwala in our say that steel sector is bad. If one likes steel sector, I think it’s better country? What is the reason to invest in stronger companies. In Q. View on disinvestment that we don’t have a long general, under this government, specially BPCL? list of billionaires who has PSUs has suffered the most. I think made money out of stock total wealth destruction may be like I think disinvestment should be banned in India. Are you saying we market? $700 billion in the last 5 years. I was very hopeful when this government are not capable to run 15 companies? Foremost being that most of the came into power that one sector that We don’t have qualified and people are scared to declare their will get fixed is PSUs. As there are experienced managerial person? We wealth. Secondly India is a fraction intrinsically good companies with have so good PSUs which is running of the market cap of U.S., so to that good management but because of for last 70-100 years and now we are extent the numbers themselves are miss governance they have not done selling them to private company for going to be less. well. This government’s promise on pennies. I want to ask one thing, if good governance so I hoped that this a private company can run the PSU government will bring in more good why can’t the government? I think Q. Presently where do you management, clean balance sheet PSUs have very good managerial see the best opportunity and make it accountable. But the talent and government need to run outside India and how one reality is that those companies has those companies wisely. Government is here to make good companies can approach the same? underperformed the market severely. I think there are easier ways to make and not for closing or selling good In 1997-1998, we realized that India money in the market than buying companies. I am totally against these can have micro economic problem PSUs. divestments; I think people of our just like the other Asian countries had country should tell the government in 1997-1998. So, we started investing that these are our navratna please in 1999 to broaden our investment Q. What is your thought run them properly. I think this is outside India. It has taken us 20 against our national interest, these years to make out portfolio because process in selecting stocks all the companies are our strategic the different kinds of company that in Indian equity market for assets and not the financial assets. are very difficult to evaluate due to investment? their vast nature of businesses. On Now we are selecting companies top of that there are more global on machine learning (ML) and macro factors which come into play. I think PSUs quantitative approach. But before have very good So, there are lots of factors that that we used to select with traditional needs to understood to have a better approach like meet the management, managerial talent knowledge of the company. But we looking at the industry, looking at the and government are handsomely rewarded for our 20 financials. “Worse the company the need to run those years effort. If one wants to invest better it is”. We always like companies outside India, I think it is better to companies wisely. which are not well regarded by the Government is take some expert advice rather than market because biggest money can to do it yourself due to the complexity be made there. So, that has been our here to make good in understanding the nature of personal investing approach. But companies and not businesses of the company and huge after implementing the ML it has for closing or selling volatility in market. become very quantitative method. We good companies. I have 100s of factors on which every am totally against Q. View on gold and US company gets evaluated and then the machine learning model evaluate all these divestments; elections the factors in a composite manner We are bullish on gold and we think it and gives us a list of stocks that we can be a good place to invest in such should invest. So now it’s become an uncertain time. We don’t have any more like a robotic approach more

11 INSIGHT November 2020 STOCK PICKS

MRF Ltd. CMP: Rs 64,950 • Rating: BUY • Target: Rs 76,588

Company Information Share holding pattern as on September 2020 (%) BSE Code 500290 NSE Code MRF Bloomberg Code MRF IN ISIN INE883A01011 Market Cap (Rs. Cr) 27680 Promoters: 27.9% Outstanding shares (Cr) 0.4 FII: 7.4% 52-WK HI/LO (RS.) 73565.7 / 49915.1 DII: 18.3% Avg. daily volume (1yr. on NSE) 11420 Others: 46.5% Face Value (Rs.) 10 Book Value 28832.3

Investment Rationale demand grew at a CAGR of 5% which is now expected to grow at much Sustainable growth in replacement market higher pace and will be driven by Replacement market accounts nearly steady uptick in the replacement 58-60% of total tyre demand, while market, a likely rebound in OEM OEM accounts 22% and export 20%. segment and the continued decline In the past 6 years, domestic tyre in cheap Chinese tyres imports

November 2020 INSIGHT 12 due to heavy duties imposed by the from MHCV and PV segment just government. Over 70% of revenues after JK tyre which derive 61% and MRF is the largest for the Indian tyre industry are linked 24% revenue from MHCV and PV tyre manufacturer to the replacement market, where segment. Government imposed heavy in India with market demand is largely insulated from duties on tyre imports in order to share of around 25% COVID-19 headwinds. In another safeguard the domestic tyre players, and derives around relief to domestic manufacturers, thus the tyre imports in past 4 years 70% of revenue from DGFT (Directorate General of Foreign have been continuously declining. the replacement Trade) in June 2020, moved majority These has benefited MRF as its 70% segment which of tyre categories from free to revenue come from replacement should ensure restricted imports, which means that market and has leading market share revenue stability an importer has to secure a license in MHCV segment where the tyre compared to its to import tyres. Imports are mainly imported from China, Taiwan and peers and enjoy in Passenger Car and Trucks and Japan on large quantity. The company Bus tyre segments which account enjoys leadership in most segments above-industry a significant share in replacement including 2W, PV, Trucks & Bus and margins. tyre segment, thus offering a Farm. While the company lagged meaningful relief to domestic tyre leading players in the TBR (truck bus companies. MRF is the largest tyre radial) segment 3-4 years back, it bought for personal consumption, manufacturer in India with market has come up very strongly over the margins are better for dealers on share of around 25% and derives last two years with better products these vs. commercial tyres. Thus, around 70% of revenue from the and gained share. MRF due to is strong distribution network is going replacement segment which should superior product mix enjoy higher to support its future growth going ensure revenue stability compared to margins compared to its peers. MRF ahead. its peers and enjoy above-industry as of FY20 earned EBITDA/tonne of Benign raw material prices margins. around Rs 30,000 which is highest Raw material cost forms 55-65% Largest tyre manufacturers in the Industry. The company has all of revenue for domestic tyre the capability to sustain its market manufacturers. As outlined by the MRF is the largest tyre manufacturers leadership position in the industry Automotive Tyre Manufacturer’s in India with installed capacity of and enjoy healthy margins. Association (ATMA), NR constitutes nearly 11 lakh tonne per annum ~45% of tyre weight, followed by and hold dominant market share of Strong distribution network crude derivatives such as carbon 25% in Indian tyre market. MRF has MRF has the largest network on pan- black (23%), nylon tyre cord fabric benefited most from government India basis and are most penetrated (12%) and synthetic rubber (10%). recent move of shifting tyre from across smaller cities and towns. International natural rubber free trade to restricted trade as most MRF’s distribution network is wide (especially Bangkok) prices have import happened in Truck and Bus spread as well as very efficient increased significantly since Aug’20 and Passenger vehicle tyres and MRF in quality terms. Company deep driven by high international rubber derives nearly 50% and 21% revenue penetration into smaller towns demand (esp. China) amid supply is due to its no. 1 position in 2Ws constraints due to labour shortages. and tractors. MRF’s large share of In Q2FY21, Bangkok NR prices replacement sales are coming from increased 8% YoY to USD 1.7/kg, while MRF follows a dealer its large exclusive outlet chains. current prices are higher at USD 2/ stock re-filling MRF follows a dealer stock re-filling kg. Historical trends suggest that model, hence, there model, hence, there is no sales push such event-based price increases is no sales push to to dealers, which leads to stable settle back to normal within 2-3 dealers, which leads pricing and better margin for dealers. months. Domestic NR prices however to stable pricing and MRF dealers are most profitable due have remained range-bound and better margin for to a better product mix with a decent are still 8% lower YoY at Rs. 131/kg share of consumer-facing 2W and dealers. in Q2FY21. Brent crude prices have Passenger vehicle tyres as these are corrected 30% YoY in Q2FY21 to USD

13 INSIGHT November 2020 43/bbl. Crude derivatives prices have domestic production, the central followed the trend with Q2 prices government has put the import Tyre companies are of carbon black /nylon tyre cord of tyres in the restricted category in sweet spot due fabric /SBR /PBR declining by 24% resulting in increased volumes for to improvement in /10% /16% /22% YoY. It is expected tyre manufacturers. MRF is the demand situation that raw material prices to remain largest tyre manufacturer in India as the OEMs have benign driven by higher supply due to with market share of around 25% resumed production recent capacity addition domestically. and derives around 70% of revenue at a decent pace and Further, it is expected that benign from the replacement segment a sharp recovery raw material prices lend visibility which should ensure revenue in the passenger to strong margin profile for the stability compared to its peers and car (PV) and the company in the medium term. enjoy above-industry margins. The two-wheeler (2W) company has benefited most from segments has been government recent move of shifting Key Risks witnessed. tyre from free trade to restricted ƒƒ Any volatility in rubber price trade as most import happened in which accounts more than 50% of raw Truck and Bus and Passenger vehicle material cost could hurt its margin. tyres and MRF derives nearly 50% ƒƒ Prolonged slowdown in auto and 21% revenue from MHCV and market, especially in OEM segment PV segment. A superior mix of the could impact its long term revenue company ensures higher margins growth visibility adversely. compared to peers. Besides, MRF Valuation has the largest network on pan-India Tyre companies are in sweet spot basis and are most penetrated across due to improvement in demand smaller cities and towns and is no. 1 situation as the OEMs have resumed position in in 2Ws and tractors due Share holding pattern as on Seproductionptember 2020 at a (%) decent pace and to deep penetration in smaller towns. a sharp recovery in the passenger Hence, we recommend our investors Promoters car (PV) and the two-wheeler (2W) 27.9 to BUY the scrip for a target of Rs. segments has been witnessed. To 76,588 from 12 months investment FII top it up, the replacement demand perspective. Currently, the scrip is 7.4 which has picked up post easing valued at P/E multiple of 21x on FY22E of lockdown will counter demand EPS. DII Others 18.3challenges. Further, to encourage 46.5

Particulars (in MRF 3Yr. Price Chart FY19 FY20 FY21E FY22E 85000 Rs Cr)

80000 Net Sales 16062.5 16239.4 14893.1 17269.9

75000 Growth (%) 7.4% 1.1% -8.3% 16.0%

70000 EBITDA 2311.3 2374.0 2448.9 2900.7 65000 EBITDA Margin 14.4% 14.6% 16.4% 16.8% 60000 (%)

55000 Net profit 991.4 1246.5 989.3 1309.4

50000 Net Profit 6.2% 7.7% 6.6% 7.6% 7 19 19 19 19 18 18 18

18 Margin (%) 20 20 20 20 -1 - - - l- l- r- t t r- t- l- r- n- t- n n Ju Ju Ju Oc Oc Ap Oc Ap Ja EPS (Rs) 2337.6 2939.0 2333.1 3088.2 Ja Oc Ap Ja

Source: Bloomberg consensus

November 2020 INSIGHT 14 STOCK PICKS

Dixon Technologies (India) Ltd.

CMP: Rs 9,330 • Rating: BUY • Target: Rs 11,268

Company Information Shareholding Pattern as on 30th September 2020 BSE Code 540699 NSE Code DIXON Bloomberg Code DIXON IN ISIN INE935N01012 Market Cap (Rs. Cr) 10,780 Promoters: 36.01% Outstanding shares(Cr) 1.16 FII: 16.21% DII: 17.55% 52-WK HI/LO (RS.) 10,289/2,662 Others: 30.23% Avg. daily volume (1yr. on NSE) 68990 Face Value(Rs.) 10.0 Book Value (Rs) 468

Company Overview and aspires to emerge as the top domestic manufacturer of Dixon Technologies Ltd. started its smart phones. Company operates business by manufacturing colour through 2 business model, first television in 1994. Over the years, it one is OEM, where the product is has diversified into manufacturing made as per customer design and LED TVs, LED lighting products, specifications, and ‘ODM’, where it security systems, set-top boxes supplies own design products to the and washing machines. In 2016 customers. Since 2008, Dixon has through a Joint venture company also started offering reverse logistics has started producing mobiles

15 INSIGHT November 2020 services, which entail repair and import dependence, boost exports refurbishment of mobile phones, LED The Indian and to build a conducive business TVs, LED panels, etc. environment. Dixon has been Electronic expanding capacities over past few Investment Rationale: Manufacturing years and is well-poised to capitalize Strong domestic player in System (EMS) on this notable industry opportunity. electronic space market size was Implementation of PLI scheme is Dixon is the largest Electronic around USD 6 boost for Dixon Manufacturing Services (EMS) billion in FY20 In order to boost domestic player in India, with a diversified manufacturing and reduce import product portfolio across Consumer and is expected dependency, government in April Electronics, Home Appliances, to reach USD 40 2020, launched Production Linked Lighting Solutions, Mobile Phones, billion by the year Incentive (PLI) scheme for mobile Security Surveillance Systems and 2025, registering a phones/electronics, which provides Reverse Logistics. Company provides significant CAGR of incentives of up to Rs 41,000 crore design focused solutions for both over next five years. The scheme will of its domestic customers and 47% over 2020-25. extend incentives of 4% to 6% on export customers. Dixon has core incremental sales over the base year strengths in electronic components, (base FY20) for goods manufactured surface mounting, box building, in India and covered under target semiconductors, silicon, thermal segments to eligible companies for management, wound components, a period of five years. Many global polymer processing, plastics and India is heavily reliant on imports players are seeing India as a regional sheet metal. Company has also for its electronic components and hub for manufacturing, to cater to forayed into medical electronics mobiles, especially on China. The both domestic and export markets. vertical by signing a memorandum recent tussle between India and As per government estimates, that of understanding (MoU) with Molbio China make government more the PLI scheme for electronics should for manufacturing of Truelab Quattro proactive to make India self-reliant result in cumulative USD 150 billion Real Time Quantitative micro PCR and reduce import dependency. in production over the next five years. Analyzer machines. Company Such focus on indigenization throw Dixon as domestic manufacturers caters to all the electronic leading a life time opportunity for domestic has made 2 PLI applications under players in respective segments. electronic and mobile manufacturers the category in which phones costing In LED TV segment, its key clients like Dixon. The Indian Electronic above Rs 15,000 and that accounts are Panasonic, KORYO, Samsung, Manufacturing System (EMS) market nearly 70% of Indian mobile market. SANYO, PHILIPS, etc. In washing size was around USD 6 billion in Out of 2 applications, Dixon’s wholly machine segment, the clients are FY20 and is expected to reach USD 40 owned subsidiary, Padget Electronics Samsung, Pansonic, Micromax, billion by the year 2025, registering a has won the approval. Currently, INTEX, Godrej, Haier, etc. In lighting significant CAGR of 47% over 2020-25. Dixon manufacturers nearly 11 segment it caters to PHILIPS, WIPRO, Rising manufacturing costs in other million units and after the expansion Crompton, USHA, SYSKA, etc. In countries, tendency of bigger OEMs in PLI scheme the total production mobile phone segment, the clients to outsource manufacturing instead will reach to 27 million units in next including Panasonic, SAMSUNG, of building their own infrastructure 4-5 years resulting in turnover of in GIONEE, KARBON, TAMBO, alcatel, and growth in end-user segments between Rs 25,000-30,000 crore over etc. Currently, Consumer electronics consumer electronics, home the next 5 years. Post the expansion segment account largest revenue appliances, mobile phones and LED the revenue share of mobile phone share of 48%, followed by lighting lighting products are the primary will reach to 44% from current 12%, solutions 26%, Home appliances growth drivers for the industry. which means a significant jump in the 9%, Mobile phones 12% and reverse Import restrictions on LED TVs, mobile phone revenue. Dixon will do logistic & security devices the rest earlier in July 2020, and significant a cumulative investment of Rs 200 5.4%. With the government focus on delays (or inaction) thereafter, in crore, at Rs 50 crore each year till indigenization and implementation approving licences for imports to top FY25. In order to speed up the project, of Production linked Incentive (PLI) domestic brands, have substantially Dixon has already started discussion on mobile phones and electronic increased manufacturing volumes with some major brands for making components, the mobile phone for domestic EMS players like mobiles under PLI scheme. Hence, segment revenue share is expected to Dixon. Further, government policies the roll out of PLI scheme will provide touch 44% by FY23. such as PLI scheme for Mobiles/ electronics are a strong push for much needed fillip to its earnings in Government focus on the sector with a view to increase next 3-5 years. Indigenization a big opportunity domestic manufacturing, lower

November 2020 INSIGHT 16 Expanding capacities to meet the revenue and EBITDA growth drove as in bottomline. demand net profitability which increased Valuation Dixon is adding capacities as well by 21.6% YoY at Rs 52 crore with Dixon is the largest EMS player in as expanding its capabilities across marginal gain of 13 bps YoY in PAT India which has grown exponentially its verticals. In FY20, Dixon added margin at 3.20%. During the quarter, in past years and delivered superior capabilities such as Android and Consumer Electric LED utilization return ratios to its shareholders. Linux-based TVs with sizes up to 65 was at 78%, followed by lighting 81%, In past 3 years, its revenue grew at inches. In lighting segment, company Home appliances 83% and Mobile a CAGR of 24% during FY18-FY20, added capacity in emergency & EMS 85%. Management expects while net profitability grew at much lights vertical. In washing machine Q3 and Q4 numbers will be better faster pace at 41% during same segment, company is expanding its than Q2FY21. Dixon has completed period. Healthy cash flows ensure capabilities to 11kg semi-automatic TV expansion to 4.4 million and tie continuous capacity expansion washing machines and top-loading up with MI, Samsung and Toshiba. without leveraging the balance sheet. automatic washing machines. Over Management conveyed that on PLI Company’s net debt/equity as of FY20 the last few years, Dixon has evolved scheme company will invest Rs 200 was in comfortable space and has from being a pure-play OEM player crore over 4 years. Company will scale delivered superior RoCE and RoE to being a backward-integrated up its mobile phone manufacturing over the years. We believe, company ODM (original design manufacturers) substantially in next 4 years and is one of the sole beneficiaries of player in multiple categories it already in discussion with 3 global government’s indigenization push operates in. Its lighting and washing brands for domestic & export and in next 4-5 years its revenue will machine segments have reached market. In ODM segment, company grow multifold, thus justifying its almost 90-100% ODM business currently is in Washing machines and premium valuation. Government’s and now company will launch its LED bulbs. Dixon is working in TV PLI scheme to incentivize the own solutions in TVs, which are and will introduce smart phones in domestic mobile manufacturers will likely to expand TV ODM share. The coming time in ODM. Management amplify its revenue growth in next ODM model includes a designing has targeted long term RoCE and RoE 4-5 years and there are tremendous component as compared to an only of 30% and 25% respectively. Thus, growth opportunities for domestic licensed outsourced manufacturing the growth momentum will continue players like Dixon. We believe, Dixon under the OEM model. ODM is value for the company in coming quarters has all the capability to capitalize on added services and should improve also and expectation is the growth in the emerging opportunities in the margins of the company going ahead. coming quarters will be more robust. Indian electronic industry. Thus, we ReportedShar eholdingRobust Q2FY21 Pattern as on 30th SeptemKey Risksber 2020 recommend our investors to BUY the Dixon reported robust Q2FY21 ƒƒ Change in government policy on scrip with target of Rs 11,268 from numbers on the back of steady import restrictions and reduction in 12 months investment perspective. utilization across its business import duties on consumer electronic At CMP, the scrip is valued at P/E verticals. RevenueOthe duringrs, the quarter products & components could have multiple of 43.1x on FY22E Bloomberg grew by 16.9% YoY30.23 at% Rs 1,638 crore, Promotnegativeer, bearing on company’s consensus EPS of Rs 216.7. 36.01% while EBITDA grew by whooping earnings. 41.8% YoY at Rs 89 crore. EBITDA ƒƒ Slowdown in consumption and margin during the quarter improved demand for white goods could have by 95 bps YoY at 5.5%. Higher negative impact on its topline as well DIIs, 17.55%

FIIs, 16.21%

Particulars (in Rs Cr) FY19 FY20 FY21E FY22E Dixon 3 year Price Chart Revenue 2,984.5 4,400.1 5,103.5 8,476.6

11000 Growth (%) 4.6% 47.4% 16.0% 66.1% 9000 EBITDA 134.9 223.1 237.2 401.8 7000 EBITDA Margin (%) 4.5% 5.1% 4.6% 4.7% 5000

3000 Net profit 63.4 120.5 130.1 247.6

1000 Net Profit Margin (%) 2.1% 2.7% 2.5% 2.9% 8 17 19 19 19 19 18 18 18 20 20 20 - -1 - - l-

l- EPS (Rs) 55.9 105.5 116.3 216.7 t- r- r t- t l- r n- n n- Ju Ju Ju Oc Oc Ap Oc Ap Ja Ja Ap Ja Source: Bloomberg consensus

17 INSIGHT November 2020 STOCK PICKS

Privi Speciality Chemicals Ltd.

CMP: Rs 525 • Rating: BUY • Target: Rs 640

Company Information Share holding pattern as on September 2020 (%) BSE Code 530117 NSE Code PRIVISCL Bloomberg Code PRIVISCL IN ISIN INE959A01019 Market Cap (Rs. Cr) 2060 Promoters: 74.1% FII: 0.3% Outstanding shares (Cr) 3.9 DII: 1.3% 52-WK HI/LO (RS.) 756.05 / 355.05 Others: 24.4% Avg. daily volume (1yr. on NSE) 49889 Face Value (Rs.) 10 Book Value 195.0

Company Overview Condensation, Grignard reactions, as center continuously thrive to develop well as unit operations like Pyrolysis, new products and processes. Privi Privi Speciality Chemicals Ltd. Reactive Distillation, High Vacuum is recognized as one of the most (PSCL - formerly known as Fairchem Distillation, Continuous Distillation dependent supplier’s in terms of Speciality Ltd.), a Fairfax company to deliver consistency in odor and product quality, competitive pricing, holding 51% stake, is India’s leading prescribed key parameters in an meeting regulatory compliance manufacturer, supplier and exporter industry driven by stringent olfaction and timely delivering by customers of aroma and fragrance chemicals standards. Privi enjoys a dominant around the globe and has been a and a globally trusted partner and position and economies of scale in its partner of choice for customers like a preferred supplier of bulk aroma product categories. Privi manufacture Firmenich, Symrise, Mane, Givaudan, chemicals. Privi has state-of-the-art over 50 products and have a capacity EFF, P&G, Reckitt Benckiser. Privi integrated manufacturing facilities of over 31,000 tons per annum. Privi caters to all the world’s 10 largest both at Mahad in Maharashtra and at also develops and produces custom- fragrance companies which control Jhagadia in Gujarat with knowledge, made aroma chemicals as per specific 2/3rd of the global fragrance market expertise and capacity to perform requirement of the customer. The and has a presence in Europe and critical reactions like; Hydrogenation, research specialists at in-house R&D USA.

November 2020 INSIGHT 18 to F&F growth of ~5%. The aroma well positioned to take advantage of Privi Speciality chemicals market is driven by high the growing opportunities in aroma demand in the end-user industries, and fragrance chemicals, as India’s Chemicals Ltd. (PSCL coupled with changing preferences aroma and fragrance chemicals - formerly known as of consumers from toxic chemical market sets itself on the growth Fairchem Speciality products to natural products. Owing path for the coming years, and with Ltd.), a Fairfax to changing consumer preferences, a rising need for natural aroma and company holding manufacturers are investing more in fragrance chemicals in the end-use 51% stake, is India’s R&D facilities to develop innovative domestic markets. solutions to meet the customer Dominant presence in a niche leading manufacturer, demand. In terms of consumption, market supplier and exporter North America accounts for majority of aroma and (33%) of consumption of overall PSCL is the largest aroma chemical fragrance chemicals F&F market followed by Europe and manufacturer in India with a and a globally Asia Pacific region. However, going production capacity of 31,000 MTPA spread across Amber fleur, Acetates, trusted partner and forward, it is expected that Asia Pacific region to register highest Dihydromyrcenol, Ionones, Nitriles, a preferred supplier growth owing to increasing domestic Sandal wood derivatives and Specialty of bulk aroma demand in developing countries chemicals and a CST/GTO capacity of chemicals. like India and China. Compared to - 25,000 TPA (Backward integration global market, the Indian market size for captive & Pinenes). The company of aroma chemicals (consumption) has a strong clientele base including Investment Rationale currently stands at USD 230 mn (~4% the likes of Firmenich, Symrise, Industry to aid superior growth of global market) and is expected Mane, Givaudan, EFF, P&G, Reckitt Benckiser and so on with exports Aroma chemicals form the building to grow at ~15% over FY19-FY22 accounting for ~65% of its revenues. blocks of Flavors & Fragrance owing to Increasing per capita Globally it is the second largest player (F&F) and are used in a variety of income, growing urban population in the pine tree fragrance segment, sectors. These aroma chemicals share, deeper penetration of FMCG with a market share of ~25%. POIL is are blended to develop a particular products in rural areas and expansion the leading manufacturer of aroma flavor or fragrance, which are used of organized retail in tier II & III chemicals such as Amber Fleur and in consumer goods like soaps, cities. Dihydromyrcenol (citrus character) perfumes, deodorants, air fresheners, Benefiting from industry which are important ingredients detergents and so on. The aroma dynamics in the manufacture of Fragrances. chemicals market is dominated by China’s competitive position PSCL has expanded its product players like Privi, Renessenz, Arizona, in the global markets has been range from 2 products in 1992 to IFF, DRT and Takasago and attributes diminishing in the past few years on over 50 high performance chemicals to ~16% of the total F&F industry. The account of stringent environmental currently based on in-house R&D. aroma chemicals market was valued and safety norms imposed and This could help the Company to at US$ 4.09 billion in 2016 and is led to the shutdown of several increase its market share not only projected to reach US$ 6.6 billion by chemical plants. With a significant for its key products but also for the 2024, exhibiting a CAGR of 6.21% increase in compliance costs, many new products as its key customers during this period, according to chemical plant operations have would prefer to buy a basket of Transparency Market Insights. become unviable. India, with its products from one stop shop. It is Growing personal disposable income low-cost advantage, is emerging the only Asian company to set-up a in emerging economies such as as an alternative manufacturing refinery for processing waste from India, China and ASEAN countries and supply chain hub for major pulp & paper industry to produce key coupled with increasing demand for global economies. Being among building blocks for aroma chemicals. cosmetics and homecare products India’s leading aroma and fragrance Privi caters to all the world’s 10 resulted in the growth of aroma chemicals manufacturers, PSCL is largest fragrance companies which chemicals market. Factors like change well positioned to capitalise on these control 2/3rd of the global fragrance in consumer preferences, healthy and emerging business opportunities market and has a presence in Europe green sustainability package among by significantly leveraging the and USA. the consumers and growth in end operations, expanding capacities user markets are boosting the market Reshuffle to emphasis on and extensive domain knowledge. growth. Global Flavours & Fragrance business The management remain confident (F&F) Industry is expected to reach of growing the market share in the The Board of Directors of Fairchem USD 28 billion by 2022. Post 2000, domestic and international markets Speciality Ltd. (FSL) and Privi Aroma Chemicals has been the fastest by virtue of strong and niche product Organics India Ltd. (POIL) on May 22, growing segment within F&F industry portfolio, enhanced capacities and 2019 approved a composite scheme at CAGR of ~6.21% as compared R&D capabilities. The company is of arrangement and amalgamation,

19 INSIGHT November 2020 for: 1) Demerger of the speciality the developing markets (Nigeria, manufacture speciality chemicals oleo chemicals and nutraceuticals Egypt, UAE, Pakistan, South Africa) by which fetch a higher margin. It has business of FSL into Fairchem seeking more and more customers. been expanding its product range Organics Ltd. (FOL, a wholly owned The strategic long term business through its in-house R&D facilities. subsidiary of FSL). 2) Amalgamation relationship forged with leading The proposed demerger of two of POIL, manufacturers of aroma companies in F&F industry, like businesses having different growth chemicals, a wholly owned subsidiary Givaudan, Firmenich, IFF and with potential and margins could lead of FSL, into and with FSL. As per the well-known global leading FMCG to value unlocking. The company is management, both the businesses, producers, like P&G, Henkel, Colgate expanding its global presence and oleo chemical and nutraceuticals; and and Reckitt Benckiser. Expanding continuously acquiring new clients aroma chemicals, require different global presence and acquiring new which is expected to enhance the skill sets, business strategies, R&D customers is expected to enhance company’s profitability, margins support and capital assets. The nature the company profitability and return and return ratios going forward. The of risk, competition, challenges, ratio going forward. company enjoys cost efficiencies opportunities and business methods as most of its raw materials are Key Risks for both the businesses are distinctly derived from waste products. The different. As each business requires ƒƒ Compliance with strict pollution company is also expected to gain significantly different operating and control norms Regulations regarding market share through its unique financial strategies, the management water discharge product portfolio and launching believes that their individual ƒƒ Product ineptness and replacement new products. Moreover, with the potential will be best realized risks change in industry dynamics and if the businesses are operated lower preference to Chinese products ƒƒ Volatility in foreign exchange separately and independently. by global companies, PSCL is well The restructuring would create Valuation positioned to capitalise on these two niche, dedicated and focused PSCL is India’s leading manufacturer emerging business opportunities business segments without any risk of aroma and fragrance chemicals. by significantly leveraging the or overlap of one business over the The global aroma chemical market operations, expanding capacities other. It would also eliminate inter is expected to sustain its robust and extensive domain knowledge. corporate dependencies, minimize growth momentum on the back The management remain confident the administrative compliances and of healthy growth momentum of of growing the market share in the maximize shareholders value. FMCG market, consistent surge in domestic and international markets by virtue of strong and niche product Escalating global existence disposable incomes, and increase in urbanization in the emerging portfolio, enhanced capacities PSCL is looking to expand in global economies. Factors like change in and R&D capabilities. Hence, we market. It has established a 100% consumer preferences, healthy and recommend our investors to BUY subsidiary in the US market and Share holding pattern as on Septembergreen sustainability2020 (%) package among the scrip for a target of Rs. 610 from looking to grow its market share the consumers and growth in end 12-18 months investment perspective. by penetrating North and South user markets are also boosting the Currently, the scrip is valued at P/E American markets. FSL has set up market growth. Due to robust market multiple of 12.2x on FY21E EPS. its own office in Netherland and also expectation, the company is looking targeting to set up an office in South to move up the value chain and America. It hasOthe maders inroads into Promoters 24.4 74.1

DII 1.3 FII 0.3

Particulars (in Rs Cr) FY19C FY20C FY21E FY22E PSCL 3Yr. Price Chart 800 Net Sales 1091.2 1324.1 1569.1 1796.6 750 700 Growth (%) 21.3 18.5 14.5 650 600 EBITDA 134.7 160.4 199.3 233.6 550 500 EBITDA Margin (%) 12.3 12.1 12.7 13.0 450 400 Net profit 75.4 141.1 169.5 197.6 350 300 Net Profit Margin (%) 6.9 10.7 10.8 11.0 8 17 19 19 19 19 18 18 18 20 20 20 20 - -1 - - l- l- r t- t- r- t- l- r n- t- n

n EPS (Rs) 19.3 36.1 43.4 50.6 Ju Ju Ju Oc Oc Ap Oc Ap Ja Ja Oc Ap Ja

Note: FY19 & FY20 fig. are calculated based on segment revenue after demerger.

November 2020 INSIGHT 20 Monthly Insight Recommendation Sheet

Annu- Buying Bought Target Target Booked Booked Holding Script QTY Value Value Profit Return alised Date Rate Price Return Date Price Days Return MRF 02-Nov-20 8 64950 519600 76588 17.9%

Dixon 02-Nov-20 54 9330 503820 11268 20.8%

Privi Speciality 02-Nov-20 952 525 499800 640 21.9% Chem.

Ultratech Cement 01-Oct-20 122 4095 499594 4543 10.9% 19-Oct-20 4535 553293 53699 10.7% 18 218%

Essel Propack 01-Oct-20 2025 248 501522 290 17.1%

Valiant Organics 01-Oct-20 168 2970 498946 3350 12.8% 09-Oct-20 3344 561832 62886 12.6% 8 575%

Mishra Dhatu 01-Sep-20 2400 209 502246 260 24.2% Nigam

Hawkins Cooker 01-Sep-20 103 4852 499740 5890 21.4%

Phillips Carbon 01-Sep-20 4275 117 501035 151 28.8% 25-OCT-20 148 630563 129527 25.9% 54 175% Black

Wipro 03-Aug-20 1770 282 499999 325 15.1% 05-Oct-20 325 574878 74880 15.0% 63 87%

Divis Lab 03-Aug-20 190 2644 502371 3050 15.4% 10-AUG-20 3058 581026 78654 15.7% 7 816%

Fine Organics 03-Aug-20 230 2177 500822 2470 13.4% 24-AUG-20 2466 567123 66300 13.2% 21 230%

ICICI Securities 01-Jul-20 1050 476 499818 620 30.2%

Apollo Tyres 01-Jul-20 4600 109 501341 130 19.3% 10-Aug-20 127 582498 81157 16.2% 40 148%

Galaxy Surfactants 01-Jul-20 335 1490 499300 1680 12.7% 04-AUG-20 1684 564130 64829 13.0% 34 139%

Nestle India 01-Jun-20 28 17571 491987 19500 11.0%

Tech Mahindra 01-Jun-20 925 541 500453 ADD 29-SEP-20 774 715691 215238 43.0% 120 131%

Abbott India 01-Jun-20 30 16979 509375 19464 14.6%

Bharti Airtel 04-May-20 985 508 500232 610 20.1% 20-MAY-20 606 597058 96826 19.4% 16 442%

Pfizer 04-May-20 102 4934 503304 5800 17.5%

Bayer Cropscience 04-May-20 116 4287 497334 5425 26.5% 27-May-20 5281 612584 115251 23.2% 23 368%

ITC 01-Apr-20 2950 170.29 502363 ADD

Britannia Industries 01-Apr-20 184 2719 500320 ADD 29-MAY-20 3384 622704 122384 24.5% 58 154%

TCS 01-Apr-20 274 1827 500508 ADD 14-SEP-20 2480 679520 179012 35.8% 166 79%

HDFC Bank 01-Apr-20 586 852 499290 ADD

Britannia Industries 02-Mar-20 164 3048 499888 3400 11.5% 29-May-20 3384 555019 55130 11.0% 88 46%

Aarti Industries 02-Mar-20 505 990 499799 1177 18.9% 05-May-20 1139 575018 75220 15.1% 64 86%

Metropolis 02-Mar-20 263 1885.73 495946 2200 16.7% Healthcare

Bajaj Finance 03-Feb-20 115 4305.89 495178 5000 16.1%

Gujarat State 03-Feb-20 2040 246 501493 300 22.0% 01-Apr-20 169 344168 -157325 -31.4% 58 -197% Petronet

Granules India 03-Feb-20 3600 140 502632 170 21.8% 07-Feb-20 164 591156 88524 17.6% 4 1607%

Concor 01-Jan-20 870 574.99 500239 665 15.7%

Mahanagar Gas 01-Jan-20 470 1066 501095 1164 9.2% 23-Jan-20 1162 546140 45045 9.0% 22 149%

SIS 01-Jan-20 1020 490 500147 568 15.8% 07-Feb-20 559 570119 69972 14.0% 37 138%

HDFC Life 02-Dec-19 875 571 499608 680 19.1%

Dr. Reddy’s Lab 02-Dec-19 171 2923 499818 3503 19.8% 07-Apr-20 3554 607713 107896 21.6% 127 62%

21 INSIGHT November 2020 Annu- Buying Bought Target Target Booked Booked Holding Script QTY Value Value Profit Return alised Date Rate Price Return Date Price Days Return Just Dial 02-Dec-19 875 570 499170 750 31.5% 01-Apr-20 288 251615 -247555 -49.6% 121 -150%

IRCTC 01-Nov-19 561 893 500709 1170 31.1% 30-Jan-20 1158 649638 148929 29.7% 90 121%

PI Industries 01-Nov-19 350 1432 501323 1613 12.6% 07-Feb-20 1612 564109 62787 12.5% 98 47%

Procter & Gamble 01-Nov-19 40 12325 492982 14078 14.2% Hygiene

HDFC Bank 01-Oct-19 405 1235 500212 1395 12.9%

Indian Hotels 01-Oct-19 3130 160 500595 179 11.9% 01-Apr-20 74 230525 -270071 -53.9% 183 -108%

Siemens 01-Oct-19 330 1549 511213 1680 8.4% 23-Oct-19 1689 557420 46207 9.0% 22 150%

Gujarat Gas 01-Sep-19 2800 179 501501 200 11.7% 30-Oct-19 200 559048 57547 11.5% 59 71%

Hindustan Unilever 01-Sep-19 265 1888 500371 1975 4.6% 20-Sep-19 1957 518507 18136 3.6% 19 70%

Divi’s Lab 01-Aug-19 305 1636 498882 1750 7.0% 22-Oct-19 1757 535885 37003 7.4% 82 33%

ICICI Bank 01-Aug-19 1175 426 500234 473 11.1% 25-Oct-19 468 550206 49972 10.0% 85 43%

City Union Bank 01-Jul-19 2410 208 500935 254 22.2% 16-Jan-20 248 597005 96070 19.2% 199 35%

Reliance Nippon 01-Jul-19 2250 222 499773 265 19.3% 27-Aug-19 258 579510 79737 16.0% 57 102% Life

Sanofi India 01-Jul-19 87 5740 499387 6775 18.0% 29-Oct-19 6678 581029 81641 16.3% 120 50%

Asian Paints 01-Jun-19 346 1445 499797 1560 8.0% 02-Aug-19 1549 535985 36188 7.2% 62 43%

Axis Bank 01-Jun-19 614 812 498614 905 11.4%

Honeywell 01-Jun-19 19 26087 495655 30195 15.7% 25-Oct-19 29105 552999 57344 11.6% 146 29% Automation

MCX 01-May-19 575 868 499354 1005 15.7% 30-Aug-19 971 558147 58793 11.8% 121 36%

TCS 01-May-19 220 2259 496953 2490 10.2% 14-Sep-20 2480 545600 48647 9.8% 502 7%

Crompton Greaves 01-Apr-19 2138 234 501153 256 9.2% 20-Sep-19 251 536681 35528 7.1% 172 15% Cons.

Equitas Holdings 01-Apr-19 3637 138 500875 191 38.7% 01-Apr-20 42 152499 -348375 -69.6% 366 -69%

Page Industries 01-Apr-19 20 25219 504373 29080 15.3% 14-Aug-19 17525 350506 -153867 -30.5% 135 -82%

ITC 01-Mar-19 1800 278 500089 319 14.8%

Tech Mahindra 01-Mar-19 605 824 498456 960 16.5% 29-Sep-20 774 468101 -30356 -6.1% 578 -4%

HDFC Bank 01-Feb-19 240 2101 504338 1204 -42.7% 20-May-19 2403 576686 72348 14.3% 108 48%

Pfizer 01-Feb-19 163 3066 499703 3490 13.8% 20-Sep-19 3389 552433 52730 10.6% 231 17%

Abbott India 01-Jan-19 65 7593 493527 8580 13.0% 11-Jun-19 8566 556790 63263 12.8% 161 29%

Indraprastha Gas 01-Jan-19 1850 273 504362 315 15.5% 08-Apr-19 314 581748 77386 15.3% 97 58%

United Spirits 01-Jan-19 800 623 498624 735 17.9% 14-Feb-20 711 568576 69952 14.0% 409 13%

Berger Paints 01-Dec-18 1567 319 499873 369 15.7% 29-Aug-19 369 578223 78350 15.7% 271 21%

Cummins India 01-Dec-18 644 776 499744 889 14.6% 16-Jan-19 889 572516 72772 14.6% 46 116%

Dabur India 01-Nov-18 1299 385 500115 470 22.1% 20-Sep-19 470 610530 110415 22.1% 323 25%

Nestlé India 01-Nov-18 52 9680 503360 11370 17.5% 10-Jan-19 11370 591240 87880 17.5% 70 91%

Dr. Lal PathLabs 01-Oct-18 524 954 499896 1125 17.9% 06-Feb-19 1125 589500 89604 17.9% 128 51%

Godrej Consumer 01-Oct-18 651 768 499968 910 18.5% 01-Feb-20 688 447888 -52080 -10.4% 488 -8%

ABB India 01-Sep-18 378 1322 499716 1510 14.2% 14-Sep-18 1510 570780 71064 14.2% 13 399%

Bharat Forge 01-Sep-18 752 665 500080 752 13.1% 15-Mar-19 548 412284 -87796 -17.6% 195 -33%

Whirlpool of India 01-Sep-18 279 1795 500805 2033 13.3% 09-Oct-19 2033 567207 66402 13.3% 403 12%

Cipla 01-Aug-18 800 625 500000 715 14.4% 01-Feb-20 452 361600 -138400 -27.7% 549 -18%

Marico 01-Aug-18 1425 351 500175 408 16.2% 25-Sep-19 404 575700 75525 15.1% 420 13%

Dishman Carbogen 01-Jul-18 1916 261 500076 307 17.6% 03-Sep-18 307 588212 88136 17.6% 64 101%

Procter & Gamble 01-Jul-18 51 9900 504900 11100 12.1% 17-Jul-18 11100 566100 61200 12.1% 16 277% Hygiene

Bata India 01-Jun-18 654 764 499656 890 16.5% 23-Jul-18 890 582060 82404 16.5% 52 116%

CESC 01-Jun-18 624 802 500348 1020 27.2% 01-Feb-20 722 450528 -49820 -10.0% 610 -6%

Nestle India 01-Jun-18 53 9519 504507 10900 14.5% 01-Aug-18 10900 577700 73193 14.5% 61 87%

ITC 01-May-18 1786 280 500080 324 15.7% 03-Sep-19 323 576789 76709 15.3% 490 11%

Tata Chemical 01-May-18 656 762 499872 890 16.8% 01-Feb-20 758 497248 -2624 -0.5% 641 0%

Voltas 01-Apr-18 806 620 499720 720 16.1% 24-Oct-19 720 580320 80600 16.1% 571 10%

Britannia Industries 01-Mar-18 202 2480 500960 2845 14.7% 23-May-18 2845 574690 73730 14.7% 83 65%

Infosys 01-Mar-18 876 571 500196 667 16.8% 03-Jul-18 667 584292 84096 16.8% 124 49%

November 2020 INSIGHT 22 Annu- Buying Bought Target Target Booked Booked Holding Script QTY Value Value Profit Return alised Date Rate Price Return Date Price Days Return Godrej Consumer 01-Feb-18 714 701 500276 804 14.7% 27-Jun-18 804 574056 73780 14.7% 146 37%

Power Grid 01-Feb-18 2604 192 499968 223 16.1% 01-Aug-19 216 563115 63147 12.6% 546 8%

Maharshtra 01-Jan-18 990 505 499950 585 15.8% 09-Jan-19 483 478170 -21780 -4.4% 373 -4% Seamless

Solar Industries 01-Jan-18 423 1182 499986 1480 25.2% 01-Feb-20 1340 566820 66834 13.4% 761 6%

Hindustan Copper 01-Dec-17 5263 95 499985 116 22.1% 30-May-18 76 399988 -99997 -20.0% 180 -41%

Petronet LNG 01-Dec-17 1992 251 499992 297 18.3% 23-Sep-19 297 591624 91632 18.3% 661 10%

Indian Hotels Co. 01-Nov-17 4673 107 500011 127 18.7% 04-Jan-18 127 593471 93460 18.7% 64 107%

KNR Constructions 01-Nov-17 2008 249 499992 297 19.3% 21-Dec-17 297 596376 96384 19.3% 50 141%

CDSL 01-Oct-17 1471 340 500140 424 24.7% 16-Mar-18 302 444242 -55898 -11.2% 166 -25%

Karur Vysya 01-Oct-17 4005 125 500053 145 15.8% 17-Aug-18 100 400500 -99553 -19.9% 320 -23%

Hindustan Unilever 01-Sep-17 411 1217 500187 1379 13.3% 18-Jan-18 1379 566769 66582 13.3% 139 35%

NMDC 01-Sep-17 3968 126 499968 142 12.7% 01-Jan-18 142 563456 63488 12.7% 122 38%

Indraprastha Gas 01-Aug-17 2137 234 500058 280 19.7% 11-Sep-17 280 598360 98302 19.7% 41 175%

Kaveri Seed 01-Aug-17 732 683 499956 790 15.7% 24-Dec-18 580 424560 -75396 -15.1% 510 -11%

Apollo Tyres 01-Jul-17 2083 240 499920 278 15.8% 07-Aug-17 278 579074 79154 15.8% 37 156%

Greaves Cotton 01-Jul-17 3145 159 500055 193 21.4% 26-Jun-18 140 440300 -59755 -11.9% 360 -12%

Bosch 01-Jun-17 21 23325 489825 27442 17.7% 18-Sep-18 21000 441000 -48825 -10.0% 474 -8%

Relaxo Footwears 01-Jun-17 2183 229 499907 286 24.7% 01-Nov-17 286 623247 123340 24.7% 153 59%

PI Industries 01-May-17 577 866 499682 1028 18.7% 09-Jan-18 1028 593156 93474 18.7% 253 27%

PNC Infratech 01-May-17 3226 155 500030 200 29.0% 26-Oct-17 200 645200 145170 29.0% 178 60%

Akzo Nobel 01-Apr-17 269 1862 500878 2135 14.7% 28-Dec-18 1680 451920 -48958 -9.8% 636 -6%

Crompton Greaves 01-Apr-17 2370 211 500070 244 15.6% 16-May-17 244 578280 78210 15.6% 45 127%

Deepak Nitrite 01-Mar-17 4673 107 500011 124 15.9% 02-Mar-17 124 579452 79441 15.9% 1 5799%

Manappuram 01-Mar-17 5263 95 499985 120 26.3% 22-Dec-17 120 631560 131575 26.3% 296 32% Finance

CESC 01-Feb-17 855 585 500175 671 14.7% 13-Feb-17 671 573534 73359 14.7% 12 446%

Dewan Housing 01-Feb-17 1724 290 499960 341 17.6% 14-Mar-17 341 587884 87924 17.6% 41 157%

Persistent Systems 01-Jan-17 812 616 500192 741 20.3% 09-Jan-18 741 601692 101500 20.3% 373 20%

Berger Paints 01-Dec-16 2083 240 499920 280 16.7% 25-Oct-17 280 583240 83320 16.7% 328 19%

Britannia Industries 01-Dec-16 332 1505 499660 1761 17.0% 26-Apr-17 1761 584652 84992 17.0% 146 43%

Dishman Pharma 01-Dec-16 2058 243 500094 300 23.5% 29-Mar-17 300 617400 117306 23.5% 118 73%

Max Financial 01-Nov-16 909 550 499950 650 18.2% 07-Apr-17 650 590850 90900 18.2% 157 42% Services

Minda Industries 01-Nov-16 4274 117 500058 151 29.1% 21-Apr-17 151 645374 145316 29.1% 171 62%

Natco Pharma 01-Nov-16 870 575 500250 737 28.2% 06-Feb-17 737 641190 140940 28.2% 97 106%

Vindhya Telelinks 01-Nov-16 693 722 500346 900 24.7% 05-Jul-17 900 623700 123354 24.7% 246 37%

Credit Analysis 01-Oct-16 381 1314 500634 1543 17.4% 10-Oct-16 1543 587883 87249 17.4% 9 707%

Nilkamal 01-Oct-16 374 1336 499664 1700 27.2% 17-Oct-16 1700 635800 136136 27.2% 16 622%

IDFC Bank 01-Sep-16 9025 55 499985 70 26.4% 22-Sep-16 70 631750 131765 26.4% 21 458%

Kirloskar Ferrous 01-Sep-16 5814 86 500004 113 31.4% 10-Apr-17 113 656982 156978 31.4% 221 52%

Mahanagar Gas 01-Sep-16 780 641 499980 748 16.7% 17-Oct-16 748 583440 83460 16.7% 46 132%

Mercator 01-Sep-16 9615 52 499980 71 36.5% 05-Jan-18 44 418253 -81728 -16.3% 491 -12%

Federal Bank 01-Aug-16 7692 65 499980 78 20.0% 25-Oct-16 78 599976 99996 20.0% 85 86%

Indian Oil Corp. 01-Aug-16 3683 136 499967 155 14.2% 05-Oct-16 155 570865 70898 14.2% 65 80%

LIC Housing 01-Aug-16 963 519 499797 608 17.1% 19-Oct-16 608 585504 85707 17.1% 79 79% Finance

Unichem Lab 01-Aug-16 1754 285 499890 360 26.3% 09-Jan-18 360 631440 131550 26.3% 526 18%

Aarti Industries 01-Jul-16 962 520 500240 620 19.2% 30-Aug-16 620 596440 96200 19.2% 60 117%

Capital First 01-Jul-16 12478 40 500018 47 16.7% 20-Jul-16 47 583504 83486 16.7% 19 321%

Godrej Properties 01-Jul-16 1370 365 500050 415 13.7% 05-Apr-17 415 568550 68500 13.7% 278 18%

Steel Strips Wheels 01-Jul-16 1096 456 499776 578 26.8% 25-Aug-16 578 633488 133712 26.8% 55 178%

Dabur India 01-Jun-16 1724 290 499960 335 15.5% 01-Nov-17 335 577540 77580 15.5% 518 11%

Glenmark Pharma 01-Jun-16 588 851 500388 985 15.7% 01-Nov-16 985 579180 78792 15.7% 153 38%

Godrej Consumer 01-Jun-16 1013 494 500084 583 18.2% 22-Feb-17 583 590917 90832 18.2% 266 25%

23 INSIGHT November 2020 Annu- Buying Bought Target Target Booked Booked Holding Script QTY Value Value Profit Return alised Date Rate Price Return Date Price Days Return Tata Power Co 01-Jun-16 6849 73 499977 85 16.4% 17-Feb-17 85 582165 82188 16.4% 261 23%

DCM Shriram 01-May-16 3185 157 500045 195 24.2% 27-May-16 195 621075 121030 24.2% 26 340%

Mahindra & 01-May-16 752 665 500080 775 16.5% 20-Dec-17 775 582800 82720 16.5% 598 10% Mahindra

PI Industries 01-May-16 787 635 499745 760 19.7% 27-Jul-16 760 598120 98375 19.7% 87 83%

ACC 01-Apr-16 365 1370 500050 1580 15.3% 27-Jun-16 1580 576700 76650 15.3% 87 64%

VA Tech Wabag 01-Apr-16 1931 259 500129 345 33.2% 24-Mar-17 345 666195 166066 33.2% 357 34%

Whirlpool India 01-Apr-16 735 680 499800 810 19.1% 07-Jun-16 810 595350 95550 19.1% 67 104%

Marico 01-Mar-16 2119 236 500084 280 18.6% 15-Jul-16 280 593320 93236 18.6% 136 50%

NTPC 01-Mar-16 4762 105 500010 123 17.5% 03-Jun-16 123 587313 87303 17.5% 94 68%

HCL Tech 01-Feb-16 577 866 499682 1020 17.8% 25-Jan-18 1020 588540 88858 17.8% 724 9%

HDFC 01-Feb-16 424 1180 500320 1400 18.6% 29-Jul-16 1400 593600 93280 18.6% 179 38%

Hero MotoCorp 01-Feb-16 195 2562 499590 2820 10.1% 02-Mar-16 2820 549900 50310 10.1% 30 123%

Indraprastha Gas 01-Jan-16 4762 105 500010 125 18.9% 29-Jun-16 125 594298 94288 18.9% 180 38%

Pidilite Ind. 01-Jan-16 907 551 499757 656 19.1% 20-May-16 656 594992 95235 19.1% 140 50%

SH Kelkar 01-Jan-16 2000 250 500000 310 24.0% 22-Aug-16 310 620000 120000 24.0% 234 37%

Texmaco Rail 01-Jan-16 3311 151 499961 183 21.2% 23-Nov-17 110 364210 -135751 -27.2% 692 -14%

Garware Wall Ropes 01-Dec-15 1289 388 500132 488 25.8% 09-Aug-16 488 629032 128900 25.8% 252 37%

Sanofi India 01-Dec-15 116 4300 498800 5060 17.7% 01-Mar-18 5060 586960 88160 17.7% 821 8%

Wabco India 01-Dec-15 80 6280 502400 7200 14.6% 28-Nov-17 7200 576000 73600 14.6% 728 7%

GP Petroleums 01-Nov-15 7463 67 500021 156 132.8% 07-Feb-17 95 708985 208964 41.8% 464 33%

HCC 01-Nov-15 28652 17 500007 29 65.4% 03-Jan-17 29 826909 326902 65.4% 429 56%

Inox Wind 01-Nov-15 1259 397 499823 500 25.9% 19-Oct-16 225 283275 -216548 -43.3% 353 -45%

Sterlite Tech 01-Nov-15 6993 72 500000 107 50.1% 20-Oct-16 107 750349 250349 50.1% 354 52%

Castrol India 01-Oct-15 2309 217 499899 255 17.8% 10-Jul-17 195 450255 -49644 -9.9% 648 -6%

Syngene Int 01-Oct-15 3115 161 499958 193 19.9% 21-Oct-15 193 599638 99680 19.9% 20 364%

Zee Ent. 01-Oct-15 1282 390 499980 464 19.0% 07-Jun-16 464 594848 94868 19.0% 250 28%

Berger Paints 01-Sep-15 3365 149 499943 176 18.8% 22-Dec-15 176 593682 93739 18.8% 112 61%

Ceat 01-Sep-15 463 1080 500040 1245 15.3% 10-Sep-15 1245 576435 76395 15.3% 9 620%

Cummins India 01-Aug-15 520 962 500240 1130 17.5% 06-Aug-15 1130 587600 87360 17.5% 5 1275%

Greenply Ind. 01-Aug-15 3281 152 500041 183 20.1% 12-May-16 183 600584 100543 20.1% 285 26%

SQS India BFSI 01-Aug-15 735 680 499800 863 26.9% 23-Nov-15 863 634305 134505 26.9% 114 86%

TIME Technoplast 01-Aug-15 7576 66 500016 81 22.7% 22-Aug-16 81 613656 113640 22.7% 387 21%

Asian Paints 01-Jul-15 658 760 500080 883 16.2% 31-Jul-15 883 581014 80934 16.2% 30 197%

Idea Cellular 01-Jul-15 4762 105 500010 122 16.2% 20-Dec-17 60 285720 -214290 -42.9% 903 -17%

Maruti Suzuki 01-Jun-15 132 3774 498168 4367 15.7% 04-Aug-15 4367 576444 78276 15.7% 64 90%

Whirlpool India 01-Jun-15 658 760 500080 879 15.7% 13-Jul-16 879 578382 78302 15.7% 408 14%

Sun pharma 01-May-15 541 925 500425 1220 31.9% 19-Aug-16 790 427390 -73035 -14.6% 476 -11%

Tata Global 01-May-15 3546 141 499986 174 23.4% 12-Jul-17 174 617004 117018 23.4% 803 11%

Tata Motors 01-May-15 971 515 500065 615 19.4% 20-Jul-16 490 475790 -24275 -4.9% 446 -4%

Ultratech 01-May-15 187 2680 501160 3300 23.1% 13-Apr-16 3300 617100 115940 23.1% 348 24%

Abbott India 01-Apr-15 124 4020 498480 4680 16.4% 04-Aug-15 4680 580320 81840 16.4% 125 48%

Elantas Beck India 01-Apr-15 442 1130 499460 1320 16.8% 29-Jul-15 1320 583440 83980 16.8% 119 52%

Strides Arcolab 01-Apr-15 434 1153 500402 1340 16.2% 10-Aug-15 1340 581560 81158 16.2% 131 45%

BEML 01-Mar-15 511 978 499758 1200 22.7% 09-Apr-15 1200 613200 113442 22.7% 39 212%

MCX 01-Mar-15 425 1177 500225 1552 31.9% 22-May-17 970 412250 -87975 -17.6% 813 -8%

Rolta 01-Mar-15 2618 191 500038 250 30.9% 26-Dec-16 61 159698 -340340 -68.1% 666 -37%

Amrutanjan Health 01-Feb-15 2227 225 499962 325 44.8% 17-Apr-17 325 723775 223814 44.8% 806 20%

HBL Power 01-Feb-15 14327 35 500012 55 57.6% 20-Feb-15 55 787985 287973 57.6% 19 1106%

Mangalam Cement 01-Feb-15 1558 321 500118 432 34.6% 16-Jan-18 432 673056 172938 34.6% 1080 12%

SML Isuzu 01-Feb-15 511 979 500269 1222 24.8% 10-Mar-15 1222 624442 124173 24.8% 37 245%

Dewan Housing 01-Jan-15 2519 199 500022 240 20.9% 15-Jan-15 240 604560 104539 20.9% 14 545%

Emami 01-Jan-15 1277 392 499946 462 18.0% 28-Jan-15 462 589974 90029 18.0% 27 243%

Torrent Pharm 01-Jan-15 456 1096 499776 1338 22.1% 18-Jun-15 1338 610128 110352 22.1% 168 48%

November 2020 INSIGHT 24 SECTOR OUTLOOK

Cement: Demand Rebounding Faster

ement demand is directly during July-Aug, the channel checks reflect on Q3FY21 margins. However linked with the country’s indicate a strong pick-up in demand during the period, the pet coke infrastructure and in September. Demand recovery has prices have increased sharply thus construction activities been strong in the East, Central and could put pressure on the margins Cwhich was sluggish in FY20 and North, and remains weak in the South front. However, cement players have further the situation was aggravated and Maharashtra which were severely rationalized fixed costs meaningfully with the outbreak of COVID-19. The impacted by COVID-19. Rural and during April to September, which spread of COVID-19 has disrupted semi-urban housing remains a key will help in mitigating the effect of the economic activities and stalled driver of cement demand, while higher power costs, especially pet the growth engine which was industrial demand has also picked coke. Cement demand is expected to already going through tough times. up recently with the resumption of pick up further on the back of good In order to curb the spread of the government projects and improving monsoons, a pick-up in government virus government imposed the labor availability. September turned spending on affordable housing and longest lockdown started from late out to be best month for cement infra, and the return of migrant labor March. However, from May onwards sector in last one and half year on the post the festive season. government started to lift the back of strong growth across regions lockdown on phase wise manner and except South with Pan India cement Demand scenario gradually the economy is reaching demand is estimated to have grown improving closer to its pre-Covid level, though by 12% during the month. During there are few industries which are July-September of 2020, pan-India As the government started to still reeling under pressure. Like cement prices declined by 3% QoQ, lift up the lockdown imposed on all other industries Cement sector but were up by 2% YoY. Cement price late March in order to curb the is also hit hard by the COVID-19 decline was higher at 4% QoQ in the spread of Corona virus, country’s pandemic but surprisingly it rebound North, East, and Central India, while construction activities started to faster than expected even in seasonal prices declined by 2% QoQ in the improve resulting in faster demand weakness. Cement demand recovered West while remaining resilient in the recovery for cement. Cement demand sharply after the relaxation of lock- South with just a 1% QoQ decline. recovery has been much faster than downs in May-June on the back of In October, cement manufacturers anticipated with 2QFY21 seeing strong rural housing demand. While across the regions have taken Rs positive volume growth after the drop there was a seasonal dip in demand 10-15/bag price hikes which will witnessed in 1Q. This demand growth

25 INSIGHT November 2020 is largely driven by the rural sector demand. The demand recovery will However, western India particularly followed by demand from tier 2 and be driven by rural, affordable housing Maharashtra has been the worst tier 3 cities. Infrastructure demand and infrastructure segments. Higher impacted by COVID-19 among the is also picking up and is almost back Government spending in rural Indian states and the demand is to pre-COVID level. Further, Central areas, higher allocations to schemes still down by almost 35% YoY on bank ensures enough liquidity in the like MGNREGA, relief packages account of lower labor availability economy and prevail low interest given to farmers, better monsoon due to the mass migration, weak regime, which is driving sales in etc are all leading to better rural urban real estate demand, and slow urban real estate space and inventory incomes and hence better spending. infrastructure activity. Overall, the is coming down. The expectation is Push given to affordable housing cement demand environment looks that new real estate launches from schemes like PMAY is also driving strong, which will support pricing the urban segment to improve, cement demand higher. One of the while a stable cost environment leading to overall better growth in dormant cement demand drivers is likely to lead to higher EBITDA cement demand. The faster demand viz. urban real estate segment is margins for the sector. In last 6 years recovery has positively surprised also showing signs of improvement since FY14, cement demand growth the industry and thus has upgraded and may add incremental volume in has lagged GDP growth amid tepid the FY21 demand growth to negative FY22 and FY23. Region wise, cement construction growth. And now it is single digit from double digit decline demand in northern and central expected that reverse will happen and estimated earlier. However, industry India has recovered from the impact cement demand will be higher than expects better demand growth in of COVID-19 and the demand in GDP growth over the next 3 years. FY22 as most demand drivers will the eastern region has been the rebound strongly with pent up strongest among all the regions.

Cement Production trend in last few months 14% Real GDP growth vs Cement Demand growth

35 40% 12%

30 20% 10%

25 0% 8% 20 -20% 6% 15 -40% 4% 10 -60% 2% 5 -80%

0 -100% 0% 0 0 0 9 19 20 19 19 19 20 19 19 19 20 20 20 19 -2% 11 12 13 14 15 16 17 18 19 20 - - -2 - -2 -2 -1 l- l- t- n c- n- n- b- r r- r- p y y- v g g FY FY FY FY FY FY FY FY FY FY Ju Ju Ja Ju Ju Oc Fe Se De Ap Ap Ma Au Au No Ma Ma -4%

All India cement production (million tonnes) Increase YoY (%) RHS Real GDP growth (%) Cement demand growth (% YoY)

Source: core sector reports Source: RBI & Core Sector Report

Rural driving the demand A slowdown in construction and areas. Moreover, migrated labors has been substantial increase in infrastructure projects due to the indulged in various maintenance or enrolments under MGNREGA and COVID-19 pandemic had impacted construction activities at home, which payments made directly to the Jan the sales of cement over the last few resulted in better cement demand Dhan Accounts have resulted in months. However, it is expected that growth. As per industry estimates, higher consumption. In FY21 budget, the demand in rural areas and a rise 50-60% of migrated labors returned government had already allocated in affordable housing projects will to home states of Uttar Pradesh, Rs 615 billion for the MGNREGA give the much needed thrust to the Bihar, Odisha and West Bengal. scheme which was lower than last sector and drive the overall sales Cement demand in these states was year. However, as the pandemic in cement. As per CRISIL, cement far better than all-India average started unfolding, the government sales will see recovery from a sharp even in 1QFY21.The rural demand announced Rs 20 lakh crore stimulus contraction of 85 % seen in April to for cement will ride on higher package. As part of this package, an estimated 7-10% growth by the agricultural income and a sharp the allocation for MGNREGA was Q4 of FY 21. Despite the lockdown rise in spending under the Mahatma increased by another Rs 400 billion. and closure of various businesses Gandhi National Rural Employment The government has already spent caused by the COVID-19 pandemic, GuaranteeAct (MGNREGA) to engage more than 60% of the total allocated the rural segment has been relatively migrant workers who have returned amount, which has helped in reviving insulated. The lockdown in rural home following the COVID-19 rural demand growth faster than areas was not as severe as in urban pandemic. Thus in FY21, there expected. Funds released under

November 2020 INSIGHT 26 MGNREGA funds allocation (Rs bn)

1200 MGNREGA funds allocation (Rs bn) 1200 1000 1000 800 800 600 600

400 400 MGNREGA saw 124% YoY increase to khariff crop production will definitely income. All these factors resulted in 200 200 Rs 374 billion in 1QFY21 against Rs spurt rural income. The better rabi better rural demand which will drive 169 billion in 1QFY20. Besides,0 well season and higher government0 higher cement demand. spread normal monsoon across the procurements helped the farmer FY19 FY20 FY19 FY21 FY20 FY21 country which resulted in bumper community by way of increasing their

Source: MoRD Source: MoRD

PMAY - Gramin 54 MGNREGA funds allocation (Rs bn) PMAY - Gramin 54

1200 32 1000 28 32 25 24 26 28 26 800 25 24

600

400 FY18 FY19 FY20 200 FY18 FY19 HousesFY Sanc20tioned (in lakh units) 0 Houses Constructed (in lakh units) FY19 FY20 FY21 Houses Sanctioned (in lakh units)

Source: MoRD Houses Constructed (iSource:n lakh MoHUA units) Source: MoHUA Source: MoRD

Source: MoHUA PMAY - Urban PMAY - Gramin 54 44 PMAY - Urban 36 32 27 26 25 28 21 25 26 20 24 44 14 36 3 27 26 25 20 21 14 FY18 FY19 FY20

FY18 FY19 3 FY20 Houses Sanctioned (in lakh units)

Houses Grounded (in lakh units) Houses Sanctioned (in lakh units) FY18 FY19 Houses CoFYnstructe20 d (in lakh units) Houses Constructed (in lakh units) Houses Sanctioned (in lakh units)

Houses Grounded (in laSource:kh units) MoHUA Source: MoHUA Houses Constructed (in lakh units)

PMAY - Urban Source: MoHUA Source: MoHU44 A 36

Residential27 segment 26 25 20 21 showing improvement14 The Urban residential3 segment has flats also weigh on the demand. ~70% of that needs to be completed historically been a key driver of Huge inventory levels (up to 4 years) over the next 3 years. The outbreak cement demand.FY18 However, inFY the19 also FYhad20 a negative impact on real of COVID-19 is also another indirect past 6-7 years, the contribution estate prices and new launches. This factor for which there has been of real estate segmentHouses Sa tonc tioncemented (in lakh units) resulted in relatively weak demand demand seen in residential projects demand has beenHo onuses decliningGrounded (in latrendkh units) for cement from this segment. in tier 1 & 2 cities. As most of the amid tepid weakHo economicuses Constructe growth.d (in lakh units) In order to revive the demand, corporate houses have decided that Slowing affordable income and banks government has brought key reforms their nearly 50-60% of employees will unwillingness over lending credits towards the sector. Post the reforms, work from home in next 1-1.5 years toSource: low MoHU creditA profile individuals there has been gradually some pick- in order to stay safe, which indirectly and developers hurt the demand ups seen in real estate construction creating demand for residential and growth of residential segment. as focus has shifted to completing the projects. People who use to stay Besides, regulatory issues such projects ‘on time’ under RERA. Total in rent in metro cities are moving as environmental and legal issues 1.2 billion square feet area is under towards home towns and purchasing pertaining the purchase of residential construction based on RERA data and the property. Post COVID, the new

27 INSIGHT November 2020 normal is study and work all through in higher demand for cement. Many one of the largest property market in online which is creating the demand real estate properties players like Sun India. All these signaled the demand for larger size property as people are teck realty, DLF, Sobha developers revival in residential segment which preferring to shift to spacious homes. have witnessed record booking in will augur well for cement companies. Further, low home loan rates which the month of August and September. Thus, it is expected that cement is nearly decade low is encouraging In addition, stamp duty reduction demand from this segment will be individuals to purchase property or in Maharashtra circle also boost the higher in FY22 and FY23 compared to do construction in houses, resulting sentiment as Mumbai and Pune is the last few years.

Pan India Sales trend ResidentialResidential Inventory Inventory comingcoming do downwn Pan India Sales trend

Source: Industry report Source: Industry report Source: Industry report

Overcapacity scenario to result in increase in excess capacity pricing. With lesser capacity addition improve and bring down capacity utilization. and stable utilization in other regions However, it has been noticed that will keep the pricing relatively firm. Over capacity remains a concern for weak realizations do not have adverse The East region has to grow in double Indian cement industry with nearly impact on pricing. Moreover, this digits for a sustained period to absorb 16 million tonne capacity has been excess supply is largely concentrated this kind of supply without affecting added in FY20. Further, nearly 17.5 in South and East regions and rest prices, though in the past the region million tonne and 27 million tonne of the other regions are witnessing has grown at higher pace. The large capacity are expected to be added relatively better utilizations. Out amount of capacity is being added in FY21 and FY22 respectively. The of total capacity addition, largest by top 5 regional or national players concern for the industry is that the proportion of capacity addition and the expectation is that they will part of this capacity is happening at is seen in East and West regions rationally push the volumes in the a time when demand is contracting. followed by the Central region. North market without affecting existing Cement demand in FY19 was 337 will see the least capacity addition prices. However, it is expected that million tonne. Given the contraction followed by South. Thus, the excess as the situation improves the excess in demand in FY20 and FY21, total capacity addition in Eastern region supply creation in FY20-21 will start cement demand in FY21 is likely to will have negative impact on the getting absorbed from FY22 onwards. reduce to 303 million tonne. This will Cement Sector Capacity Utilization (%) Cement Sector Capacity Utilization (%)

78%78% 75% 74% 72% 72% 71% 71% 69% 67% 11 12 13 14 15 16 17 18 19 20 FY FY FY FY FY FY FY FY FY FY

Source: Industry report

Source: Industry report November 2020 INSIGHT 28 Capacity addition as % of total (FY20-22)

North, 5%

Central, 18 % East , 40%

West, 27%

South, 10%

Source: Industry report Cement Sector Capacity Utilization (%)

78%78% 75% 74% 72% 72% 71% 71% 69% 67% 11 12 13 14 15 16 17 18 19 20 FY FY FY FY FY FY FY FY FY FY

CapacitySource: Industry addition report as % of total (FY20-22) India’s Cement Industry Demand Supply scenario

Capacity addition as % of total (FY20-22) India's Cement Industry Demand Supply scenario 600 76% North, 5% 500 74%

72% 400 Central, 18 70% % 300 68% East , 40% 200 66%

100 64%

- 62%

FY17 FY18 FY19 FY20 West, 27% All India Installed Capacity (million tonne)

Total Demand (million tonne)

South, 10% All India Utilization rate (%)

Source: Industry report Source:Source: Industry repo reportrt Source: Industry report

Pricing trend Cement prices in East and West is demand pre-monsoon was driven down 5% vs March-20. On YoY basis, by trade segment and post monsoon On pan India basis, the average steepest price hikes (up 9.1% YoY) it is expected the demand will be cement prices was down by 1.4% have been seen in the south region mostly driven by non-trade segment MoM in October 2020 at Rs 368 per with prices in AP, Telangana up by as the government will emphasize bag. However, dealers suggest that Rs 110-120 per bag. Cement industry on infrastructure spending in order the price could increase by month production decreased by 15% YoY to pull back the ailing economic end, as dry season is approaching. in August 2020. Cement demand growth. Going forward, with the end As on October 2020, average cement decline is due to monsoon and the of monsoons, demand is improving price is down by 1% at all India local lockdowns. But region wise, along with cost pressures (petcoke level vs. March-20. Baring south cement demand is recovering in East and diesel prices), cement companies and north region, cement prices in /Central / North whereas West and are likely to announce price hike post October 2020 was down compared to South demand is still weak. Cement the festive season. March 2020 in other three regions.

Region-wise Cement Retail Price (Rs per 50 kg bag) & Change YoY (%)

North East South West Central North East Pan India Q2FY21 363 351 386 357 359 408 368 Q2FY20 354 370 354 341 363 408 358 YoY (%) 2.4% -5.0% 9.1% 4.9% -1.1% -0.1% 2.7%

Source: Industry report

Cost rationalization surged 31% on a MoM basis to USD lag in exhaustion of that inventory 83/tonne. Domestic pet coke prices could help temporarily.Despite of In order to tide over the uncertain too increased by 8% MoM in August benign crude oil price globally, the times, cement players are to Rs 7,275/tonne. Also, the price of domestic diesel prices remain high rationalizing their fixed costs imported coal has started to inch on YoY basis and this is weighing meaningfully. Cement companies are up and it increased by around 1% in on freight costs. The improvement saving on overheads like travelling, August at USD 55/tonne, though on in realization is going to mitigate administration costs, rent, etc which QoQ it was down by 16% during July- the negative impact of higher input is expected to help the companies to September 2020 quarter. However, costs. Currently, demand and pricing sustain their margins. Despite of rise it is expected that pet coke prices scenarios are bleak as September in fuel cost, cement companies have are unlikely to see a runaway rally to is a seasonally weak quarter for the also saved substantially in logistic their previous high levels of beyond sector and October month started costs due to higher direct deliveries, USD 100/tonne. The landed cost in positive note as generally from warehouse space optimization and might continue to head northward October to May it is the peak time network efficiencies. However, due to increased ocean freight cost. for construction activities. Volumes certain costs have increased recently, Ocean freight is almost half of the are expected to catch up in the fiscal which does not bode well for cement total cost component when procuring second half as demand disruption manufacturers.The price of key pet coke. The increased input cost recedes with better pricing will help input material petroleum coke (pet might put pressure on margins on the cement companies to maintain coke) has recently started to rise. In 2nd half of FY21. Pet coke inventory healthy margins in coming quarters. August, international pet coke prices is procured at lower prices and a

29 INSIGHT November 2020

Rising Pet coke price Thermal Coal International Price (USD/Tonne) Thermal Coal International Price (USD/Tonne)

80 75 70 65 60 55 50 45 40 19 20 20 20 20 20 20 19 20 20 20 19 20 l- t- t- n- c- r- n- r- b- p- y- v- g- Ju Ja Ju Oc Oc Fe Se De Ap Ma Au No Ma

Source: Bloomberg Source: Mint Source: Bloomberg

Since the relaxation of the lockdown with healthy improvement in half of FY21 the demand is expected starting from May, the cement margins. The demand growth is to rise on the back of government plants across the country started largely driven by the rural sector spending on infrastructure which the operations gradually and in the followed by demand from tier 2 become a need of the hour in current month of August and September and tier 3 cities. Infrastructure context and will provide a fillip to the the cement demand recovery has demand is also picking up and is economy. Thus, it is expected that been much faster than anticipated. almost back to pre-COVID level. cement sector will do well in coming Recently, Q2FY21 numbers released Further, lower home loan interest quarters and cement companies by large cement players like ACC and rates and discount/freebies offered based on North and Central regions Ultratech reflected the faster demand by the developers ahead of festival are likely to outperform given the recovery on the numbers. Both the seasons have attracted the buyers expected pricing stability amid good companies reported better than to purchase the home which in turn demand and low capacity additions. expected number on all parameters spurt the cement demand. In the 2nd

Peer Set

Company Name Mcap Revenue EBITDA PAT EBITDA PAT ROE (%) ROCE D/E (x) 1 Yr 1 Yr 1 Yr (Rscrs) (Rscrs) (Rscrs) (Rscrs) margin margin (%) forward forward forward (%) (%) EV/ P/E (x) P/BVPS EBITDA (x) (x) Ultratech Cement 131,251.4 42,124.8 9,283.6 5,811.7 22.0% 13.8% 17.2 11.9 0.6 13.6 25.2 2.8 Ltd. Shree Cement Ltd. 76,312 12,868 3,759 1,544 29.2% 12.0% 13.5 15.5 0.2 17.5 34.4 4.7 Ambuja Cements 49,919 27,104 4,597 2,763 17.0% 10.2% 11.9 17.3 0.0 8.8 21.6 1.8 Ltd. ACC Ltd. 29,649 15,343 2,413 1,364 15.7% 8.9% 12.4 19.2 0.0 9.8 19.7 2.2 The Ramco Cements 18,425 5,285 1,147 604 21.7% 11.4% 12.7 12.2 0.6 15.2 28.3 3.1 Ltd. JK Cement Ltd. 14,618 5,802 1,213 483 20.9% 8.3% 16.9 16.9 1.1 11.9 24.6 3.8 Birla Corporation 4,900 6,916 1,336 505 19.3% 7.3% 13.2 13.4 1.1 5.5 10.7 0.9 Ltd. Heidelberg Cement 4,248 2,158 528 268 24.5% 12.4% 21.6 27.7 0.3 7.9 15.0 2.6 India Ltd. Star Cement Ltd. 3,396 1,844 395 287 21.4% 15.6% 16.0 18.0 0.0 7.0 10.8 1.5 JK Lakshmi Cement 3,290 4,364 798 253 18.3% 5.8% 16.0 16.3 1.2 5.5 11.6 1.6 Ltd. Sagar Cements Ltd. 1,580 1,175 186 27 15.8% 2.3% 3.1 7.9 0.5 8.0 23.1 1.6

Source: ACE Equity; Note: Ambuja Cement & ACC year ending is Jan-Dec (CY)

November 2020 INSIGHT 30 MANAGEMENT COMMENTARY Management Commentary Tata Consultancy Services Ltd. (DATE: OCTOBER 07, 2020)

ƒƒ Revenue growth was broad-based neglected in the past. This change across verticals and geographies. Management in view has resulted in accelerated Margin expansion was largely driven demand for cloud, security and digital by revenue growth. Overall, the believes that the technologies. Current situation has performance in Q2FY21 was better EBIT margins at accelerated the cloud adoption. than the management’s expectation. these levels are ƒƒ Tech Budgets: Tech Budgets ƒƒ Demand Recovery: Pleasant sustainable going will see increase from clients and Sustainable demand recovery. forward. Although led by Pandemic. Current Focus Recovery has strong legs going the salary increment is Infrastructure – next will be forward. This is not a catch-up rollout from Digital Core, Data Analytics and demand but a sustained demand new business model from this data. recovery. However, we are still not October 1, 2020, will Much faster adoption can be seen. out of woods. Management remains adversely impact the Technology is a very fundamental cautiously optimistic on demand. margin; the upward agenda for every Board discussion ƒƒ Q2 Demand Drivers: Broad trajectory of revenue ƒƒ Deal intake: The deal intake based growth. Growth driven by growth will help remained healthy at US$8.6bn for the Flight to quality. Few formal vendor in sustaining the quarter and was characterized by Consolidation exercises. Customers margins…TCS large volume of small- and medium- are accelerating tech investments. sized deals. TCV of deals signed in ƒƒ Higher tech spends and market BFSI, Retail and North America was share gain: TCS attributed its strong $1.7bn, $1bn and $3.2bn, respectively. The deal pipeline remains healthy performance to a combination of positive growth after a decline in the higher tech spend as %age of revenue and consists of healthy mix of large, previous quarter. Almost all verticals medium and small size deals. by customers and also market share witnessed growth on a QoQ basis in gains due to flight-to-quality vendors CC terms. The management stated ƒƒ Margins: Management believes among customers and to those who that growth in the BFSI vertical was that the EBIT margins at these are able to execute better led by strong momentum in retail levels are sustainable going forward. ƒƒ Management believes we are at banking and mortgage sub-verticals. Although the salary increment rollout the start of multi-year tech cycle. The capital markets and insurance from October 1, 2020, will adversely Pandemic has accelerated cloud sector also performed well. impact the margin; the upward adoption. TCS has created new cloud trajectory of revenue growth will help ƒƒ Management expects to see the in sustaining the margins. practices – aligned to hyperscale- typical seasonal impact of furloughs migration, modernization (SaaS, ERP) in Q3FY21. ƒƒ H1B Visa Issue: Business model etc. strong enough to withstand any ƒƒ The pandemic has turned out to be challenges – SBWS, Local Workforce ƒƒ Vertical commentary: BFSI and a catalyst as clients now see business Retail CPG verticals bounced back to – we can tackle the challenges very value in resiliency, which was well.

31 INSIGHT November 2020 HDFC Bank Ltd. (DATE: OCTOBER 17, 2020)

ƒƒ Loan growth continues to be ƒƒ For the SME book book driven by wholesale loans ƒƒ Disbursement at all-time high in ƒƒ Management remains cautious ƒƒ Disbursements in Q2FY21 have SME book, greater than Rs 5000 Cr in on the MFI segment and expects been at 80-85% level of last year September normalcy in the next 90 days.

ƒƒ Rural & Semi urban theme is doing ƒƒ Bank had estimated stress in this ƒƒ Agriculture segment maintains well; Two-wheeler loan & Tractor book of 9-11% at the beginning of the robust growth due to good monsoon loans rate seeing robust growth pandemic, which management now and crop sowing

ƒƒ Margins have been impacted qoq believes has come down to 3-4%. ƒƒ Retail lending on digital – auto due to increase in liquidity from 140% Some of the exposures may require first on both two-wheeler and four- to 153% in Q2FY21 however Corporate restructuring. wheeler from physical to digital is a NIMs fared well at above 4%. transformational change and Bank is ƒƒ For the Retail book ƒƒ Other income was impacted expected to launch in next 90 days ƒƒ Credit inquiries in Auto and Home on covid-19 led slowdown in loan loans are almost back at pre-covid ƒƒ Unsecured book rating comes out originations/TPD/ payment product levels on average 3.5 while secured portfolio activities apart from lower recoveries is in range of 4.58 and difference & collections. ƒƒ Witnessed disbursements at 90% of pre-covid levels and by October between this means 55% of lower ƒƒ In the corporate/wholesale loan management believes to scale back to probability of default book, pre-covid levels. ƒƒ Asset quality: ƒƒ 1550 new customers were added (3x ƒƒ For non-moratorium portfolio, ƒƒ Slippages for Q2FY21 were reported of Q1FY21) while disbursement was collection trend has already reached at 0.8% but the same on pro-forma 2.65x in value 99% while it is at 97% for moratorium basis (in case of no Supreme Court ƒƒ 70% disbursement was for loans decision) were 1.98%. less than 1 year ƒƒ NPA ratios on pro-forma basis ƒƒ Collections in Q2FY21 was higher The book has an were higher by 29bps/18bps at yoy with Sep’20 collection being up internal rating of 4.4, 1.37%/0.35% for GNPA/NNPA against 14.5% yoy. which corresponds reported figures to AA rating, ƒƒ The book has an internal rating of ƒƒ Bank stated that the demand 4.4, which corresponds to AA rating, incremental lending for Restructuring wasn’t a large/ incremental lending is also at a rating is also at a rating of meaningful number of 4.4. 4.4. ƒƒ SME segment was the real ƒƒ 75% of the externally rated portfolio 75% of the externally worrisome segment, but credit are either AAA or AA. 93% above A rated portfolio are guarantee scheme by Govt. is the real rated companies either AAA or AA. saving grace and 65% of SMEs availed 93% above A rated the loan scheme companies

November 2020 INSIGHT 32 Hindustan Unilever Ltd. (DATE: OCTOBER 20, 2020)

ƒƒ Demand environment has ƒƒ Company has expanded the Domex double digit growth in foods (Knorr improved progressively with pick-up range across the country. Fabric wash and Kissan), tea portfolio witnessed in economic activity. Rural markets portfolio was slightly weak as activity double digit growth across brands, have performed better on the back level of consumers has still not out-of-home consumption loss of a good monsoon, higher MSPs, bounced back and demand has been continued to impact performance government support and demand lower due to confined living. for categories such as ice cream and relocation (migration from urban to ƒƒ Personal care segment reported GSK channel sales were impacted by rural). flat revenues (yoy). EBIT rose 1% yoy supply disruption. ƒƒ Demand in metros/cities continues and EBIT margin expanded 33 bps to ƒƒ On a reported basis, A&P spends to be muted. Categories like color 29.3%. were down 5% yoy. While cut in ad- cosmetics and deos, which have high ƒƒ Skin cleansing saw a strong spends has been steep, management urban salience, are seeing higher double-digit growth across formats said that they continue to focus on weakness. led by Lifebuoy and Lux. Handwash improving their SOV (share of voice). ƒƒ Tea category is witnessing and sanitizer continue to see strong The company also saw ad-spends unprecedented inflation with RM demand on the back of penetration directed towards supporting Glow (tea commodity) prices up 50-70%. gains. and Lovely launch. ƒ Company has taken calibrated price ƒƒ Company has launched several ƒ Company has accelerated steps increases. SKUs which are particularly focused to drive digital adoption in the trade ƒƒ Management indicated that it is on the hygiene portfolio. There has with 270,000 outlets now on boarded willing to sacrifice margins in the been a pickup in demand for oral care on the Shikhar app. The e-commerce short term for structural market category, particularly Close up. Hair channel has seen 2x sequential share gains. care portfolio also saw double-digit growth. ƒ ƒƒ About half of the tea market is growth with strong performance ƒ Management said that a healthy unorganized, HUL likely intends to across brands. innovation pipeline for the acquired absorb RM inflation to gain market ƒƒ Essentials portfolio of the skin care MFD portfolio. They are first looking share from unorganized players and segment continues to be resilient and to scale Boost brand across the peers. is growing. HUL has placed Glow and country. Company is yet to use its Lovely successfully on shelves across strong distribution muscle to drive ƒƒ Company witnessed strong growth in the segment. demand for health, hygiene and the country. ƒ nutrition portfolio (10% yoy; ƒƒ In food and refreshment segment, ƒ In 70% of the business, company constitutes 80% of sales) and weak management has called out ‘in- has managed to increase penetration demand for discretionary products home consumption’ trend aided levels. (down 25% yoy; constitute 15% of ƒƒ Management believes that general sales) and out-of home consumption trade channel will remain quite products (down 25% yoy; constitute Indulekha saw 4X relevant even 10 years down the line 5% of sales). with adoption of technology in view jump once came ƒƒ Company usually starts of resilience in the channel. distribution of its winter portfolio in into the fold of ƒƒ Indulekha saw 4X jump once came the last week of September. However, HUL. Similar may into the fold of HUL. Similar may in view of Covid-led uncertainty and happen in Boost happen in Boost and hence launched liquidity constraints at distributor- and hence launched across the country post acquiring level, off take activity by the trade has across the country the GSK business. Cost synergy and been weak. However, management growth potential of GSK product believes that business will pick up post acquiring the remains quite optimistic. GSK business. Cost with the onset of winter. ƒƒ In long term, company has grown ƒƒ Home care segment revenue synergy and growth at 9% CAGR in last 10 years. FMCG declined 2% yoy. EBIT rose by 14% potential of GSK is USD 40 per capita in India which with margin expansion of 278 bps product remains is much lower than Indonesia or yoy to 20.4% (multi-year high). quite optimistic. Vietnam or other Asian countries. Household care segment saw double- We remain very bullish on Indian digit growth across segments with economy. penetration gains.

33 INSIGHT November 2020 Infosys Ltd. (DATE: OCTOBER 14, 2020)

ƒƒ Guidance: Revenue growth were net new. Infosys also highlighted guidance for FY21 has been increased Revenue growth that the large deal pipeline continues to 2–3% YoY CC (from 0–2% YoY guidance for FY21 to remain healthy, with the mix of CC) based on an improved demand net new deals on the higher side, has been increased outlook. This may indicate a modest compared to historical trend. 2H as the expected impact of to 2–3% YoY CC (from 0–2% YoY ƒƒ Strong Digital growth: In Digital, furloughs in 3Q and 4Q has been the three key areas are cloud-related CC) based on an seasonally modest for Infosys. services, data analytics and customer However, it does not indicate improved demand experience. Cloud in particular is anything negative on the demand outlook. The earlier seeing momentum due to migration front as the company is seeing largely margin guidance of large enterprises’ workloads to broad-based recovery. The earlier of 21–23% has been public, private and hybrid cloud margin guidance of 21–23% has been improved to 23–24%. ƒƒ Margin Bridge: Management improved to 23–24%. Furthermore, expects the margins to come off the company would pay a one-time from these levels as the company incentive to its junior employees implements wage hikes and travel, and offer wage hikes effective from branding costs etc. comes back. 1st January 2021. Also, a 23–24% EBIT However, rationalisation of employee margin band cannot be considered in sub segments – gradual recovery pyramid and increase in productivity sustainable for now; this will have to will happen. Deal pipeline is healthy will continue to provide margin be keenly monitored. ƒƒ Deal wins for Q2Y21: Infosys tailwinds. ƒƒ Vertical Commentary: BFSI: reported USD 3.15bn TCV for large ƒƒ Acquisitions: The company has vertical continued improvement in deals, with 16 large deal wins, for made three acquisitions in the Q2; banks are investing in technology Q2FY21. Out of this, management last three months: Guide Vision areas like call centers, lending highlighted that 11 deals were from (specialising in enterprise services services, mortgage services and large North America, 4 from Europe and 1 management consultancy), Blue digital transformations. Vanguard from Rest of the World geographies. Acorn (Adobe specialist) and deal will help in growth in next few On a vertical basis, 6 large deals Kaleidoscope (product design). quarters. This quarter there was were from Financial Services, 3 from However, it does not see these marginal impact from the Vanguard Retail, 2 each from Communications acquisitions contribute meaningfully deal; Finacle is seeing lot of traction. and Hi-Tech verticals, and one to growth in FY21. 6 out of 16 deals were in BFSI. Overall, large deal win in Manufacturing, remain optimistic on BFSI. Retail: Energy & Utility and Other verticals. ƒƒ Launch of Cobalt: Witnessing the This quarter performance was due Management indicated that the deal demand for cloud-based offerings, to increased volume and ramp of wins have been driven by digital company has launched Infosys Cobalt, deals. However, management remains transformations, a large part of which which helps to bring cloud services, cautious in the near term due to is cloud-based initiatives, projects platforms and solutions that assist furloughs Communications: Media relating to efficiency and automation in accelerating the cloud journey continues to remain weak; strong and vendor consolidation. On and reducing the risk of client’s deal wins will help in stabilizing vendor consolidation, management cloud programs. Cobalt is built with performance in next few quarters highlighted that although they strong partnerships with leading SAS/ Energy, Utilities, Resources & were seeing some early benefits PaaS/IaaS service companies across Services: vertical is under pressure of consolidation, talks are on with public, private and hybrid cloud due to lower activity. However, the clients, and they expect more vendor environments company continues to build strong consolidation opportunities going pipeline; Manufacturing: Disruptions forward. 86% of the large deals won

November 2020 INSIGHT 34 Kotak Mahindra Bank Ltd. (DATE: OCTOBER 26, 2020)

ƒƒ Management now shifting focus ƒƒ Corporate book remains book. In Covid, rural India has to building an asset side customer comfortable from asset quality side. done much better. Worst impacted franchise will open‐up number of SME book remains in control. Lower is the unsecured urban consumer. channels for customers acquisition as utilization in the SME segment Employees with lower salary in against only deposits, and hence effecting growth in this companies are more vulnerable and

ƒƒ Inorganic growth/acquisition segment. Retail book continue to do hence covid hitting lower strata of (denied speculations with IndusInd) well with Rural, tractors, housing the urban economy. Bank’s advance could be one of the ways for loan etc doing well. portfolio reflects the strength with augmenting the customer franchise ƒƒ Bank is adequate and comfortable the credit card and personal loan and personal business loans cut down ƒƒ CASA ratio as on September 30, in carrying the provisioning of over the last couple of quarters. 2020 stood at 57.1% compared to 53.6% all on covid, NPI, standard asset, as on September 30, 2019. Average stress asset etc. The bank is very ƒƒ Floodgates is opening up for Savings deposits grew by 32% to Rs. comfortable with its asset book. growth with low cost deposit at 65% 106,442 crore for H1FY21 compared to MSME and ECSG scheme is a great and CASA standing tall and which Rs. 80,425 crore for H1FY20. Average scheme and thanks to the govt to bank have built over the years is going Current Account deposits grew by give a balm for the SME. Bank is to give us the edge 10% to Rs. 36,610 crore for H1FY21 feeling much better about the SME ƒƒ With 1600 branches, bank is clear compared to Rs. 33,216 crore for now that the physical world game H1FY20. has changed and digital will drive ƒƒ COVID related provisions as at Management now the future. Customer acquisition September 30, 2020 stood at Rs. 1,279 shifting focus to through physical, digital, or customer crore (0.62% of net advances). Non building an asset acquisition will be the future in a specific provisions towards Advances side customer blended sense. (including standard and Covid franchise will ƒƒ Commercial Vehicle and provisions) is at 177% of the NNPA of open‐up number construction equipment side closer the Bank. of channels to pre-covid level; rural cashflow is ƒƒ As on September 30,2020, GNPA for customers good and tractor side efficiency are was 2.55% & NNPA was 0.64%. The acquisition closer to level; secured asset side both Bank has not recognised any NPAs as against bounces and resolution side is closer since August 31, 2020, in line with the only deposits. to pre-covid level. In the unsecured interim order of Supreme Court. If Inorganic growth/ side bank is watching closely. the said Order was not given effect to, acquisition (denied ƒƒ Bank has made investment the GNPA would have been 2.70% and speculations with in technology and capacity NNPA 0.74%. The Bank has, however, IndusInd) could enhancement which is improving made provision for such advances. be one of the ways collections and resolutions – further ƒƒ India showing a very positive for augmenting the economic unlock aiding collections. trend in low mortality and a good customer franchise. recovery rate; Excess liquidity has given stability; Digital user continue to surge.

35 INSIGHT November 2020 Asian Paints Ltd. (DATE: OCTOBER 22, 2020)

ƒƒ Market conditions: The paint luxury emulsions in the international industry has been recovering since market to fill in product gaps. The June 2020, strongly led by demand Progressive recovery waterproofing segment is also in tier 2/3/4 cities. Progressive in demand led performing well across markets. recovery in demand led by unlocking by unlocking of ƒƒ Sustainability of cost savings: of economy; supply side concerns economy; supply Cut back on rentals, travel and G&A; also easing incrementally; pent‐up side concerns aim to retain a major chunk of those demand helped during 2Q; input also easing savings. The management indicated prices and currency remained that RM prices continue to be broadly favorable. Demand recovery incrementally; pent‐ stable. Management indicated witnessed around economy, premium up demand helped inflation in crude derivatives, which & some luxury ranges of products. during 2Q. 2H may reduce gross margin gains. Ad ƒƒ Decorative business: Growth led can be better than spend was low and is expected to by Tier 2/3/4 markets; 11% volume current growth rate normalize but Asian Paints expects and 6% value growth in 2Q with to sustain fixed cost savings. The improvement in every month of especially if larger EBITDA margin is likely to remain at quarter; better recovery in economy cities see recovery elevated level with stable raw material range; strong response to at‐home and COVID situation prices and saving in other cost in the services; GMs supported by stable normalizes. coming quarter. input prices and sourcing efficiencies. ƒƒ Sales mix: Product mix was strong; ƒƒ Home Improvement: The home but category mix within products improvement business (contributes relatively inferior which resulted in ~2% to total revenue) has also seen continue to perform well, whereas lower realizations. Demand recovery recovery in both the kitchen and the waterproofing portfolio is was witnessed across the range of bath segments. Components and full expanding. Luxury emulsions in products from economy to premium kitchen segment saw good recovery, certain categories are doing well. New as well as some luxury range of whereas institutional business picked launches including anti-bacterial products. The improved mix along up sequentially. The bath segment paints and a range of sanitisers and with favourable raw-material prices also witnessed good recovery led by surface disinfectants are gaining will help gross margins to remain economy range of products. good traction. APL continued to gain high in the coming quarters. ƒƒ Entry into home décor: 1500 SKUs strong response to safe painting and ƒƒ Focus on dealer’s health: The launched in lightings, furniture and sanitising services. company was able to support retailers furnishing range to provide complete ƒƒ Regional demand trends: Recovery very well, both in terms of demand Home Décor solutions. Forayed into in Paint Industry led by tier 2 / 3 / and margins that they are making. lightings, furnishings & furniture 4 markets which have reached pre The company supported them on as they align with company’s vison covid levels. Metros and tier 1 / 2 multiple fronts, such as sorting out of providing complete Home décor markets have recovered sequentially liquidity issues, providing health solutions. but have not returned to pre covid insurance, sanitising their shops, and ƒƒ Industrial business: Strong level; North and East regions doing providing new credit layers. recovery in Q2 the automotive better. ƒƒ 2H demand outlook: 2H can be segment drives the performance of ƒƒ International business: The better than current growth rate the segment. Under APPPG: gradual international business registered especially if larger cities see recovery recovery was witnessed in the close to double-digit volume and COVID situation normalizes; general industrial business in Q2. growth, driven by strong recovery in do not see a need for price cuts. Power business performed well while Africa, Middle East, Sri Lanka, and Asian Paints will explore its dealer industrial paint demand is still led by Bangladesh (reported double-digit network to sell sanitizers which were lower demand from the oil & gas and volume growth). Nepal is still under primarily used to propel sanitization capital goods sectors. pressure due to COVID-related services. ƒƒ New launches gaining good restrictions. The company launched traction: Emulsions and undercoats new products in premium and

November 2020 INSIGHT 36 Bajaj Finance Ltd. (DATE: OCTOBER 21, 2020)

ƒƒ The Company has restarted ƒƒ The Company estimates AUM ƒƒ Collection efficiency improved and origination across all businesses growth for FY21 at 6-7%. By Q4 stood at 92% except REMI and wallet loans which there could be a potential upside, if ƒƒ Standstill recognition led are on pause mode till January and momentum gains improvement in asset quality on a March respectively ƒƒ Outstanding flexi loans as at sequentially as GNPA (%)/NNPA (%) ƒƒ The company is currently September 2020 stands at Rs 43,000 declined by 37/13 bps to 1.03%and witnessing MoM improvement in cr and expects Rs 500 cr of loans 0.37%, respectively volumes across all businesses to convert every month. In Q2FY21, ƒƒ If adjusted for the accounts that ƒƒ From September, the Company has the company has converted Rs 1750 were not declared NPAs due to started to accelerate volumes across crore of term loans into flexi loans to supreme court’s order, asset quality all businesses provide customers flexibility of lower remained largely stable as GNPA/ repayment and higher prepayment ƒƒ In September, versus previous NNPA for Q2FY21 stood at 1.34% and ƒ year, urban consumption businesses ƒ In housing finance business, 0.56% (B2B) were at 72%, rural consumption volumes have reached 75% of pre- ƒƒ 3-Wheeler and Mortgages are business (B2B) at 91%, Credit card Covid levels mostly likely to go for restructuring origination at 73%, ecommerce at 75% ƒƒ The carry cost of total liquidity in ƒƒ Bajaj Finance has increased its and auto finance business at 54% of Q2 was Rs 220 cr as against Rs 47 Cr provisioning for stage 1 and 2assets last year’s volume. in Q2FY20. by Rs. 1,370 crore taking it to Rs ƒƒ In September loan disbursements 5099 crore as of 30th Sep’20. Overall ƒƒ Asset quality: (B2C, SME, Rural B2C, and Mortgages) standard assets provisioning (ECL were at 62% of the last year’s volume ƒƒ Moratorium book came down from stage 1 and 2) grew to 3.69% from and expects to reach pre-Covid loan 15.7% in Q1FY21 to 8% in Sep’20 2.73% qoq led by buildup of Covid led origination by March-April 2021 provisions

Ultratech Cement Ltd. (DATE: OCTOBER 21, 2020)

ƒƒ In the early days of the pandemic, fertilizers, seeds, etc. Both state and own space or a larger space, and there was a marked shift in central government are increasing there has been good traction in urban concentration of demand from the their focus, allocation and release real estate also, though it’s very slow. rural markets for reasons which the of funds on rural housing. Further, ƒƒ Gujarat, which was amongst company is already aware of. MSPs have been increased for most of the bottom few states in terms of ƒƒ Good monsoons are all helping the the crops. demand, has also started showing rural markets grow. ƒƒ Urban demand also is, however, signs of recovery towards the end of ƒƒ Over 50% of the rural districts slowly and surprisingly coming back this quarter. Maharashtra is still to have shown a growth over their past as the country goes through it’s pick up, though the large projects like few performances. The impact of unlock program. coastal roads, Metro, Mumbai Airport COVID-19 has been lesser in rural ƒƒ The government spending extension, Expressways continue to markets as compared to Tier-1 program is gaining momentum, generate demand for cement. markets. payments being released on time and ƒƒ Eastern and Central markets have ƒƒ Districts having rural demand management is seeing infrastructure literally brushed aside the COVID of 25% impacted as compared to growth also happening. impact and running full capacity with 50% in urban areas. Farmer welfare ƒƒ Management witnessed that real solid demand. expenditure is up, nearly 100%. estate markets are opening up in ƒƒ North markets have started picking ƒƒ Other rural industries are also Tier-1 towns. up largely, driven more by infra generating a good growth like ƒƒ People are wanting to buy their projects by the government in the road project.

37 INSIGHT November 2020 ƒƒ South looks promising with Andhra crores for a year-on-year basis. the greenfield Cuttack plant, largely getting into good demand from the ƒƒ Cement prices have come off due to the COVID impact. However, state capital cities, the irrigation marginally over the last quarter, but company expects to compete these projects. And the remaining South that is so normal about seasonality. projects by FY22. states also, Tamil Nadu, Karnataka, However, prices started to strengthen ƒƒ Eastern markets are expected to are starting to see positive movement in some of the markets as monsoons continue to generate strong demand. in demand. have started receding. And hence, company is very focused ƒƒ With crude production down due ƒƒ Century plants have fully on executing these projects at the to weak demand, pet coke production integrated in Ultratech. The assets earliest. has also come down. With the supply have achieved an operating EBITDA ƒƒ The capex will be funded through shortage, the price of pet coke has per ton of over Rs. 700 this quarter. internal accruals and company increased and price have reached Company is expected to complete the envisages to reach a net-debt to to almost USD 100 in October for brand transition before the end of EBITDA around 1x by end of FY21. January deliveries. FY21. During 1HFY21, company’s net debt to ƒƒ Due to high pet coke price, cement ƒƒ Company remains focused on EBITDA was around 1.22x. players are switching to alternate deleveraging, integration of acquired ƒƒ Company is strengthening its high calorific valued coal, which is assets. Company has pared down the WHRS and will take total capacity to cheaper now. net debt by about Rs. 2,500 crores 185 MW. Then there’s the expansion ƒƒ Diesel price was up 13% this this quarter on the back of Rs. 2,200 plan of another 60 megawatts to quarter, which adversely impacted crores that was reduced last quarter. reach peak capacity of 245 megawatts, company’s logistic cost. ƒƒ Company has a treasury surplus of forming 24% of its total power ƒƒ In H1FY21, company witnessed over Rs 10,000 crore in the balance consumption. overall cost reduction of 14%, which is sheet. ƒƒ FY22, green power will constitute roughly Rs 450 crores. And company ƒƒ In CAPEX plan, there are delays 30% of company’s current energy is very confident of reaching a on the 3.4-million-ton Brownfield consumption. sustainable reduction of Rs. 500 expansions in West Bengal, Bihar and

Britannia Industries ltd. (DATE: OCTOBER 20, 2020)

ƒƒ Lockdown resulted in 2 advantages consumers and expects several of portfolio. for Britannia first one is higher them to stick to its brands. ƒƒ Company has ramped up its direct in-home consumption of biscuits ƒƒ After witnessing healthy double- reach to more than pre-Covid levels. given it was the cheapest snack and digit growth in the month of July, They have also strengthened their company’s ability to quickly ramp- growth in August dropped to low- rural distribution and also ramped up up production, given its edge over single digit and this was followed by a their SKUs and replenishment levels smaller players. decent recovery in September. back to pre-Covid levels. ƒƒ With the opening-up of the ƒƒ The management partly ascribed ƒƒ Dairy business has been mixed bag economy, other food categories have the weakness to a slowdown in during the quarter. While cheese has started to see demand recovery. modern trade channel and they been leading the growth in the dairy Secondly, smaller players have also believe that the volatility has made portfolio, decline in out-of-home come back and it’s a level-laying field forecasting near-term demand consumption has impacted beverage for everyone now. difficult. demand. However, margins in the ƒƒ In terms of production efficiency, ƒƒ In terms of channel performance, segment have significantly improved rationalization of SKUs during general trade channel is seeing robust due to benign milk prices. lockdown gave them higher growth while modern trade and other ƒƒ Overall Raw material inflation for production runs, resulting in alternate channels like railways and 2QFY21 stood at 2-3%. Palm oil is increased efficiency. Some of these institutions continue to remain weak. seeing sharp inflationary pressure gains are behind as well as Britannia ƒƒ Rural which accounts nearly 30% given the overall increase in edible has ramped up its SKU numbers since oil prices globally. On the other hand, then. of sale is growing much ahead of urban given the lower disruption and lower milk price is benefiting the ƒƒ On the back of the good availability adjacencies portfolio is growing at a company. of its products, company has been slightly higher pace than the biscuits ƒƒ Management expects range bound able to drive a lot of trials with new

November 2020 INSIGHT 38 movement in other commodities. had fallen to 4-5 days during the ƒƒ Company is making good profit ƒƒ Rusk is growing at a slightly higher lockdown. in some of the smaller international pace than biscuits. ƒƒ Company is looking to ramp-up markets. ƒ ƒƒ Inter corporate deposits for the media spends and will be focusing on ƒ New products now account 4-4.5% company at the end of September select brands initially. to overall sales. Company is expected stood at Rs 700 crore. ƒƒ Non-biscuits portfolio now to enhance focus on innovation going forward. ƒƒ Inventory (own) levels are now back contributes about 25% of total to normative level of 9-10 days which revenue. Bajaj Auto Ltd. (DATE: OCTOBER 22, 2020)

ƒƒ Market conditions: Barring supply of cost increases would be mitigated chain issues Bajaj Auto expects Management by cost control measures and better October volumes to be better than highlighted that product mix (increased proportion of September and November to be 3W sales). domestic 2W margins better than October. In recent weeks, ƒƒ Trend of premiumisation domestic recovery is equally spread stood at a 16-quarter to continues: Bajaj stated that between rural and urban centres. high in Q2. This was motorcycle industry is witnessing ƒƒ Domestic Industry Demand led by improving premiumisation. Bajaj expects this Scenario: The domestic 2W retails trend of premiumisation to sustain. mix – higher share of have improved to ~90% of last year ƒƒ Management bullish on Pulsar 125 levels in Q2FY21. Management noted premium (Pulsar) and performance: Pulsar 125 cc has seen that demand recovery has been ultra-premium bikes strong consumer response. Pulsar 125 showing strength in both rural and (KTM, Dominar, cc has outperformed in its category urban markets (except metros). despite being most expensive 125cc For Bajaj Auto, premium segment Husqvarna), bike. Company is targeting leadership continues to do well with strong improvement in in this segment by launching lower demand for Pulsar. First few days margin of entry level priced variants to cater to all market of festive season suggest walk-ins, bikes by introducing and stepping up on promotion and enquiries, and retail sales are largely marketing activities as well. flat vs. last year. Bajaj did not forecast higher priced and ƒƒ Improvement in 2W Profitability: domestic demand and stated that it more value products. would assess the festive season before Management highlighted that providing forecast. domestic 2W margins stood at a 16-quarter high in Q2. This was led ƒƒ Motorcycle export outlook by improving mix – higher share of healthy: Bajaj stated that motorcycle premium (Pulsar) and ultra-premium export demand has recovered well the domestic market, 3W demand has bikes (KTM, Dominar, Husqvarna), and is currently at 90-95% of Pre- reached 35-40% of PreCOVID levels. low discount levels, improvement COVID levels. Demand recovery is Management expects the 3W demand in margin of entry level bikes by strong in Latin America and African to remain muted and expects the introducing higher priced and more market as compared to ASEAN region. recovery to be in staggered manner value products, benign RM prices and The company expects export markets depending on the domestic demand cost reduction activities. to register growth in Q3FY21 as well coming back. as Q4FY21. The company would ƒƒ Inventory: In the domestic continue to gain market share in ƒƒ Price hikes: Bajaj stated that it has motorcycle market, Bajaj has reached export markets driven by increased taken prices increases in the export 45-48 days of inventory which is the penetration. Going ahead, company markets to offset withdrawal of MEIS normal festive season inventory. expects month on month increase in (export incentives). Quantum of price Inventory in domestic 3W is about 30 October and November as well. hike is such so as to fully compensate days which is the normal inventory. for the loss of incentives. ƒƒ 3W improving on month on ƒƒ Financing: Q2 financing were month basis: 3W demand has been ƒƒ Commodity prices: The raw ~10% lower at 50-52% but Sep was at improving on a month on basis in material cost was largely similar for 60% and expect to be 70-75% during both domestic as well as overseas the company in Q1 & Q2 FY21 but festive. Bajaj Finance account for markets driven by Government significant cost increase is expected ~60% of overall financing for the unlock measures. In international in Q3FY21 driven by increase in company. markets, 3W demand has reached 75- base metal prices. The company has 80% of Pre-COIVD levels, whereas in increased prices to partially offset the increased commodity costs. Rest

39 INSIGHT November 2020 SBI Cards and Payment Services Ltd. (DATE: OCTOBER 22, 2020)

ƒƒ Spend and new account acquisition their cards are blocked and limits will approaching pre-Covid level (average be opened after a satisfactory amount of Dec-Jan-Feb) has been paid Spend and new ƒƒ New account acquisition was ~2.5x account acquisition ƒƒ Company has made 10% provision in Q2 v/s Q1 and stood at 0.69mn - approaching pre- as per RBI guidelines for the Sept. new account acquisition stood restructured book Covid level (average at 98% pre-Covid level which was ƒƒ Enhanced management overlay 0.3mn+ accounts of Dec-Jan-Feb). New account provisions by Rs 2.6bn in Q2FY21 ƒƒ Expanding the market by and the overall additional provision acquisition was increasing sourcing from the banca stands at Rs7.6bn now channel by going into Tier-3 cities ~2.5x in Q2 v/s Q1 and stood at 0.69mn ƒƒ Portfolio o/s under EPP (easy and beyond payment plan - conversion into EMI - Sept. new account ƒƒ Acquiring more New-To-Credit based TLs with interest rate of 12- customers - market share in NTC acquisition stood at 20% for a maximum 3-18 months) at segment reached 31% 98% pre-Covid level Rs 1.6bn (0.7% of receivables). These which was 0.3mn+ ƒƒ Market share in terms of CIF and cards are currently blocked and spends has increased to 18.7% and accounts. limit will be opened after payment 20.5% respectively based on the of 3-4 EMIs. This is not included in August data restructured book ƒ ƒƒ Retail spends grew 50% qoq at Rs ƒ EPP is not reported to the Credit 248 bn, partially driven by pent-up Bureau as the minimum amount is demand; Corporate spends also grew (standstill), totaling Rs17.9bn (7.46%). paid. However, the RBI RE is reported 88% qoq to Rs 47 bn on low base Stage 2 includes (i) RBI RE and (ii) to the Bureau as restructured book standstill. ƒ ƒƒ Retail online spend at 114% of pre- ƒ Major portion of RBI restructuring Covid level now contributes 54% of ƒƒ Gross NPA for Q2 FY21 at 4.29%. and EPP customers are self-employed overall retail spend However, it would have been 7.46% and mainly acquired from the open without the Supreme Court order market ƒƒ POS spend at 72% of pre-Covid (proforma). ƒ level ƒ Management overlay of Rs 7.6bn ƒƒ Management has however made includes Rs 5bn provision created ƒƒ Overall retail spends in Sep’20 at 66% provision of Rs 5 bn on this on the Supreme Court stand-still 92% of pre-Covid level pool (as per the policy on Stage-3 portfolio ƒ ƒ Retail spends have accelerated in accounts) and these cards (standstill) ƒƒ Credit cost could remain high in October driven by festive programs are currently blocked coming quarters, but may not spike ƒƒ 1 in 4 POS transaction is through ƒƒ RBI restructured loans at Rs 21bn further contactless cards accounting for 9% of total receivable ƒƒ Banca channel asset quality much of Rs240bn - enrolled customers to better than the overall reported NPLs ƒ ƒ Asset quality and Provisioning: take RBI scheme in August and Sept. ƒƒ The NPL figure in absolute terms as interest rates come down to half was Rs10.3bn (4.3% of GNPA), Rs7.62bn (14-18%) for a maximum two years-

November 2020 INSIGHT 40 HDFC Asset Management Company Ltd. (DATE: OCTOBER 22, 2020) ƒƒ Decline in equity market share ƒƒ Liquid market share dropped on a from EPFO. Customers who sought to has been partly due to weak fund high base, dominant position and by have exposure in mid & small caps, performance. Similar trends far the largest have no options available in ETFs or witnessed in 2007 & 2013. Company ƒƒ Equity risk aversion could remain index funds, hence have to invest in expects to improve performance an overhang in the near term due mutual fund schemes over medium term and diversify to the impact of the pandemic. Debt ƒƒ Revenue yields have declined its investment style. Two new fund yields have declined due to drop due to change in product mix as fund managers (FM) with distinct in credit risk funds as a proportion of high margin credit risk funds have investment styles have been hired and overall debt AUM. Post the Franklin declined sharply looking at hiring more people in the Templeton fiasco, credit risk fund (for team and funds with similar styles ƒƒ The company is one of the lowest the company) has more than halved operating cost AMCs in the industry will be modified over the next couple from Rs135bn to ~Rs65bn of quarters and expects to save a considerable ƒƒ Company has sought Sebi amount this year due to renegotiation ƒƒ Decision regarding quantum of approvals for new equity-oriented of rents for branches (already assets to be managed by these FMs products (like dividend yield funds, negotiated for 38 branches and more has not been taken yet and will thematic funds) which will be likely) depend on the skills of each person launched in the near term. Gold ƒƒ The process to hire Milind Barve’s ƒƒ In debt funds, the company has ETF, Banking ETF, Sensex and Nifty successor is on. Company is confident done well after the industry faced ETF already exists with HDFC AMC, that the existing team will continue to challenges due to the Franklin however is underpenetrated among deliver. Templeton incident in Q1FY21 retail customers and large portion is

ACC Ltd. (DATE: OCTOBER 19, 2020)

ƒƒ After the significant GDP ƒƒ The demand has been better in contraction in Apr -Jun 2020 quarter, retail and rural segment, with gradual Rural economy India has seen some green shoots in pick up in demand from commercial seems to be economic activity during the July – and industrial segment. more resilient Sep quarter. ƒƒ Demand growth to be driven and promising, ƒƒ The disruptions on the supply side by affordable Housing and rural further being are easing with economic activity housing, roads and allied activities aided by the good being further supported by pent up supported by good monsoons and demand. revival of infrastructure projects and monsoon season. ƒƒ Rural economy seems to be more construction. Government has resilient and promising, further being ƒƒ Cement business delivered strong been focusing aided by the good monsoon season. operating performance, driven by on MSME sector Government has been focusing efficiency improvement and better and demand on MSME sector and demand price realization. Cement sales improvement with improvement with various programs volume during the quarter was up by and measures. 1% YoY at 6.5 million tonne. various programs and measures. ƒƒ Cement industry trend has been ƒƒ Continuing lockdown in urban in line with the economy, seeing centers impacting RMX business demand recovery in July -Sep quarter. segment. RMX volume during the quarter declined by 43% YoY at 0.46

41 INSIGHT November 2020 million cubic meters (m3). declined by 17% YoY at Rs 435 per the quarter at Rs 1242 per tonne. ƒƒ Rural and retail sales led to tonne. The decline in cost was Despite rise in fuel cost, freight comeback in demand as compared to attributed to operating efficiencies, & forwarding declined due to Q2’20. source optimization & negotiations higher direct deliveries, warehouse and efficient supply chain space optimization and network ƒƒ Urban demand yet to recover management. efficiencies. fully, because of Covid situation and ƒ ƒ lockdown. ƒ Power cost was down by 21% YoY ƒ There has been substantial during the quarter at Rs 925 per reduction in fixed cost by 22% YoY at ƒƒ During the quarter there has tonne. Decline in power cost due to Rs 649 per tonne due to stricter cost been improvement in realization on higher usage of AFR in the fuel mix control in discretionary fixed cost and the back of better segment mix and and improved operational efficiency. well negotiation & rationalization on improved pricing improvement. ƒƒ Freight & Forwarding cost various cost fronts. ƒƒ Raw material cost during Q3’20 also declined by 9% YoY during

Alembic Pharmaceuticals Ltd. (DATE: OCTOBER 22, 2020)

a tough Q1 which would have aided crore (cumulative) with investment in In domestic market, gross margin at 78% vs expected the quarter was at Rs 40 crore. ~74%. there has been ƒƒ Sartans saw some price erosion ƒƒ US revenue grew by 8% YoY at Rs as a new player entered, which was strong traction in 582 crore, while sequentially it was offset by new opportunities, launches. Azithromycin oral down by 2%. ƒƒ Going ahead, company will launch solids. Azithromycin ƒƒ Rest of World business grew by 15-20 products per year in order to a key growth driver 84% YoY & 13% QoQ basis at Rs 197 drive growth. and company crore. Growth was driven by partners ƒƒ In domestic market, there has been continue market gaining more market share post strong traction in Azithromycin oral share gains in serialization impact. The growth solids. Azithromycin a key growth was not led by Covid related buying driver and company continue market H2FY21. Company but new orders adding to the base is looking at share gains in H2FY21. Company is business. looking at maintaining the increased maintaining the ƒƒ In API segment, revenue was up market share. increased market by 29% YoY & 0% QoQ basis at Rs 263 ƒƒ Cardio, diabetes also doing well share. crore and the growth was mainly due than market, only area of concern is to market share gain in Azithromycin cough and cold where IPM market and other opportunities. During still on decline and in line with Q2FY21, company filed two DMFs. ƒƒ For Q2FY21, the company filed market. seven ANDAs, received six final ƒƒ API business at a new base, thus ƒƒ Decline in other expenditure approvals and launched three from FY22 onwards looking at was on account of lower travel/ products in the US. moderate growth. promotional expenses and lower ƒƒ Total 75 products launched till ƒƒ Company’s gross debt stood at Rs R&D. date in the US (excluding seven with 600 crore (Rs 1439 crore in Q1FY21), ƒƒ Management guided FY21 EPS to partner label). The company expects cash Rs 273 crore with net Debt/ be around Rs 60 per share, FY22 EPS to launch 5+ products in the US in Equity at 0.07x. to be around Rs 50 per share with Q3FY21. ƒƒ R&D during the quarter was at Rs additional Rs 450 crore expenses ƒƒ Company’s cumulative ANDAs 185 crore, which accounts around 13% hitting the P&L from new plants. filed were at 198 with cumulative of sales. FY23 revenue growth to pick up with approved of 131 (including 18 tentative ƒƒ Company’s capex for Q2FY21 was new capacities coming up. approvals). Rs 168 crore with cumulative capex at ƒƒ Going ahead growth will come ƒƒ India sales surprise with 6% yoy & Rs 1825 crore. from injectables, dermatology, 36% QoQ growth at Rs 415 crore after ƒƒ Aleor investment was at Rs 742 oncology and oncology injectables.

November 2020 INSIGHT 42 Rallis India Ltd. (DATE: OCTOBER 20, 2020

ƒƒ Rallis management indicates that ƒƒ Capex: Management provided off-take of pesticides was impacted clarity on Rs 5.25bn capex out by lower usage of spray chemicals Rallis management of Rs8bn. Rallis would spend amid lower pest infestations and indicates that ~Rs3.5bn on capex over FY21 and excessive rains in August and outlook for Rabi FY22. The Board has approved September 2020, outlook for Rabi season remains further investments of Rs. 70 season remains robust for now amid crore for expansion of MPP, pilot healthy soil moisture and higher robust for now amid plant, automation etc likely to be reservoir levels, Covid-related healthy soil moisture commissioned by Q3FY22. restrictions has led to weaker demand and higher reservoir ƒƒ Seed business: Seeds business generation for its new products levels, Covid-related posted 29% YoY growth in revenues launched in FY20; however, volume restrictions has led in Q2FY21 primarily on the back of ramp-up is anticipated to improve to weaker demand volume growth in Maize and better in the coming months. Management price realizations in the paddy seeds. indicates that the company focus generation for Maize has done very good this quarter will be on maintaining growth its new products and was largely driven by Tamil Nadu. momentum by launching new launched in Management mentioned that their product and a change in product mix. FY20; however, product is good in Maize and expects ƒƒ Industry dynamics: Sowing area volume ramp-up it to continue to do well. Paddy, Maize increased by 5% in this Khariff season. and Mustard hybrids are witnessed Domestic agrochemicals had a very is anticipated to encouraging liquidation; however the positive season with good rainfall and improve in the cotton seeds were flat on a YoY basis on-time monsoon. Reservoir level at coming months. for the industry as a whole. The larger the end of September was at similar players continued to gain market levels like previous year and bodes share in the cotton seeds portfolio. well for Rabi season. ƒƒ Exports business: Lower volumes ƒƒ New product launches: Rallis in the corresponding period last year. and realizations in Metribuzin launched one 9(3) product this (resulting into 80% shortfall in overall quarter. This is a grape fungicide. ƒƒ Geographical-wise revenue exports revenues) coupled with It has also launched two new crop break-up: Revenue split between decline in contract manufacturing nutrition products this quarter. domestic and international stood at volumes of PEKK and Metconazole Management indicated that it 76% and 24% in Q2FY21 as against 69% (used in airline industry) have could not completely grow the new and 31% in Q2FY20. Lower volumes resulted into overall drop in products launched in recent times and realization in their key product- the exports revenue. However, due to Covid. While, Rallis has Metribuzin coupled with drop in other molecules like Acephate/ launched 2 new products in the crop contract manufacturing volumes Pendimethalin have posted 17%/47% nutrition category ‘Aquafert’ and has resulted into overall drop in YoY growth in volumes in Q2FY21. ‘Flobor’. the contribution of international Hence, excluding few molecules like revenues. ƒƒ Metribuzin: Rallis has received Metribuzin, PEKK, Metconazole the registration for Metribuzin in the ƒƒ Capacity additions: The overall performance has been good in the U.S and approval for Metribuzin capex implementation has been export business. formulation in Brazil, which will drive impacted due to COVID-19 resulting incremental off-take in the near term. into delays by 2-3 months, while recently commissioned Metribuzin ƒƒ Category-wise revenue break-up: plant is expected to ramp up fully Fungicides/Herbicides/Insecticides by Q1FY22 and phase-I of the contributed to 30%/23%/47% to total formulation plant at Dahej SEZ is crop protection revenues in Q2FY21 guided to commission by Q4FY21. as against 26%/27%/ 48% respectively

43 INSIGHT November 2020 ECONOMY REVIEW

he economic recovery all across the world have has an optimistic message for the rest of the world, “If happened rather swiftly than anticipated. In you successfully handle the health crisis, your economy the recently released World Economic Outlook can recover.” Indeed, a V-shaped recovery in China fuels (WEO) by International Monetary Fund (IMF), hope for other Asian countries as well since the Chinese Tthe premier agency has highlighted that world economic economy had a head start, hence others would follow output for 2020 won’t shrink as severely as it had soon. Not only did China quickly contain the spread of previously projected. IMF now expects world GDP growth the virus, it has been able to prevent a second wave of at -4.4% as against -5.2% earlier estimated in June 2020. infections so far, unlike other major countries. The US, IMF maintains that during the months of May & June which is the world’s largest economy, is beginning to see there has been unlocking across economies, hence global a third wave while countries such as India, even though recovery gained strength although some are reinstating there has been a dip in the first wave, continue to see a partial lockdowns. Besides, global economy’s long ascent very high number of infections. The IMF in its WEO stated back to pre-pandemic levels of activity remains prone to that public investments helped boost activity in China and setbacks. The majority of the upward revision between in turn which helped return to positive growth territory June and present have been led by Advanced economies while in US & Euro area, Govt. transfers supported (+2.3% difference between June & Sep’20 for 2020 growth household income. In comparison, growth estimates for projection) while Emerging Market and Developing Indian economy for 2020 have been revised downwards Economies have been downgraded from June’20 (-0.2%) after pathetic second quarter print which suggested to -3.3%. Within the Emerging & developing economies, sharp compression in both consumption & investment. China is however expected to expand by 1.9% in 2020 and For 2020, GDP is expected to plunge by 10.3% and there its economic growth outlook has been revised upwards has been a sharp downward revision from June 2020 by 0.9% from June 2020 estimates. In fact, going by the estimates (by 5.8%). IMF however expects a sharp recovery latest set of GDP data released by China, its economy has in 2021 for the Indian economy with a growth of 8.8%. in fact recovered sharply from the pandemic growing by After rebound in 2021, economies will revert back to the 4.9% in the September quarter, lower than forecast but 2020-25 growth path projected before Covid-19 pandemic, significantly higher than the June quarter’s 3.2%. While India is however estimated to feel the heat as the loss to the recovery of the Asian dragon is an irony in itself India’s GDP from the pandemic (difference between IMF’s (considering that covid-19 emanated from there), the fact Jan’20 WEO and Oct’20 GDP estimates) is in one of the that it was the only economy close to working 100% is highest brackets, which can be easily understood from evident from the numbers. GDP growth has been fueled by the downward revisions in GDP. However, all depends on a combination of exports as well as consumer spending. how reliable and accurate IMF’s predictions come off. According to Rob Subbaraman, global head of macro research at Nomura Holdings Inc. in Singapore China

November 2020 INSIGHT 44 Overview of the World Economic Outlook Projections (% change)

Projections Diff from June 2020 WEO Diff from April 2020 WEO 2019 2020 2021 2020 2021 2020 2021 World Output 2.8 –4.4 5.2 0.8 –0.2 –1.1 –0.5 Advanced 1.7 –5.8 3.9 2.3 –0.9 0.3 –0.6 Economies United States 2.2 –4.3 3.1 3.7 –1.4 1.6 –1.6 Euro Area 1.3 –8.3 5.2 1.9 –0.8 –0.8 0.5 Germany 0.6 –6.0 4.2 1.8 –1.2 1 –1.0 France 1.5 –9.8 6 2.7 –1.3 –2.6 1.5 Italy 0.3 –10.6 5.2 2.2 –1.1 –1.5 0.4 Spain 2 –12.8 7.2 0 0.9 –4.8 2.9 Japan 0.7 –5.3 2.3 0.5 –0.1 –0.1 –0.7 United Kingdom 1.5 –9.8 5.9 0.4 –0.4 –3.3 1.9 Canada 1.7 –7.1 5.2 1.3 0.3 –0.9 1 Other Advanced 1.7 –3.8 3.6 1.1 –0.6 0.8 –1.0 Economies Emerging Market and 3.7 –3.3 6 –0.2 0.2 –2.1 –0.5 Developing Economies Emerging and 5.5 –1.7 8 –0.9 0.6 –2.7 –0.5 Developing Asia China 6.1 1.9 8.2 0.9 0 0.7 –1.0 India 4.2 –10.3 8.8 –5.8 2.8 –12.2 1.4 ASEAN-5 4.9 –3.4 6.2 –1.4 0 –2.8 –1.5 Emerging and Developing 2.1 –4.6 3.9 1.2 –0.3 0.6 –0.3 Europe Russia 1.3 –4.1 2.8 2.5 –1.3 1.4 –0.7 Latin America and the 0 –8.1 3.6 1.3 –0.1 –2.9 0.2 Caribbean Brazil 1.1 –5.8 2.8 3.3 –0.8 –0.5 –0.1 Mexico –0.3 –9.0 3.5 1.5 0.2 –2.4 0.5 Middle East and 1.4 –4.1 3 0.4 –0.5 –1.3 –1.0 Central Asia Saudi Arabia 0.3 –5.4 3.1 1.4 0 –3.1 0.2 Sub-Saharan 3.2 –3.0 3.1 0.2 –0.3 –1.4 –1.0 Africa Nigeria 2.2 –4.3 1.7 1.1 –0.9 –0.9 –0.7 South Africa 0.2 –8.0 3 0 –2.2 –1.0 Source: IMF

GDP Losses: 2019–21 versus 2019–25 (Percent difference between January 2020 WEO Update and October 2020 WEO projections)

Source: WEO, IMF

45 INSIGHT November 2020 IMF also stoked debates among politicians, economists while Indonesia is expected to be on a decline it would and policymakers by stating that Bangladesh’s per capita be just by 1.5%. Thus, among major competitor nations GDP will overtake that of India this year, albeit by a which are expected to be benefited from strategic shift small margin. Measured at GDP per capita (USD current of businesses from China, India is the only one which is prices) per capita income for India is expected to be at expected to witness a steep decline. While the divergence USD 1,876.53 while that of Bangladesh is projected at USD between India’s fall in economic growth & swift recovery 1,887.97. Although, there are various debates and articles in advanced economies could be because of mammoth (with regards to various ways to measure per-capita fiscal stimulus, the same theory doesn’t hold good when GDP), however, there is no denial that Bangladesh’s GDP comparing between Bangladesh or even Vietnam. The growth has picked up since 2017 (relative to India’s) and difference could very well lie in India’s anemic growth Bangladesh’s population growth since 2004 has been post 2016 and the fact that many experts have long argued at a slower growth (18%) than India’s (21%). Thus, even that Indian economy was already weak before being hit pre-covid, Bangladesh has been slowly inching closer to by covid-19, that’s a plausible enough reason. While there India’s per capita GDP, post covid the difference has been have been debates with the per capita estimates being highlighted. It is noteworthy to mention that, economic in current prices (USD), a comparison of the absolute projections for other Emerging and Developing Asia are GDP numbers in constant prices (at national currencies) not that bad altogether. Bangladesh’s economy is expected also doesn’t enthuse much optimism. After rebasing the to clock growth of 3.8% in 2020 while for India it is a GDP to 2017, since from where the underperformance 10.3% decline, thus closing the gap. A Financial Express of the Indian economy has been rather vivid, it could be article has also mentioned that such scenario happened seen that India is expected to underperform other major in 1991 too when India was undergoing a severe crisis, emerging economies at least till 2022 and only scale past however since then India took the lead. Although, it is Malaysia & Indonesia post 2023, however Bangladesh, worth mentioning that Bangladesh’s social indicators have China and Vietnam are in different growth trajectory been better on life expectancy, higher female labourforce altogether. This is to go by the IMF estimates which might participation. In fact, Vietnam is also expected to clock itself turn out to be way off. growth of 1.6% in 2020, based on IMF’s projections and

Emerging Market and Developing Economies: Real GDP (Annual percent change) Average Projections

2002–11 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2025 Emerging and 8.6 7 6.9 6.8 6.8 6.8 6.7 6.3 5.5 –1.7 8 5.9 Developing Asia Bangladesh 5.9 6.5 6 6.1 6.6 7.1 7.3 7.9 8.2 3.8 4.4 7.3 Bhutan 8.8 6.5 3.6 4 6.2 7.4 6.3 3.8 3.8 0.6 –0.5 6 Brunei Darussalam 1.5 0.9 –2.1 –2.5 –0.4 –2.5 1.3 0.1 3.9 0.1 3.2 1.8 Cambodia 7.9 7.3 7.4 7.1 7 6.9 7 7.5 7 –2.8 6.8 6.9 China 10.7 7.9 7.8 7.3 6.9 6.8 6.9 6.7 6.1 1.9 8.2 5.5 Fiji 1.4 1.4 4.7 5.6 4.7 2.5 5.4 3.5 –1.3 –21.0 11.5 2.2 India 7.7 5.5 6.4 7.4 8 8.3 7 6.1 4.2 –10.3 8.8 7.2 Indonesia 5.7 6 5.6 5 4.9 5 5.1 5.2 5 –1.5 6.1 5.1 Kiribati 1 4.7 4.2 –0.7 10.4 5.1 0.9 2.3 2.3 –1.1 3 1.8 Lao P.D.R. 7.5 7.8 8 7.6 7.3 7 6.8 6.3 5.2 0.2 4.8 6.1 Malaysia 5.1 5.5 4.7 6 5 4.4 5.8 4.8 4.3 –6.0 7.8 5 Maldives 7 2.5 7.3 7.3 2.9 6.3 6.8 6.9 5.7 –18.6 12.7 5.9 Marshall Islands 1 –2.4 3.7 –0.9 1.6 1.3 4.1 3.6 5.3 –4.5 –0.9 1.8 Micronesia 0.3 –1.9 –3.7 –2.3 4.6 0.9 2.7 0.2 1.2 –3.8 1.2 0.6 Mongolia 7.5 12.3 11.6 7.9 2.4 1.2 5.3 7.2 5.1 –2.0 6 4.5 Myanmar 10 6.5 7.9 8.2 7.5 6.4 5.8 6.4 6.5 2 5.7 6.5 Nauru . . . 10.4 31 27.2 3.4 3 –5.5 5.7 1 0.7 1.3 0.5 Nepal 3.8 4.8 4.1 6 3.3 0.6 8.2 6.7 7.1 0 2.5 5 Palau 0.3 1.6 –1.7 6 5 –0.4 –2.0 5.8 –1.8 –11.4 –7.4 2 Papua New Guinea 4.1 4.7 3.8 13.5 9.5 4.1 3.5 –0.8 4.9 –3.3 1.2 3.2 Philippines 4.9 6.9 6.8 6.3 6.3 7.1 6.9 6.3 6 –8.3 7.4 6.5 Samoa 3.3 –4.1 –0.4 0.1 4.3 8.1 1 –2.2 3.5 –5.0 –1.5 2.2 Solomon Islands 4.9 1.9 5.3 1 1.4 5.9 5.3 3.9 1.2 –5.0 4.5 3 Sri Lanka 6.2 9.1 3.4 5 5 4.5 3.6 3.3 2.3 –4.6 5.3 4.8 Thailand 4.3 7.2 2.7 1 3.1 3.4 4.1 4.2 2.4 –7.1 4 3.7 Timor-Leste2 3.5 6 2.1 4.5 3.1 3.6 –3.8 –0.8 3.1 –6.8 4 2.6 Tonga 0.4 0.8 0.3 2 1.2 6.6 3.3 0.3 0.7 –2.5 –3.5 1.8 Tuvalu 1.4 –3.9 4.9 1.2 9.2 5.9 4.6 3.7 6 –0.5 3 3 Vanuatu 3.4 1.8 2 2.3 0.2 3.5 4.4 2.9 3.3 –8.3 4.3 3 Vietnam 6.8 5.5 5.6 6.4 7 6.7 6.9 7.1 7 1.6 6.7 6.6

Source: IMF WEO

November 2020 INSIGHT 46 Source: moneycontrol.com

Source: Indian Express

GDP constant prices (national currency), rebased to 2017=100

190 GDP constant prices (national currency), rebased to 2017=100

170

150

130

110

90 Bangladesh China India Indonesia 2017 2018 2019 2020E2021E 2022E 2023E2024E 2025E Malaysia Thailand Vietnam

Source: IMF Source: IMA

47 INSIGHT November 2020

50 Time spent at home over pre-pandemic (%)

40

While the Govt. has provided stimulus (majorly through 30 finance schemes to the extent of ~1.5% of GDP) and there is optimism with regards to another round of stimulus, 20 the space is limited given challenges of various priorities 10 on hand. Govt. recently announced additional fiscal spending of Rs 1.01 lakh crore (capex, LTC vouchers and 0 festival advances of Rs 73,000 crore) on October 11. The 0 20 20 20 20 20 20 20 20 20 20 20 20 20 -2 - l- l- r- r- r- y- y- p- p- n n- g- g borrowing target so far has been kept fixed for FY21 at Rs g- Ju Ju Ap Ap Ju Ju Se Se Ma Au Au Au 12 lakh crore. Leaving aside stimulus debate, the economy Ma Ma Bangalore Urban Chennai has to recover on its own to a large extent. Given the Delhi Hyderabad same, it is extremely crucial to witness how have the important economic indicators performed off late. Source: livemint, Google COVID-19 Community Mobility Reports

Source: Livemint

50 Time spent at home over pre-pandemic (%) Retail & recreation footfalls over 40 -30 pre-pandemic (%)

30 -50

20 -70

10 -90

0 -110 0 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 -2 - - - l- l-

r- r- Mumbai Tra c congestion for week ended (di. between 2019 in %) r- y- y- p- p- n- n g- g g- l- l- r- r- r- Ju Ju y- y- p- p- n- n- g g- g Ap Ap Ju Ju Se Se Ma Au Au Au Ju Ju Ma Ma Ap Ap Ju Ju Se Se Ma Au Au 20% Au Ma Ma Bangalore Urban Chennai 0% Bangalore Urban Chennai -20% -23% Delhi Hyderabad Delhi Hyderabad -40% Source: livemint, Google COVID-19 Community Mobility Reports -60% Source: livemint, Google COVID-19 Community Mobility Reports Source: livemint, Google COVID-19 Community Mobility Reports Source:-80% livemint, Google COVID-19 Community Mobility Reports

-100% -120%

0 0 0 0 0 0 0 0 0 0 0 0 20 20 20 20 20 20 20 20 20 -2 -2 -2 -2 - -2 -2 -2 - - -2 -2 -2 -2 -2

Mumbai Traffic congestion for week ended l- t y- n- n- b- g- ul pr pr ar ar ar ep Ju eb ep ay ug ug an un Oc -J Ja Ju Fe Au Ma - -A -A -J

(diff. between 2019 in %) -J -F -S -S -M -M -M 5- -A -A - -M 1 5- 7- 2- 19 11 2- 12 21 13 19 16 15 26 27 16 29 10 30 24 Source: tomtom.com

Mumbai Tra c congestion for week ended (di. between 2019 in %) Share of restaurants (%) Retail & recreation footfalls over -320%0 0% pre-pandemic (%) -20% -23% Chennai 91 -40% 9 -6-50%0 -80% Delhi 88 -100% NCR 12 -120% -70 0 0 0 0 0 0 0 0 0 0 0 0 Bengalu 20 20 20 20 20 20 20 20 20 -2 -2 -2 -2 - - -2 -2 -2 - -2 -2 -2 -2 -2 81 l- t y- n- n- b- g-

ul 19 pr pr ar ar ar ep

Ju ru eb ep ay ug ug an un Oc -J Ja Ju Fe Au Ma - -A -A -J -J -F -S -S -M -M -M 5- -A -A - -M 1 5- 7- 2- 19 11 -90 2- 12 21 13 19 16 15 26 27 16 29 10

30 Hyderab 24 79 Source: tomtom.com ad 21

-110 Kolkata 71 Share of restaurants (%) 29 20 20 20 20 20 20 20 20 20 20 20 20 20 20 - - l- l- r- r- 91 r- y- y- p- p- Chennai n- n- g g- 9 g Ju Ju Ap Ap Ju Ju Se Se Ma Au Au Au Ma Delhi Ma Not open for dining Open for dining Bangalore Urban 88 Chennai NCR 12 Bengalu Delhi 81 Hyderabad Source: Livemint, Zomato report released on August 19 titled 'Indian Restaurant Industry – Mid COVID-19 Report ru 19 Source: Livemint, Zomato report released on August 19 titled ‘Indian

Hyderab Source: livemint, Google 79COVID-19 Community Mobility Reports Restaurant Industry – Mid COVID-19 Report ad 21 Source: tomtom.com Kolkata 71 Growth in nights booked on Airbnb over corresponding month in 2019 (%) 29

Not open for dining Open for dining Bangalore Chennai Hyderabad Kolkata Mumbai New Delhi

Source: Livemint, Zomato report released on August 19 titled 'Indian Restaurant Industry – Mid COVID-19 Report Jan-20 28 54 70 6 16 16

Feb-20 41 66 61 19 15 27

Growth in nights booked on Airbnb over corresponding month in 2019 (%) Mar-20 11 5 37 -17 -17 -20

Bangalore Chennai Hyderabad Kolkata Mumbai New Delhi Apr-20 -42 -40 -42 -50 -57 -56 Jan-20 28 54 70 6 16 16 May-20 -65 -72 -71 -69 -77 -62 Feb-20 41 66 61 19 15 27 Mar-20 11 5 37 -17 -17 -20 Jun-20 -68 -82 -72 -67 -81 -63 Apr-20 -42 -40 -42 -50 -57 -56 Jul-20 -65 -80 -63 -69 -80 -66 May-20 -65 -72 -71 -69 -77 -62 NovemberJun-20 -620208 -82 -72 -67 -81 INSIGHT-63 48 Aug-20 -79 -78 -67 -82 -84 -71 Jul-20 -65 -80 -63 -69 -80 -66 Source: Livemint, Airbnb; Colour legend: 1% to 70%: green; 0 to -50%: yellow; -50% to -84%: red Aug-20 -79 -78 -67 -82 -84 -71

Source: Livemint, Airbnb; Colour legend: 1% to 70%: green; 0 to -50%: yellow; -50% to -84%: red

Growth in nights booked on Airbnb over corresponding month in 2019 (%)

Bangalore Chennai Hyderabad Kolkata Mumbai New Delhi

Jan-20 28 54 70 6 16 16

Feb-20 41 66 61 19 15 27

Mar-20 11 5 37 -17 -17 -20 Retail Payments on NPCI Platform

Apr-20 -42 -40 -42 20000 -50 -57 3500 -56

May-20 -65 -72 -71 -69 -77 -62 Retail Payments on NPCI Platform 15000 3000 Jun-2020000 -68 -82 3500 -72 -67 -81 -63 10000 2500 Jul-20 -65 -80 -63 -69 -80 -66 15000 3000 5000 2000 Aug-20 -79 -78 -67 -82 -84 -71

10000 2500 0 1500 Source: Livemint, Airbnb; Colour legend: 1% to 70%: green; 0 to -50%: yellow; -50% to -84%: red 0 19 19 19 19 20 20 20 20 20 20 20 20 -2 t- l- v- c- r- p- r y- p- b- n- g- 5000 2000 n- Ju Oc Se De No Ap Ju Ja Se Fe Ma Au Ma Value (in Rs Bn) Volume (in Rs Mn)-RHS

0 1500 Source: NPCI

Retail Payments on0 NPCI Platform 19 19 19 19 20 20 20 20 20 20 20 20 -2 Petroleum consumption (% yoy) t- l- v- c- r- p- 20000 r 3500 y- p- b- n- g- n- 20% Ju Oc Se De No Ap Ju Ja Se Fe Ma Au Ma 10% Value (in Rs Bn) Volume (in Rs Mn)-RHS 15000 3000 0% Source: NPCI -10% 10000 2500 -20% Petroleum consumption (% yoy) 20% -30% 10% 5000 2000 -40% -50% 0% 0 1500 -60% -10%

0 -70% 19 19 19 19 20 20 20 20 20 20 20 20 -20% -2 t- 0 0 l- 0 v- c- r- p- r 19 19 19 19 y- p- b- n- g- n- 20 20 20 20 20 20 - -2 -2 - - - -2 Ju Oc Se De No Ap Ju Ja Fe Se Ma t- Au l v Ma r- c- p- r

-30% y n p n- b g- Ju Oc Se De No Ap Ju Ja Se Value (in Rs Bn) Fe Ma

Volume (in Rs Mn)-RHS Au -40% Ma Source: NPCI Source: PPAC -50% -60% Petroleum consumption (% yoy) 20% -70% Source: NPCI10% Source: PPAC 0 0 0 19 19 19 19 20 20 20 20 20 0% 20 - -2 -2 - - - -2 t- l v r- c- p- r y n p n- b -10% g- Ju Oc Se De No Ap Ju Ja Se Fe Ma Au -20% Ma Source: PP-30%AC -40% -50% Goods movement/E-way- bills (cr) -60% 7.0 -70% 0 0 0 6.0 19 19 19 19 20 20 20 20 20 20 - -2 -2 - - - -2 t- l v r- c- p- r y n p n- b g-

Ju 5.0 Oc Se De No Ap Ju Ja Se Fe Ma Au Ma 4.0 Source: PPAC 3.0Source: POSOCO 2.0 1.0 0.0 0 19 19 19 20 20 20 20 20 20 20 20 -2 - t- l- v- c- r- r- y- p- b- n- g n Ju Oc De No Ap Ja Ju Fe Se Ma Au Ma

Source:Source: POSOCO POSOCO Source: GSTN Source: GSTN

Manuafcturing PMI Source: POSOCO 56.8 60

50

40

30

20

4910 INSIGHT November 2020

0 0 0 0 19 19 19 19 20 20 20 20 20 20 -2 -2 - -2 t- l v- c- r- p- r- y- p n b- g- n Ju Oc Se De No Ap Ju Ja Se Fe Ma Au Ma Source: investing.com

70 Services PMI 60 49.8 50

40

30

20

10

0 0 0 19 19 19 19 20 20 20 20 20 20 20 - -2 - -2 t- l- v- r c- p r y- n- p- n b- g- Ju Oc Se De No Ap Ju Ja Se Fe Ma Au Ma

Source: investing.com

Goods movement/E-way- bills (cr)

7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 0 19 19 19 20 20 20 20 20 20 20 20 -2 - t- l- v- c- r- r- y- p- b- n- g n Ju Oc De No Ap Ja Ju Fe Se Ma Au Ma

Source: GSTN

Goods movement/E-way- bills (cr)

7.0 Manuafcturing PMI 56.8 6.0 60 5.0 50 4.0 40 3.0 30 2.0 1.0 20

0.0 10 0 19 19 19 20 20 20 20 20 20 20 20 0 -2 - t- l- v- c- r- r- y- p- b- n- g n 0 0 0 19 19 19 19 Ju Oc 20 20 20 20 20 20 De No Ap Ja Ju Fe Se -2 -2 - -2 Ma Au Ma t- l v- c- r- p- r- y- p n b- g- n Ju Oc

Se De No Ap Ju Ja Se Fe Ma Au Source: GSTN Ma Source: investing.com

Railway Tonnage movement 15.3 Manuafcturing PMI-(% yoy) 70 Railway TonnagServicese move PMIment 56.8 60 15.3 60 3.8 -(% yoy) 49.8 50 50 3.8

40 40 -4.7 30 -7.8 30 -4.7 20 20 -7.8

10 -21.6 10

0 0 -21.6 0 0 0 19 19 19 19 0 0 20 20 20 20 20 20 19 19 19 19 20 20 20 20 20 20 20 -2 -2 - -2 - -2 - -35.2 -2 t- l v- c- r- p- r- t- l- y- p v- n b- g- n r c- p r y- n- p- n b- g- Ju Oc Se De Ju No Ap Ju Ja Se Fe Oc Se Ma Au De No Ap Ju Ja Ma Se -35.2 Fe Ma Au Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Ma Source: investing.com Source: investing.com Source:Source:Ap investinvesting.comr-20ing.comMay-20 Jun-20 Jul-20 Aug-20 Sep-20 Source: Raildrishti.com

Source: Raildrishti.com Major port tra c (%YoY) 1070 Railway Tonnage movement Services PMI 15.3 10 Major port tra c (%YoY) 605 -(% yoy) 49.8 5 500 3.8 0 -5 40 -5 -10 30 -4.7 -10 -15 -7.8 20 -15 -20 10 -20 -25 -21.6 All vehicle registrations in India (in mn) 0 -25 -30 2.3 2.3 0 0 19 19 19 19 -30 20 20 20 20 20 20 20 - -2 - -2 0 0 19 19 19 19 20 20 20 20 20 20 1.9 20 t- l- - v- r c- p r -2 - 0 -2 1.8 0 y- n- p- n 1.7 b- g- 19 19 19 -35.2 19 1.7 20 20 20 20 20 20 20 - t- Ju l- Oc v- r c- Se p -2 - -2 r- De No Ap Ju Ja y Se Fe n p- n- b- g- 1.5 Ma Au Ma t- l- Ju v- r c- p 1.4 r- Oc Se y n De p- n- No b- g- Ap Ju Ja Se Fe Ma Au

Ma 1.2 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Ju

Oc 1.2 Se De No Ap Ju Ja Se Fe Ma Au Source: investing.com 1.0 Ma

Source:Source: IPA Raildr ishti.com Source: Raildrishti.com Source:Source: IPA IPA 0.4 0.2 10 Major port tra c (%YoY)

5 19 19 19 19 20 20 20 20 20 20 20 20 Monthly GST collections (Rs cr) 20 120000 Monthly GST collections (Rs cr) t- l- v- c- r- p- r- y- p- b- n- g- 0 120000 All vehicle registrations in Inn- dia (in mn) Ju Oc Se De No Ap Ju Ja Fe Se Ma Au 100000 Ma -5 100000Source: Vaahan 2.3 2.3

80000-10 1.9 80 000 1.8 1.7 1.7 -15 1.5 60000 60000 1.4 1.2 -20 1.2 1.0 40000 40000 -25 20000 20000 0.4 -30 0.2 0 0 0 0 19 19 19 19 20 20 20 20 20 20 20 - -2 - -2 t- 0 l- 0 v- r c- p r- 19 19 19 19 19 19 19 19 y n p- n- b- g- 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 - - - - -2 Ju -2 19 19 Oc 19 19 Se De No 20 20 20 Ap 20 20 20 20 20 20 Ju Ja Se Fe Ma t- Au l- t- v Ma r- c- l- p r- v r- c- p r- y- n- p- n- b- g y- n- p- n- b- g t- l- v- c- r- Ju p- r- Oc Ju y-

Se p- b- n- g- n- Oc De No Ap Se Ju Ja Se Fe De No Ap Ju Ja Ma Se Fe Au Ju Ma Ma Au Oc Se Ma De No Ap Ju Ja Se Fe Ma Source: IPA Au Ma

Source: Vaahan Source: pib.gov.in Source:Source: Vaahan pib.gov.in Source: pib.gov.in

Monthly GST collections (Rs cr) 120000 Bank non-food credit growth (%YoY) 100000 10 80000 9 60000 8 40000 7 20000 6 0 5 5.1 0 19 19 19 19 20 20 20 20 20 20 20 20 - - -2

t- 4 l- v r- c- p r- y- n- p- n- b- g Ju Oc Se 0 De No Ap Ju Ja Se Fe 19 19 19 19 Ma Au 20 20 20 20 20 20 20 20 Ma - -2 - - t- l- v- r- c p- r y- n- p- n b g- Ju

Oc Se De No Ap Ju Ja Se Fe Ma Au

Ma Source: pib.gov.in

Source: RBI Bank non-food credit growth (%YoY) Source: Vaahan, HDFC Mutual Fund Source: RBI 10

9 November 2020 INSIGHT 50 8

7

6

5 5.1

4 0 19 19 19 19 20 20 20 20 20 20 20 20 - -2 - - t- l- v- r- c p- r y- n- p- n b g- Ju Oc Se De No Ap Ju Ja Se Fe Ma Au Ma

Source: RBI

Loans within personal category (% yoy) Loans within personal category (% yoy) 25% 80% 25% 80% 20% 70% 20% 70%

15% 60% 15% 60%

10% 50% 10% 50%

5% 40% 5% 40%

0% 30% 0% 30% 0 0 0 0 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 -2 -2 -2 -2 t- l v- r c- p- g- r- t- l v- y- n- n- r c- b- g- p- g- r- y- n- n- b- g- Ju Oc Se De No Ju Ap Au Ju Ja Fe Oc Se Ma Au De No Ap Ma Au Ju Ja Fe Ma Au Housing (Including Priority Sector HousinMa g) Housing (Including Priority Sector Housing) Vehicle Loans Vehicle Loans

Source: RBI Source: RBI

Loans within personal category (% yoy) Unemplyment rate (%) Unemplyment rate (%) 30 3025% 80% 25 2025% 70% 20 15% 60% 20 15 10% 50% 15 5% 40% 10 10 0% 30% 5 0 5 0 19 19 19 19 19 20 20 20 20 20 20 0 -2 -2 t- l v- r c- p- g- r- y- n- n- 0 b- g- 19 19 19 20 20 20 20 20 20 20 20 Ju Oc

0 Se -2 De No Ap Au Ju Ja Fe Ma Au Ma t- l- v- c- r- r- y- p- n- b- g- n

Housing (Including Priority Sector Housing) 0 Ju Oc 19 19 19 De No 20 20 20 20 20 Ap 20 20 20 Ju Ja Se Fe Ma Au Ma -2 t- l- v- c-

Vehicle Loans r- r- y- p- n- b- g- n India Urban Rural Ju Oc De No Ap

Ju Ja Se Fe Ma Au

Ma Source: CMIE Source: RBI Source: CMIE India Urban Rural Source:Source: CMRBIIE Naukri Job Speak index (% yoy) 20 Consumer Confidence Indices Naukri Job Speak index (% yoy) 4010 20 Unemplyment rate (%) 30 0 20 10 -10

250 -20 -10 -30 20 -20 -20 -40 -40 -3150 -50 -60 -40 -60 -5100 -70 -80 19 19 19 19 20 20 20 20 20 20 20 20 20 - -60 - - - 9 t l- 19 19 5 19 v- c r- p- r- 20 20 20 20 20 20 20 20 20 y p- n- b- g- n -1 Ju

-70 Oc Se De No Ap t- Ju Ja Se Fe l- Ma v- r- Au p- r- Ma y- p- b- n- g- n- ec Ju Oc Se D

No Ap Ja Ju Fe Se 19 19 19 Ma 19 Au Ma 20 20 20 20 0 20 20 20 20 20 - - - - Source: Infoedge t l- v- c r- p- r- y

p- Current Perception 0 n- b- g- n 19 19 19 20 20 20 20 20 20 20 Ju 20 Oc

Se De No Ap -2 Ju Ja Se Fe Ma Au Ma

t- One year ahead Expectation l- v- c- r- r- y- p- n- b- g- n Ju Oc De No Ap Ju Ja Se Fe Ma Au Source:Source: Infoedge Infoedge Ma Source:Source: RBI RBI Consumer Consumer C onConfidence dence surveys surveys India Urban Rural Source: CMIE

Going by the googleNaukri mobility Job Speak reports, index it (%could yoy) be observed hit the hardest and still recovering with gradual opening that 20as unlocking happened across states and phases, of services, although as google mobility report suggests, people10 have come out and been spending less time at the way back won’t be swift and even if it recovers homes.0 In April for instance, city residents spent 30-37% during festival seasons, the sustenance is questionable. -10 more time at home than they did before the pandemic, Thankfully, manufacturing sector has recovered strongly -20 states a mint article. It is now at 12-17% across six cities- a and PMI numbers are getting stronger. The other -30 Bengaluru, Chennai, Hyderabad, Kolkata, Delhi and indicators like e-way bills or GST collections have also -40 Mumbai. Urban Indians are still not hanging around picked up and so has port traffic across major ports -50 in places of retail and recreation and while footfalls and railway tonnage movement. These indicators have -60 at restaurants, cafes, shopping centres, theme parks, indicated V-shaped recovery and hence congestion and -70 museums, libraries and movie theatres was lower 90% in bottlenecks have been removed. Although, few sectors like 19 19 19 19 20 20 20 20 20 20 20 20 20 - - - - t April, they have recovered but still down by ~50%l- on an vehicles sales have picked up but there is a gap between v- c r- p- r- y p- n- b- g- n Ju Oc Se De No Ap Ju Ja Se Fe Ma Au aggregate basis. Needless to say, electricityMa consumption the optimism in wholesale numbers and the retail (as henceSource: didn’t Infoedge decline massively due to higher consumption suggested by vehicle registrations). Retail sales is yet to at households while majority of the hit during lockdown pick up meaningfully and post festive season there could was on account of industrial activity. Since, people be a lull, thus resulting in unsold vehicles with dealers. have been working from home and spending more time Except for tractor sales which have been fueled by rural and not going out, online shopping & payments have story, the same conviction is hard to find for passenger reached highs (on volume terms) while on value terms, vehicles or two wheelers. The bank credit growth has it is still to cross pre-covid levels. Although traffic has stagnated particularly due to dismal demand towards gone back majorly (as suggested by Mumbai traffic) as industry and infrastructure, however personal loans have offices have reopened and people have gone out for work remained strong. Within personal loans, interestingly, or looking for one and the same is justified by sharp demand for consumer durables (high growth segment) recovery in petroleum consumption. However, dining after stagnating during lockdown have picked up strong, out at restaurants or spending nights at vacation are probably led by demand for work from home gadgets while still not priorities, besides, people have also cutdown on the same for housing albeit remains in positive territory, discretionary items and several research papers suggest growth is fading. For vehicle loans, the demand has always a severe blow to household savings, a negative interest been positive but yet to show the same vigor which could rate just made the matters worse. Services sector was also be on account of apathy of banks or turning risk

51 INSIGHT November 2020 averse. It is true that unemployment levels have come a scenario, the Govt. has to step up and spend heavily down drastically across both urban & rural, hiring activity even if it means by borrowing. The IMF in WEO has also is still to reach pre-covid levels as suggested by Naukri Job called for heightened public investment as the private Speak index. No wonder, consumer sentiments have been sector shies away. It has also cautioned governments and lower for current perception and declined, although they central banks against premature withdrawals of support remain optimistic for the future. measures. While this would imply that Govt.’s fiscal deficit After having bounced off the lows and coming back to will scale disproportionately and sovereign debts will rise, the pre-covid levels across majority of the indicators the same would be taken in positive note given benefits (except for the those on services), the key question here of job creation. Media articles suggest that Govt’s latest is of growth from here on. Clearly sentiments have been stimulus could be on such lines creating infrastructure. hit both from consumers as well as industrialists. While The borrowing limit could be revised upwards in coming consumers’ income for most sectors have been hit (not to days to achieve the same or could be partially addressed mention that high inflation has done its part), spending by curtailing fiscal expenditure elsewhere, defeating the has been largely addressed to essentials and discretionary very purpose. While raising taxes (except for crude which (which are essential or necessarily needed for working has already been implemented) at this situation would from home). Clearly, that would most likely taper off backfire, it’s for the Govt. to come up with a solution in at some point when the base effect takes place. Since such tricky situations. If it is an excellent one, it would demand is lacking and capacity utilization lags way below, pave the growth for next decade, like the one of 1991 there is no incentive for corporate to spend for capex at reforms which is still remembered & admired fondly. least, which in a way would take a toll on jobs. In such

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School Mitra Tier 3 cities) IIndia’s leading SaaS platform for K-12 • High Retention Ratio: 85% Schools & students - SchoolMitra. • Longer User Engagement: Students are using the platform Founded in 2013, started as an online for over 60 minutes/day on average solution provider to schools, has now emerged into a one- The platform provides a complete digital suite to the schools stop solution for all the needs of students and teachers to which acts as an engagement hook. The company will then operate digitally in an efficient manner. The company’s leverage the user engagement for cross-selling the courses on vision is to build the go-to platform enabling education in the the content marketplace. The company has already launched remotest corners of the country. a pilot with Ola to provide online course modules to the kids of the drivers and is targeting over 20,000 kids (paid Key Highlights: subscription) by the end of this year. The company has also • Large User base: Has reached to 50K+ DAUs and 150K MAUs partnered with Kotak Foundation for digitizing over 100+ (10x Growth post-Covid) and had over 500 Mn+ engagement schools in Maharashtra. points on the Platform till now The company is backed by institutional investors, including • High Adoption Rate: The platform is used by over 5000+ CBA Capital and looking to raise US$ 1.0 million as part of its teachers who conduct over 5000+ classes daily and is trusted growth strategy. by over 1000 schools across the country (mostly in Tier 2 &

Healofy pieces daily from 40K+ unique users. Founded in 2016, started as a parenting • The company has recently launched community-led platform, has now become a women- commerce (KOLs) in May’20 and has sold over 100,000 only platform to build deeper online products with the current daily run rate of 3,500 products connections and transact in a trusted and a daily GMV of INR 10 Lakhs. space on the internet. The company’s vision is to build the • The company is also looking to enter in private labels and largest community of women across the country. has already sold over 3,500 in maternity/childcare and beauty • In this mission, it has grown to 650K+ DAUs and 1.9M space within the first week. In addition to this, Google has MAUs (Over 30% DAU-MAU Ratio) on the app with a healthy now been closely working with Healofy to build trusted space mix of users across different life-stages - married/trying to on the internet for Indian women. conceive, pregnant and those with infants up to 5 years old. The company is backed by multiple institutional investors, • The platform is available in 9 languages and has already including Omidyar Network and looking to raise US$ 3.0 penetrated in 1,300+ cities across India. The platform gets million (out of which, Omidyar Network and other investors 50K+ high quality, long-shelf-life user-generated content have already invested US$ 2.0 Million) as part of its growth strategy.

FinancePeer breaking it into zero cost, zero interest monthly instalments As you know, Schools & Universities are ƒƒ Rewarding parents using their facility by providing them facing severe difficulties in collecting fees with cashback during these unprecedented times. To ƒƒ Creating affordable access to India’s top education content resolve these pain-points FinancePeer through has innovated & developed a unique proposition: ƒƒ Aiding the much-needed challenge of children’s security 1. For institutions with amenities like the virtual & physical student card - acts ƒƒ Receiving payment of fees upfront as a wallet to teach financial literacy as well astrack the whereabouts of children. Better management of cashflow cycles for schools and ƒ universities ƒ Having recently successfully raised a round of institutional capital (backed by marquee investors like Vivek Oberoi, ƒƒ Increasing admissions rates & growing revenue for schools Danube Group etc.), Financepeer is looking to strategically 2. For parents partner and raise capital for its next leg of growth. ƒƒ Enabling spreading the fee payment across the year by

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53 INSIGHT November 2020 Government Measures/Reforms

Measures to stimulate Leave Travel Concession employees’ compensation, this consumer demand and (LTC) Cash Voucher measure will not lead to fresh fiscal outgo. capex Scheme The pre-festive package comes in Finance Minister Nirmala Sitharaman Details of the scheme are as small doses includes both demand announced that central government follows: stimulator and infrastructure employees can opt for cash payment ƒƒ In lieu of one LTC during 2018- spending. The government on Oct in lieu of their Leave Travel 2021, central government employees 12 announced four measures to Concession and leave encashment. can avail full payment on leave stimulate demand as the economy Employees will have to contribute encashment and payment of fare, opens up and some important ~2.5x of this cash payment from their which will be tax free. festivals in the country are round the own pockets to buy goods/services ƒƒ Employees opting for encashment corner. Out of these four measures, attracting GST rates of 12% and above. will have to buy goods/services worth two are aimed at stimulating The government estimates that 3 times the fare and 1 time the leave consumer spending and two at this scheme will cost the centre Rs. encashment. The purchases will have boosting capex. 5675 crores. If PSUs and PSBs also to be made before 31 Mar 2021. implement it, their cost will be Rs. ƒƒ Consumption-oriented: ƒƒ Purchases will have to be made on 1900 crores. Using the multiplier of Government employees permitted goods attracting 12% or more GST ~2.5, this spend may lead to demand to claim travel allowances against rate, from a GST-registered vendor infusion of ~Rs. 19000 crores. consumption spending and interest- and through digital mode. To avail Additionally, demand infusion by free loans of Rs. 8000 crores benefits, employees will have to state governments can be Rs. 900 produce GST invoice. ƒƒ Investment-oriented: Rs. 25000 crores, taking the total likely demand crores extra allocation for Centre’s infusion by this scheme to Rs. 28000 FY21 capex spend and interest-free crores (50% of state employees are loan of Rs. 12000 crores to states for considered in this). Since LTC was capex. already a part of central government

November 2020 INSIGHT 54 Estimated demand infusion through LTC Cash Voucher Scheme

Expected Spend Rs. Crore Central Government 5675 Public Sector Undertakings + Public Sector Banks 1900 Total spend: Central Govt + PSUs + PSBs 7575 Total Spend, including out-of-pocket spend by employees (using 2.5x multiplier) 19118 State Governments’ implied spend (using multiplier) 3566 Expected demand infusion by states 9000 Total demand infusion (Center + PSUs + PSBs + States) 28118 Source: FinMin

Special Festival Advance leading to its share in fiscal outgo at ƒƒ Part III: Rs. 2000 crores for states Scheme ~Rs. 120 crores – Rs. 200 crores. We which meet at least 3 out of 4 reforms believe that the magnitude of these given in Atmanirbhar fiscal deficit The government announced one- schemes is quite low compared to package. time, interest-free festival advance 7th pay commission (~Rs2tn demand As of now, 6 states have implemented loan of Rs. 10,000 each to all central impact). This benefit is largely to a government employees. The loan ‘One Nation One Ration’ reform small section of consumers who were while 1 state has implemented ‘Ease will be interest-free, repayable in 10 largely unaffected. Even though it months and will have to be utilised of Doing Business’ reform. Only might help in stirring up demand it Andhra Pradesh has implemented before March 31, 2021. It will come would be very ephemeral in nature. in the form of prepaid RuPay cards. two of the Atmanirbhar reforms and could become eligible for additional Government estimates loans worth Loans to States for Capex Rs. 4000 crores are likely to be borrowing under Part III if it The government announced interest- disbursed by central government, implements one more reform. Hence, free 50-year loans worth Rs. 12000 additional Rs. 4000 crores if 50% we assume in FY21, the government crores to state governments for their states follow suit and additional Rs. will lend only Rs. 10000 crores under capex needs in three parts 9000 crores if all states follow suit. Parts I and II. The FM did not clarify Hence, total disbursement by Centre ƒƒ Part I: Rs. 1600 crores for 8 North- the funding mechanism for these and states is likely to range between Eastern states and Rs. 450 crores loans. Hence, we would reserve Rs. 8000 crores and Rs. 12000 crores. each for Himachal Pradesh and assessment of the fiscal cost until The government will bear bank Uttarakhand more clarity emerges on the same. charges on these loans. We expect the ƒƒ Part II: Rs. 7500 crores for other Centre to pay low charges (between states, proportionate to Fifteenth 3-5% on prepaid RuPay cards) Finance Commission devolution

Implementation of Atmanirbhar reforms

(Rs. Crores) One Nation One Ration Ease of Doing Business Urban Local Body Reform Power Sector Reform Eligibility to borrow upon implementing 0.25% OF GSDP 0.25% OF GSDP 0.25% OF GSDP 0.25% OF GSDP reform Andhra Pradesh 2525 2525 0 0 Telangana 2508 0 0 0 Karnataka 4509 0 0 0 Goa 223 0 0 0 Tripura 148 0 0 0 Uttar Pradesh 4851 0 0 0 Source: PIB Note: GDSP: Gross State Domestic Product

Centre’s additional capex of for FY21 stands at Rs. 4.37trn. Till View Aug ’20, the government has spent Rs. 25000 crores Overall fiscal outgo owing to these only Rs. 1.34trn on capex i.e. ~33% measures amounts to Rs. 40000- FM announced that central of original BE. In the remaining 6-7 50000 crores (0.2-0.3% of GDP). government will increase its capex months in FY21, it may not be able However, this is not a fresh fiscal by Rs. 25000 crores to spend on to spend the remaining Rs. 3.02trn. expansion as the government is roads, defence infrastructure, water Hence, although the entire fresh sticking to its existing borrowing supply, urban development, defence capex amount of Rs. 250bn is fiscal programme. Therefore, while the infrastructure and domestically outgo, we expect the actual fiscal measures could support sentiments produced capital equipment. Centre’s cost to be lower than the announced and demand during the immediate original budget estimate for capex number. in FY21 was Rs. 4.12trn. After today’s festive season, they may be announcement, new budget estimate inadequate to boost aggregate

55 INSIGHT November 2020 demand sustainably. India entered a first round package of just 1-2% of fiscal measures are undertaken, the covid in a weak shape (credit growth GDP and unlocking has been much boost could prove temporary, in our at multi- decade low), has announced more delayed. Hence, unless more view.

Demand boosting measures

Scheme Amount (Rs. Cr.) Details Central govt employee opting for this scheme will be required to buy goods / services worth 3 times the fare and 1 time the leave encashment before 31st March 2021.The items bought should be those Leave travel concession 28000 attracting GST of 12% or more. Only digital transactions are allowed, GST Invoice to be produced. cash voucher scheme: Centre’s payout for-LTC will be Rs. 58bn and another Rs. 19nn will be payout by PSUs+PSBs. Demand infusion because of this would be Rs. 190bn and another Rs. 90bn if 50% of states follow this guideline. All central govt. employees can avail interest-free advance of Rs. 10,000 in the form of a prepaid Special festival advance 8000 RuPay Card to be spent by 31 Mar21. Rs. 40bn is expected to be disbursed. However, if given by all state governments, another Rs. 80bn is expected to be disbursed Interest-free loan to states for next 50 years to be spent by 31Mar21. Loan will be over and above the additional borrowing limit. Repayment will happen as a bullet payment after 50 years, and hence Capital expenditure aid requires no servicing. Of this Rs. 120bn- i) 25bn--North eastern states+ Uttarakhand+ Himachal 12000 to states Pradesh, ii) 75bn for all other states, and iii) 20bn- if they accomplish 3 out of the four reforms as per the Atmanirbhar package. Almost 50% of the funds will be initially given to states, and the remaining 50% after the initial 50% is utilised. Additional capital Capital expenditure for Centre over and above the budgeted Rs. 4.1trn. Additional Rs. 25000 crores on 25000 expenditure for Centre roads, defence, water supply, urban development Total 73000

Sector likely to be benefitted

Sector Announcements Benefits/ Impact Centre to give Rs. 12000 crores - 50 Positive step, but quantum is low atleast on the State loan of Rs. 12000 crores Both State yr interest free loan to States for +Centre together (benefit of Rs. 37000 crores). Expectation of high borrowings by State/ capex till 31Mar for any existing / new Central Govt in 2H - will ease worries of stretched payment from States in 4Q to EPC 1 Infrastructure project / contractor payments etc companies Additional Rs 25000 crores capex by Timely payments from States (worry so far in 3Q-4Q) to EPC players / Additional Centre on Roads, Water , Defence , central capex for road / defends sector urban infra Temporary boost to the demand for large durable items refrigerators, washing 2 Consumer machines and ACs and other items which are likely to provide utility/comfort at home. Durables Given the spends need to be 3x of claims and may also encompass preponing of certain Claims against LTC spends, Rs 10,000 purchases, we do not expect a material jump in numbers for Voltas/Blue Star. interest free RuPaY CARD The loan of Rs 10,000 can help boost 2W demand from the Centre’s govt. employees as 3 Automobiles the amount is sufficient for down payment of 125cc bikes. However, we do not expect any major impact on PV segment.

Govt issues guidelines to availed by borrowers in specified loan banking company, or a public sector waives interest on interest accounts for a period from March 1 bank, co-operative bank or a regional for loans up to Rs. 2 crore to August 31, 2020. Borrowers who rural bank, or All India Financial have loan accounts having sanctioned Institution, a non-banking financial In a relief to borrowers at the onset of limits and outstanding amount of not institution, housing finance company the festive season, the government on exceeding Rs. 2 crore (aggregate of all or a micro finance institution. As per October 23, 2020 announced waiver facilities with lending institutions) as the scheme, the lending institutions of interest on interest for loans up to on February 29, 2020 shall be eligible shall credit the difference between Rs. 2 crore irrespective of whether for the scheme. The lender has to compound interest and simple moratorium was availed or not. In credit the amount to the account interest with regard to the eligible a relief to individual borrowers and of the borrower on or before 5 borrowers in respective accounts medium and small industries, the November, giving relief to borrowers for the said period irrespective Centre has agreed in the Supreme ahead of Diwali. Thereafter, lenders of whether the borrower fully or Court to waive compound interest will have to claim reimbursement partially availed the moratorium on (interest on interest) charged on by 15 December. The benefit will be repayment of loan announced by the loans of up to Rs 2 crores for a extended for loans availed by micro, RBI on March 27, 2020. The scheme six-month moratorium period small and medium enterprises is also applicable on those who have announced due to the COVID-19 (MSMEs), education loans, housing, not availed the moratorium scheme pandemic. The government will have consumer durables, credit card dues, and continued with the repayment of to take a hit of Rs. 6,500 crore for the auto loans, personal and professional loans. implementation of the scheme. As loans and consumption loans. The per the guidelines, the scheme can be lending institution has to be either a

November 2020 INSIGHT 56 Rabi (winter) crops MSP a consensus between the Centre hikes and states, even as it was reiterated that the Centre would not borrow on Prohibited the The government announced the behalf on states. But on October 15, import of “ACs Minimum Support Price (MSP – a 2020, the Centre reversed its stance with refrigerants” form of government intervention and said that it would borrow Rs. (includes CBU & that guarantees base prices) for rabi 1.1 trillion, which is the estimated (winter) crops. The Centre announced ODU) by DGFT is an revenue shortfall on account of hikes in MSPs of six Rabi crops indirect but a smart implementing goods and services ranging from 2% to 6% with lentils move to target cheap tax (GST), under a special window (pulses) and mustard (oilseed) getting imports coming under Option 1 and the amount the highest increases. The MSP through the FTA borrowed will be passed on to the announcement gives a price signal to states as ‘back-to-back loan in lieu route. farmers ahead of the sowing season of GST compensation cess’ releases. so that they can make the right choice Dissenting states on the other hand of crop. The announcement of new said that some states are preparing to MSPs much ahead of beginning of move to the Supreme Court over the the Rabi sowing season is seen as an matter. According to the government, attempt by the government to allay this would not have any impact on Import ban of ACs with doubts from minds of farmers over the fiscal deficit of the Centre and refrigerants the future of the support price in the the amounts will be shown as capital wake of passing of the two farm Bills The Directorate Generate of receipts of the state governments and – one on Agri market and the other Foreign Trade (DGFT) through an as part of financing their respective on contract farming. Analysis of the amendment in the import policy fiscal deficits. of Air Conditioners (ACs) has new MSPs shows the government’s prohibited the import of “ACs with focus on pulses and oilseeds. The Government may infuse refrigerants”. This is applicable to all MSP for lentils (pulses) got the highest capital in state-run banks types of Split AC systems as well as hike of 6.3% - from Rs 4,800 per The government may infuse Rs Window ACs units. While the industry quintal in 2019-20 to Rs 5,100 per 20,000 crore through recapitalisation was expecting import restrictions quintal in 2020-21 – followed by of bonds into state-owned banks in similar to LED TV panels, the move mustard (5.1%), Barley (4.9%), Gram the fourth quarter of the fiscal year to forbid import of AC units “with (4.6%), wheat (2.6%) and safflower to meet regulatory requirements. In Refrigerants” (includes CBU & ODU) (2.1%). The procurement on the basis 2019-20, the government proposed is an indirect but a smart move to of these MSPs will be made in the to make Rs 70,000 crore capital target cheap imports coming through marking season of 2021-22, beginning infusion into the Public Sector the FTA route. Importing the ODU April 1. The increase in MSP for Banks (PSBs) to boost credit for a without refrigerants will further 2020-21 Rabi Crops for the marketing strong impetus to the economy. increase the cost of local assembly, season of 2021-22 is in line with the However, the government refrained charging and testing the unit in India, principle of fixing the MSPs at a level from committing any capital in the making imports less competitive. of at least 1.5 times of the all-India Budget 2020-21 for the PSBs, hoping The share of finished RAC imports weighted average cost of production that the lenders will raise funds in India was ~30% in FY19 in value as announced in Union Budget 2018- from the market depending on the terms, of which ~70% was in the 19. The expected returns to farmers requirements. Reserve Bank of India inverter range. Nearly 2-2.3m units over their cost of production are (RBI) Governor Shaktikanta Das had were imported in FY20 (30% volume estimated to be highest in case of said in July that a recapitalisation plan share), mostly from China, Thailand Wheat (106%) followed by rapeseed & for banks had “become necessary” and Vietnam. Because of the ban, mustard (93%), gram and lentil (78%). and called for lenders to raise money growth prospects for ODM players For barley, return to farmers over in advance to “build resilience” will significantly increase, both for their cost of production is estimated in the financial system. In all, the CBU as well as component sourcing at 65% and for safflower, it is 50%. government has sought Parliament’s if brands decide to step up local Centre to borrow Rs 1.1 nod for additional spending of Rs manufacturing or sourcing. And also, 2.35 lakh crore, which includes a cash as import of ACs with refrigerants is trillion on behalf of states outgo of Rs 1.66 lakh crore, primarily prohibited, then the refrigerant gases The 43rd GST Council meeting held to meet expenses for combating the will be increasingly sourced from on October 12, 2020 ended without COVID-19 pandemic. local manufacturers.

57 INSIGHT November 2020 Labour reform These reforms also enable contract MSMEs (100% credit guarantee given farming and remove stocking limits by Govt.), another Rs 20,000 crore Labour regulations have eased a bit on traders for a large number of subordinate debt for stressed MSMEs. over the past few years but the recent commodities. It is expected that these The FM also announced Rs 50,000 government regulation to subsume changes could help boost agriculture crore of equity infusion for MSMEs multiple labour laws into four codes productivity, encourage private through a Fund of Funds. is a major reform and bodes well for investment, reduce price volatility scaling up manufacturing in India. for consumers and provide income India initiative to promote It is expected that these reforms can support to farmers by revamping the “Make-in-India” reduce compliance costs, making entire value chain. However, for the it easier to do business; remove Chemical & products benefits to accrue, the govt needs to disincentives for small businesses to ƒƒ India has initiated a probe into the create new markets for farmers and scale up (a structural issue in India) alleged dumping of a chemical, used invest in infrastructure. and encourage formalisation. While in pharmaceutical and agrochemicals industries, from China and South one of these codes was cleared last Expansion of production- Korea following a complaint by a year, the remaining three codes linked incentive scheme were approved in Parliament in Sept domestic manufacturer. The govt’s five-year production- 2020. Around 16 states have already ƒƒ In Jun 2020, Govt outlined plans to linked incentive (PLI) scheme (4-6% announced labour reforms in their boost local manufacturing in the bulk of incremental sales) to companies respective jurisdictions, including drugs & medical device industries. 55 that manufacture electronics relaxed hiring and termination chemicals have been identified with a hardware and for the pharmaceutical flexibility. prescribed minimum local content of sector has been well received. As per 60% for 2020-2021, raising it to 70% Agriculture sector reforms a media report, the govt is looking to for 2021-23, 80% for 2023-25. The share of agriculture in India’s expand this scheme in 10 identified ƒƒ In July, Govt introduced 4 schemes GDP is only 15% but it contributes sectors for five years. These include to produce 53 critical Active ~40% to rural income levels and 45% battery storage, solar panel-makers, Pharmaceutical Ingredients (APIs), to overall employment. Last month, electronics, automobiles, telecom Key Starting Material (KSMs) and parliament passed 3 bills related to & networking products, textiles, medical devices. Setting up of new the agriculture sector, categorised as food processing, speciality steel and manufacturing units will be eligible “farm bills”. There are no restrictions white goods. If implemented, this for PLI scheme. on farmers selling their produce to would bode well for encouraging local anyone and anywhere without fees. manufacturing by global/domestic ƒƒ For dicholoroflouroethanes, the firms and discouraging imports. import of HCFC-141b- a chemical used by foam manufacturing Credit and Finance for enterprises and one of the most As per a media MSMEs potent ozone depleting chemical after report, the govt is Out of the 15 relief measures Chlorofluorocarbons- is prohibited looking to expand announced by the Finance Minister except for feedstock applications. Nirmal Sitharaman on May 14, 2020 PLI scheme in 10 ƒƒ India is likely to increase import under the mega Rs 20 lakh crore identified sectors duty on Phthalic Anhydride, a stimulus package for the Covid- for five years. These chemical used in insecticides and battered economy, six aimed at include battery plastic industry, for two years from bringing lockdown-hit India’s vast South Korea with an aim to guard storage, solar panel- MSME sector back to life. Sitharaman domestic players from jump in the makers, electronics, sharing the details of the humongous inbound shipments. automobiles, Covid-19 financial package – roughly telecom & 10% of the Indian GDP – announced ƒƒ India has begun an anti-dumping networking measures to boost liquidity in investigation into the imports of low products, textiles, MSMEs, help them take benefit of the density polyethylene (LDPE) from government schemes, enable them the US, UAE, Qatar, Saudi Arabia, food processing, to compete with foreign companies, Singapore and Thailand. speciality steel and and strengthen their network. Under ƒƒ Imposing anti-dumping duty on white goods. measures announced are Rs 3 lakh imported toluene diisocyanate (TDI), crore via the collateral free automatic a specialty chemical, used in foam loans for businesses including making, from four regions, EU, Saudi Arabia, Chinese Taipei, and the UAE.

November 2020 INSIGHT 58 Textiles ban import of 101 defence items ƒƒ Govt approved the National to promote domestic production. In Aug 2020, Technical Textile Mission for a 4-year The embargoed items include India decided to implementation period from FY21- high technology weapons. The ban import of 101 FY24 (Rs15bn). The areas of focus embargo of imports is planned are: R&D, promotion & market to be progressively implemented defence items to development, export promotion between 2020 and 2024. Contracts promote domestic and education, training & skill worth Rs4trn will be placed upon the production. development. domestic industry within the next 5-7 The embargoed years. Automobile parts (tyres etc) items include ƒƒ Govt amended free imports of tyres ƒƒ The government has decided not to high technology used in cars, bus etc to restricted have an offset clause in procurement weapons. The (requiring additional licence & of defence equipment if the deal is embargo of permissions for imports). done through inter-government imports is planned agreement (IGA), government-to- ƒƒ Increase in import duty on a to be progressively government or an ab initio single Korean synthetic rubber, used in tyre implemented vendor. The offset clause requires a making, for two years. Increased the between 2020 and foreign vendor to invest a part of the rate of custom duty to 10 per cent on contract value in India. 2024. Contracts the imports of the product imported worth Rs4trn will from Korea for 200 days. Leather & leather products be placed upon the ƒƒ Govt has undertaken various Electronics & components domestic industry schemes between FY18 to FY20 ƒƒ Schemes have been announced for promotion of leather industry. within the next 5-7 to promote domestic production. 1) Indian Footwear, Leather years. These include: Modified Special & Accessories Development incentive Package Schemes (to Programme- aims at development of provide financial incentives & infrastructure for the leather sector, attract investments in the electronic facilitate additional investments, hardware manufacturing), July 30, 2020. A duty of 14.90% from employment generation and increase Electronic manufacturing clusters July 30, 2020, to January 29, 2021, in production. 2) Merchandise (to provide financial assistance for and 14.50% from January 30, 2021, to Exports from India Scheme (MEIS): infrastructure), Preferential market July 29, 2021, for all solar cells and 2% across the board enhancement access (9 generic products & 23 modules imported from the China of duty credit scrip under MEIS for telecom products identified for govt PR, Thailand, and Vietnam. shipments made from 1st Nov 2017. procurement). ƒƒ The government has imposed 3) GST rates on leather & leather provisional countervailing duty ƒƒ Govt introduced Production Linked products, job work for manufacturing (CVD) on certain flat stainless steel Incentive Scheme (PLI) for Large leather goods & footwear have also products from Indonesia. To levy the Scale Electronics Manufacturing been reduced. (outlay of for Rs420bn). The scheme provisional countervailing duty in the ƒƒ In Sep 2020, govt formed a will extend an incentive of 4- 6% range of 22.31% to 24.83% on certain 25-member development council to on incremental sales of goods types of flat stainless products for a expand domestic & export market manufactured in India for a period of period of four months from October of the sector. The council will look five years. 9. into the various export promotion & ƒƒ In a move to protect domestic ƒƒ Import of coloured TV sets Make-in-India schemes such as PLI producers of single mode optical amended from free to restricted. scheme for the leather industry. Open cell panels, a key component fibre, used in telecommunications Others in manufacturing TV sets will attract operations, against competition from ƒƒ Anti-dumping duty on cheap 5% import duty from 1st Oct 2020 to cheap imports from China and some imports of C-PVC from countries boost domestic production. Govt is other countries, India may soon such as China & South Korea. also planning a PLI scheme for TV impose a 10 per cent safeguard duty sets & ACs. ƒƒ Imposing safeguard duty (SGD) on over and above the basic customs the import of solar cells and modules duty (15%) on the item. Defence equipment to India for another year starting ƒƒ In Aug 2020, India decided to

59 INSIGHT November 2020 MUTUAL FUND OVERVIEW

Mirae - Asset Tax Saver Fund Reg (G)

Investment Strategy Why ElSS? - Short Lock-in The scheme seeks to generate long-term period for Tax benefit capital appreciation from a diversified ElSS offers wealth creation potential at portfolio of predominantly equity and equity lower lock in period due to growth potential related instruments. of equities.

ELSS ULIP PPF NSC Tax Saving FD Lock-in-Period 3 Years 5 Years 15 Years 5 Years 5 Years Depends Min Investment 500 on 500 100 1,000 (Rs.) Premium Equity Market Yearly Returns (%) Market 7.10% 6.80% 5.30% Linked Linked

NSC: National Savings Certificate, PPF: Public Privident Fund, FD: Fixed Deposit Source: sbi.co.in, indiapost_gov.in, incometaxindia.gov.in. as of June 2020

Fund Suitability income tax laws, investments of up to Rs 1.5 lakh in a financial year in eligible securities When one invests for five years or more, one such as this fund are exempt from tax. Also can expect gains that comfortably beat the note that one cannot withdraw money from inflation rate as well as returns from fixed this fund before completing three years income options. In addition, there is a tax from the date of investment. benefit. Under Section 80C of the Indian

November 2020 INSIGHT 60 Investment Strategy and has built up a diversified to a large extent, ensures that the portfolio. The scheme’s fund manager portfolio is relatively stable. This ƒƒ Diversified portfolio of strong Mr. Neelesh Surana has invested is reflected in its high beta of 0.99. growth companies at nominal price. a little over 75% in large-sized The scheme has been a consistent ƒƒ Flexibility to invest across market companies, close to 20% in mid-sized performer both with respect to its capitalization, investment styles, and companies and the remaining in benchmark and its peers in the ELSS theme small-sized companies. Banking and category. In the past three-year ƒƒ The strategy is driven by value financials, consumer durables and period, the scheme has given 8.0% investing & in-growth oriented information technology are the top returns while its benchmark index businesses. themes the fund plays on. The Fund S&P BSE TRI index has delivered Manager has invested in dominant 4.35% over the same period. The fund follows a multicap strategy players from these sectors which,

Important Information Key Ratios NAV (G) (Rs.) 19.66 Beta (x) 1.00 NAV (D) (Rs.) 15.76 Standard deviation (%) 22.09 Inception Date Dec 28, 2015 Sharpe Ratio 0.21 Fund size(Rs.Cr.) 4270 Alpha (%) 3.15 Fund Manager Mr. Neelesh Surana R Squared 97.59 Entry load Nil Expense ratio (%) 1.77 Exit Load Nil Portfolio Turnover ratio (%) 73.00 Benchmark NIFTY 200 TRI Avg Market cap (Rs. Cr.) 1,06,017 Min Investment (Rs.) 500 Min SIP Investment (Rs.) 500 Asset Allocation Equity Cash Portfolio as on September 30, 2020 98.95% 1.05% Stocks % of Net assets % SECTOR ALLOCATION HDFC Bank 9.1 Infosys 7.1 Reliance Industries 7.0 ICICI Bank 5.8 Tata Consultancy Services 4.1 Axis Bank 3.7 Bharti Airtel 3.1 Housing Development Finance 2.5 Corporation

Hindustan Unilever 2.4 Note: All data are as on September 30, 2020; NAV are as on October 26, 2020 Larsen & Toubro 2.4 Source: Factsheet, Value Research

Performance of the Fund alongwith Benchmark (as on October 26, 2020) 1 month 3 months 6 months 1 year 3 Years 5 Years Since Inception Fund (%) 5.83 9.39 32.65 9.59 7.05 12.69 Benchmark (%) 5.40 6.61 29.80 3.70 3.35

61 INSIGHT November 2020 Ashika Mutual Fund Recommendation Alpha Generation

Month of NAV as on 1 Year 3 Year 5 Year Fund Name Benchmark Recommendation 22.06.2020 Return (%) Return (%) Return (%) LIC - Large & Mid Cap Fund Oct-19 NSE - NIFTY Large Midcap 250 TRI 15.7 2.9 3.1 9.8 - Reg (G) Nov-19 ITI - Multi Cap Fund (G) NSE - Nifty 500 TRI 9.9 -8.3 0.0 0.0 Parag Parikh - Long Term Dec-19 NSE - Nifty 500 TRI 31.7 21.9 12.3 13.2 Equity Fund Reg (G) DSP - Dynamic Asset Jan-20 CRISIL Hybrid 35+65 Aggressive Index 16.9 6.3 5.8 7.4 Allocation Reg (G) Invesco - India Growth Feb-20 S&P BSE 250 Large Midcap TRI 35.5 0.0 4.4 8.7 Opportunities Fund (G) DSP - Top 100 Equity Reg Apr-20 S&P BSE 100 TRI 206.3 -4.7 1.2 5.8 Fund (G) Axis - Focused 25 Fund Reg May-20 NSE - Nifty 50 TRI 30.1 1.0 6.7 11.1 (G) Jun-20 Nippon India - Tax Saver (G) S&P BSE 100 TRI 46.3 -10.7 -10.7 0.7 Jul-20 SBI - Small Cap Fund Reg (G) S&P BSE Small Cap TRI 58.8 12.4 4.6 12.7 Aditya Birla SL - Focused Aug-20 NSE - Nifty 50 TRI 61.3 2.2 2.1 7.1 Equity Fund Reg (G) Sep-20 Sundaram - Services Fund (G) S&P BSE 200 TRI 11.9 -1.0 0.0 0.0 Invesco - India Contra Fund Oct-20 S&P BSE 500 TRI 50.2 6.8 4.8 10.1 (G)

Note: All data are as on September 30, 2020; NAV are as on October 26, 2020 Source: Factsheet, Value Research

All Data Belongs To October 26, 2020

Since AUM Sharpe Exp. NAV 3 M 6 M 1 Yr 3 Yr 5 Yr Inception (Rs Cr) Ratio Ratio Return Large & Mid Cap Fund

SBI - Large & Midcap Fund Reg (G) 220.5 2860 6.8 25.7 0.8 1.4 6.9 13.2 0.0 2.1

Mirae - Asset Emerging Bluechip Fund Reg (G) 59.8 11466 8.4 30.3 10.3 6.6 13.7 18.7 0.2 1.9

ICICI Pru - Large & Mid Cap Fund Reg (G) 306.1 2397 4.1 22.5 (4.0) (2.1) 5.6 16.6 (0.1) 2.2

LIC - Large & Mid Cap Fund - Reg (G) 15.7 772 8.7 25.4 2.9 3.1 9.8 8.3 0.1 2.5

Sundaram - Large and Mid Cap Fund (G) 33.8 1252 5.2 23.7 (6.3) 2.3 8.2 9.3 0.1 2.2 Value Fund

SBI - Contra Fund Reg (G) 107.4 1321 9.7 35.1 6.4 (2.0) 4.1 16.7 (0.2) 2.3

IDFC - Sterling Value Fund Reg (G) 45.3 2629 14.4 38.1 (1.1) (5.6) 5.4 12.5 (0.2) 2.1

Nippon India - Value Fund (G) 73.0 2849 6.2 27.7 0.8 (0.0) 6.1 13.8 (0.0) 2.0

Kotak - India EQ Contra Fund (G) 53.8 810 5.4 27.4 1.2 4.4 8.9 11.7 0.1 2.4

Invesco - India Contra Fund (G) 50.2 4967 3.3 26.3 6.8 4.8 10.1 12.7 0.2 1.9 Focus Fund

Axis - Focused 25 Fund Reg (G) 30.1 11455 6.6 22.7 1.0 6.7 11.1 14.0 0.2 2.0

Mirae - Asset Focused Fund Reg (G) 12.3 3524 7.3 35.7 8.8 0.0 0.0 14.7 - 2.0

SBI - Focused Equity Fund Reg (G) 147.1 10114 3.9 17.4 0.0 6.7 9.6 18.1 0.2 1.8

DSP - Focus Fund Reg Fund (G) 23.9 1856 4.6 28.3 (2.7) 2.0 6.2 8.6 0.0 2.2

Sundaram - Select Focus Reg (G) 184.9 1029 4.1 20.2 (0.5) 4.7 8.0 17.3 0.1 2.3 ELSS Fund

Mirae - Asset Tax Saver Fund Reg (G) 19.7 4270 9.4 32.7 9.6 7.1 0.0 15.0 0.2 1.9

Kotak - Tax Saver Scheme (G) 46.1 1275 6.5 25.0 3.8 3.4 8.2 10.8 0.1 2.2

Invesco - India Tax Plan (G) 54.0 1134 4.9 24.8 3.6 5.3 8.6 13.0 0.1 2.2

Axis - Long Term Equity Fund (G) 47.9 21836 7.6 19.7 (0.3) 6.7 9.0 15.5 0.2 1.7

SBI - Long Term Equity Fund Reg (G) 143.6 7414 5.0 26.4 3.4 (0.0) 4.6 14.8 (0.0) 1.9

November 2020 INSIGHT 62 All Data Belongs To October 26, 2020

Since AUM Sharpe Exp. NAV 3 M 6 M 1 Yr 3 Yr 5 Yr Inception (Rs Cr) Ratio Ratio Return Multi Cap Fund

Parag Parikh - Long Term Equity Fund Reg (G) 31.7 4798 9.7 37.8 21.9 12.3 13.2 16.7 0.5 2.0

SBI - M Multicap Fund Reg (G) 48.1 8870 5.7 22.9 (3.5) 1.1 7.8 11.0 (0.1) 1.9

Kotak - Standard Multicap Fund (G) 35.7 29551 4.3 25.3 (0.1) 2.9 8.8 12.0 0.0 1.7

Motilal Oswal - Multicap 35 Reg (G) 25.8 11032 2.3 26.6 (2.8) (0.2) 7.6 15.7 (0.1) 1.8

ITI - Multi Cap Fund (G) 9.9 140 5.0 16.1 (8.3) 0.0 0.0 (0.6) - 2.6 Small Cap Fund

Invesco - India Smallcap Fund Reg (G) 11.1 640 7.7 27.0 8.1 0.0 0.0 5.3 - 2.5

SBI - Small Cap Fund Reg (G) 58.8 5321 14.1 33.2 12.4 4.6 12.7 17.2 0.2 1.9

Axis - Small Cap Fund Reg (G) 33.8 2930 15.3 30.3 8.3 8.3 11.3 19.3 0.3 2.0

HDFC - Small Cap Fund (G) 38.2 8741 14.7 35.8 (1.1) (2.3) 7.6 11.3 (0.0) 1.8

ICICI Pru - Smallcap Fund Reg (G) 26.3 1437 15.9 40.7 6.5 (3.1) 5.2 7.7 (0.0) 2.3 Thematic/Sectoral Fund

Franklin - Build India Fund (G) 34.7 821 1.8 19.5 (13.1) (6.0) 3.8 11.6 (0.3) 2.3

ICICI Pru - Banking & Financial Services Fund Reg 52.4 2685 1.9 25.2 (18.2) (4.8) 7.5 14.6 (0.2) 2.2 (G)

Nippon India - Pharma Fund (G) 223.4 3911 13.5 23.0 54.1 19.4 7.4 20.9 0.8 2.7

Sundaram - Rural and Consumption Fund Reg (G) 40.6 1477 3.5 20.0 (2.8) (1.6) 9.3 10.3 (0.1) 2.2

Aditya Birla SL - Digital India Fund Reg (G) 76.1 611 25.2 64.7 46.9 25.3 16.0 8.1 0.9 2.6 Blance/BAF Fund

SBI - Equity Hybrid Fund Reg (G) 141.6 31226 1.8 15.0 0.8 4.8 7.9 12.8 0.1 1.6

Sundaram - Equity Hybrid Fund Reg (G) 94.0 1545 3.3 16.1 0.4 4.8 8.0 11.9 0.1 2.2

ICICI Pru - Balanced Advantage Fund Reg (G) 38.5 26175 3.5 20.2 4.4 5.5 7.8 10.1 0.1 1.7

Kotak - Balanced Advantage Fund Reg (G) 11.9 4528 3.9 22.6 8.7 0.0 0.0 7.8 - 2.0

Aditya Birla SL - Balanced Advantage Fund (G) 56.6 2351 3.1 18.4 4.6 3.9 8.4 8.8 (0.1) 2.1 Equity Savings Fund

Aditya Birla SL - Equity Savings Fund Reg (G) 14.3 492 3.9 12.3 3.6 2.9 6.3 6.1 (0.2) 2.6

DSP - Equity Saving Fund Reg (G) 13.2 406 4.3 14.0 2.6 2.9 0.0 6.2 (0.1) 2.4

Kotak - Equity Savings Fund Reg (G) 15.5 1351 2.8 12.4 6.2 6.0 7.2 7.5 0.1 2.2

Nippon India - Equity Savings Fund Reg (G) 10.3 400 1.6 8.8 (11.2) (6.1) 0.0 0.5 (0.8) 2.6

SBI - Equity Savings Fund Reg (G) 14.0 1313 3.3 14.6 4.9 4.3 6.5 6.3 (0.1) 1.7 Arbitrage Fund

Aditya Birla SL - Arbitrage Fund Reg (G) 20.5 3839 0.8 1.6 4.4 5.6 5.8 6.6 0.5 0.9

ICICI Pru - Equity Arbitrage Fund Reg (G) 26.4 9277 0.8 1.7 4.5 5.6 5.9 7.3 0.5 1.0

Kotak - Equity Arbitrage Fund (G) 28.6 15111 0.9 1.7 4.5 5.7 5.9 7.2 0.7 1.0

Nippon India - Arbitrage Fund (G) 20.5 7168 0.8 1.8 4.5 5.8 5.9 7.4 0.8 1.0

SBI - Arbitrage Opp Fund Reg (G) 25.9 3475 0.6 1.0 3.7 5.4 5.6 7.0 0.3 0.9 Index Fund

HDFC - Index Fund-NIFTY 50 Plan - (G) 107.7 1882 5.4 29.0 1.7 5.1 8.1 13.6 0.1 0.3

ICICI Pru - Nifty Next 50 Index Fund Reg (G) 23.9 804 2.5 17.5 (3.7) (2.5) 6.6 8.7 (0.2) 0.9

HDFC - Index Fund - Sensex Plan 358.5 1496 5.5 28.9 3.1 7.3 8.8 14.1 0.2 0.3

Motilal Oswal - Nasdaq 100 FOF (G) 18.0 1144 7.9 29.4 51.4 0.0 0.0 34.7 - 0.5

Motilal Oswal - S&P 500 Index Fund Reg (G) 11.6 467 5.8 15.9 0.0 0.0 0.0 32.0 - 1.1

63 INSIGHT November 2020 All Data Belongs To October 26, 2020

Mod Sharpe Exp. NAV AUM Duration AMP (IN Yrs ) 3 M 6 M 1 Yr 2 Yr Ratio Ratio (in Yrs) Solutions

10.7654 ICICI Pru - Retirement Fund Pure Debt Plan (G) 11.9 457 - 1.7 6.4 10.7 0.0 - 2.1 (25/10/2019)

7.07 Aditya Birla SL - Retirement Fund 30s Plan (G) 10.2 152 - 4.1 19.5 2.3 0.0 - 2.7 (23/03/2020)

HDFC - Retirement Savings Fund Hybrid Equity 12.743 17.5 441 0.1 5.3 21.4 4.9 7.6 0.1 2.6 Reg (G) (23/03/2020)

7.38 Aditya Birla SL - Bal Bhavishya Yojna Wealth Plan (G) 10.6 291 - 4.0 19.1 2.1 0.0 - 2.6 (23/03/2020)

103.1 ICICI Pru - Child Care Gift Plan Reg 139.9 618 (0.1) 3.8 18.9 2.4 5.0 (0.1) 2.5 (23/03/2020) Dynamic/Multi Assets

22.68 Invesco - India Dynamic Equity Fund (G) 30.1 705 (0.2) 2.1 15.1 1.6 6.7 (0.1) 2.3 (23/03/2020)

43.7926 ICICI Pru - Asset Allocator Fund (FOF) (G) 60.1 7964 0.2 3.0 19.1 4.9 7.1 0.2 1.3 (23/03/2020)

196.1272 ICICI Pru - Multi Asset Fund (G) 258.0 10161 (0.1) (1.2) 13.1 (2.6) 1.8 (0.1) 1.8 (23/03/2020)

11.0136 SBI - Dynamic Asset Allocation Fund (G) 13.6 575 (0.1) 2.6 14.8 1.2 3.2 (0.1) 2.0 (23/03/2020)

13.409 DSP - Dynamic Asset Allocation Reg (G) 16.9 1633 0.1 3.5 15.9 6.3 8.6 0.1 2.2 (23/03/2020)

November 2020 INSIGHT 64 Technical View

Key takeaways from October 2020 ƒƒ As per World Bank, India’s economy is expected to contract 9.6% in FY21. ƒƒ IHS Markit India Manufacturing Purchasing Managers’Index (PMI) increased to 56.8 in September ƒƒ India’s exports grew in September after contracting for from 52 in August six months, Imports declined 19.6%, leaving a trade deficit of $2.72 billion ƒƒ IHS Markit Services Purchasing Managers’ Index (PMI) bounced to Volatility ruled ƒƒ Central Government would 49.8 in September from August’s 41.8 the market in the borrow additional Rs 1.1tn through the special window to meet the GST ƒƒ The trade deficit in September month of October shortfall was $2.72 billion, compared to $11.67 2020 with a ‘V’ billion in the year-ago month shaped recovery ƒƒ Government unveiled a Leave Travel Concession scheme and ƒƒ India’s Industrial output came with the sops to government employees to continued to contract in August advent of the result stimulate consumer spending. stood at 8% which stood at 10.4% in season however was July 2020 unable to sustain Volatility ruled the market in the month of October 2020 with a ‘V’ ƒƒ Consumer inflation increased to higher levels and shaped recovery came with the 7.34% in September from 6.69% in soon entered profit advent of the result season however the previous month booking activity. was unable to sustain higher levels ƒƒ India’s wholesale prices rose to and soon entered profit booking 1.32% in the month of September, activity. During the month Nifty after rising 0.16% in the previous ended with a phenomenon gain of month. 10.4%. The Mid-cap Index was up

65 INSIGHT November 2020 by 7.5% and Small-Cap was up by 6.8%. Nifty midcap and small cap indices underperformed the benchmark by a 80000 60000 wider margin signifies broader market didn’t participated 40000 80000 in the rally and only few stocks lead the market higher. 20000 60000 The market breadth stayed negative with A/D ratio 0.86. 0 40000 -20000 Barring Finance all other Indices ended in green led 20000 -40000 by Banks, Realty, IT and Metal with exceptional gain of 0 -60000 -20000 over 10%. Consumer Durable registered gain of 9.7%, -80000 -40000 19 19 19 20 20 20 20 20 20 20 20 20 Auto rallied by 8.9% while Capital Good were up by 8.4%. 20 t- l- v- c- r- t- r- y- p- b- n- g- -60000 n- Ju Oc De No Oc Ap Ju Ja Fe Se Ma Trading data for FIIs and DIIs showed that during the Au Ma -80000 FII (Rs. Cr.) DII (Rs. Cr.) month FIIs were net sellers to the tune of Rs. 13565Cr and 19 19 19 20 20 20 20 20 20 20 20 20 20 t- l- v- c- r- t- r- y- p- b- n- g- DIIs were net sellers to the tune of Rs. 15147Cr n- % Ju Oc %

0 De No Oc Ap Ju Ja Se Fe Ma Au .4 Ma .2 % % 19 .6 % 17 FII (Rs. Cr.) DII (Rs. Cr.) 0 .8 %

.5 14 % 13 .0 12

0 7% 11 .3 9% 6% 4% 10

In the midst of the ongoing economic and health gloom, 9. 5% 1% 8. 8% 8. 8. 7. 3% 7. 6.

0 % % 0 6% 5. 7% .4 .2 3.

major world Indices remained positive, US indices 4% % 2. % 19

0 1. .6 % 17

0 .8 % .5 14 % provided decent return, DJIA and S&P 500 gained by 0 13 .0 12

0 7% 11 .3 9% 6% 4% 10 9. 5% 1% 8. 8% 8. 0 8. % 7.

4.36% and 3.0% respectively while NASDAQ gained by 3% 7. 0 6. 6% .1 5. 7% 3. 4% -2 2. l r s s k e

0 1.

5.8%. The European peers like FTSE 100 remained flat U ty to ta CG nk nc we al PS Tec Au ood Me FM 0 Ba na Re Po at 0.3% during the month. Other European indices such G l Fi

0 ta % pi

as DAX and CAC 40 gained 1.4% and 3.8% respectively. .1 Ca -2 l r s s k e U ty th rd to ta

Amongst the Asian indices, Shanghai index gained by 1.8% CG nk nc we al *From 24 Sept 2020 to 23 Oct 2020 PS Tec Au ood Me FM Ba na Re Po G l while Hong Kong’s Hang Seng index gained 7.2% while Fi ta Japan’s Nikkei index witnessed minor gain of 1.3%. On the * pi Ca domestic front Sensex rose by 11.3% while Nifty gained by *From 24thSept 2020 to 23rd Oct 2020

10.4%. *

Momentum in the market too is waning where a negative The month of October witnessed an exuberant rally divergence is observed in almost every time frame. Such of 10.4% in Nifty and hence the same is again expected formation indicates that though market may be moving by the traders in the forthcoming month as well. But higher but upmove may be suspicious in nature. Nifty is at the technical patterns and parameters are currently its six month high but RSI is still struggling to move above poised towards a mild correction. It managed to close the prior swing high. In all time frames starting from daily above 11500 zones and formed indecisive Doji candle for to that monthly, negative divergence is clearly visible. second consecutive week indicating consolidation amidst uncertainty. It has been respecting to its rising support trend line by connecting all the recent swing low of 7832, 8806, 10790 and also holding above its 200dma. Now it needs to hold above 11500 zones to extend its momentum towards 12400 then higher zones of 12700 while on the downside supports are seen at 11350 then 10720 levels.

November 2020 INSIGHT 66 Currently Nifty is sustaining above its short term as In Elliott wave analysis currently, Nifty is in wave B of well as medium term charts and sustaining above its ‘Flat’ with an upward unfolding. The upside target for important averages of 20/50/100/200. The longer term wave ’B’ of the flat as theoretically projects 78.6-80%-100% average of 200dma have turned upward along with prices of wave ’A’ comes around 11450-12430. On the downside which signifies rising strength and upward momentum in the level of 10500-10550 identified by 38.2% retracement of short term. ‘Golden Crossover’ where short term average the entire decline since Jan’20 would be crucial and would of 50 crosses above the 200dma remains active and hence confirm the existence of Flat wave ‘B’. Wave C following there is a higher possibility of formation of yet another all Wave B would virtually be very sharp and would likely last time high. The slope of the averages have in recent period for an average 12 months and may result in a fall between have been a little compressed hence affirming of a drop in 40% and 60% from the level where the wave began. momentum.

Other correlated markets optimism in market sentiments and USD/INR spot will follow the direct relationship with dollar index. With US Other correlated markets like in Bullion counter, the elections just around the corner, it can be expected that COVID-19 pandemic has prompted unprecedented money the uncertainty to lead USD/INR swing within the broader printing and low interest rates globally, putting gold on range of 73-74. track for its best year in a decade given its appeal as a hedge against inflation and currency debasement. As Crystal gazing the derivative data we get closer to the US election and if it becomes more Nifty futures witnessed a rollover of 77% to November apparent that the Democrats may win, then gold may see series, as it appeared traders preferred to await US poll a rise given their planned spend is significant higher, but outcome. Nifty November at 11,667.90 ended in discount at the moment the market is waiting for further clarity. signalling the cautiousness of traders. Nifty futures Market participants also has been keeping a close watch rollover of October series was at 77%, which is slightly on developments in ongoing Brexit negotiations. higher than last 3 months’ average of 76.05%, indicating Crude oil prices have been stuck in tight range with prices that the long bias is intact ahead of the volatile market witnessing weaknesses in past few trading sessions. But scenario and US presidential election. The Open interest surge in COVID-19 infections again dimmed the outlook also increased by 25.63% on expiry to expiry basis, which for economic growth and fuel demand. OPEC and allies clearly indicates that some of the long positions formed in a group called OPEC+ are due to taper production cuts in October get carried to the November series. At the in January by 2 million barrels per day (bpd), from 7.7 beginning of new series Options data is scattered at million bpd currently. A Joint Technical Committee, which various strikes. The maximum Put OI is placed at 11,000 includes representatives from key OPEC+ producers followed by 11,500 strikes, while maximum Call OI is met to review compliance with its global oil output cuts. placed at 12,000 followed by 12,500 strikes. Marginal Call OPEC’s Secretary General said demand was recovering writing in 11,700 and 12,000 strikes were seen, while Put more slowly than expected and OPEC+ will ensure oil writing is seen at 11,600 then 11,000 strikes. Options data prices do not plunge steeply again when it meets at the suggests a wider trading range in between 11,200 to 12,000 end of November zones. To sum up, Nifty has to cross and hold above 11,750- USD/INR spot has been consolidating in between 73-73.60. 11,777 zones to get the bull’s grip for a bounce towards Market seems to have factored in a likelihood of no US 12,020 then 12,200 zones ahead of the festive season while stimulus package before the election however it cannot on the flipside major support exists at 11,500 then 11,333 be totally ruled out. Until the deal is released we won’t see zones.

67 INSIGHT November 2020 Call -Put Options Open InterestsCall -Put OpDistributionstions Open In forterests Nov’20 Distribu Contracttions for Nov'20 Contract

2500000 Call

Put 0

2000000 5 10 97 26 30 0 21 21

1500000 131355 0 5 95 00 25 5 50 13 23 12 1632 1450 92 662 50 5 87 1000000 75 85 10 00 80 75 75 02 50 34 25 000 6919 23 50 24 75 76 4 79 65 6114 75 58 42 57 10 50 56 00025 54 5357 00 00 5 35 52 50 4653 23 74 85 37

500000 39 35 75 25 31 5 29 5 5 0 0 25 0 54 05 0 5 5 50 67 75 112 95 60 60 20 07 22 75 98775 9 8497 57 559 54 4590 31 19 18 12 90 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 00 00 00 10 000 20 30 50 60 000 40 70 90 80 111 00 12 112 113 115 117 1190 1160 1180 11 1140 12 12 12 12 12 12 10 10 10

Summing it up: To sum up it, in the month of October market witnessed sharp rally at the initial phase and touched high of 12025 however profit booking emerged at higher levels from the high forming engulfing bearish candle in daily time frame and started oscillating within a range indicating breather after past few months of up move amid stock specific action. However amidst such we maintain our broader positive bias and expect multi sector participation to lift the index beyond psychological hurdle of 12000 and retest its lifetime high of 12400 hence any dip from here on due to elevated volatility ahead of US election should be used as an incremental buying opportunity. On the downside Nifty Metal Nifty has strong support at 11500 as it is confluence of Metal index has risen smartly from a low of 2107 and made earlier breakout area where resistance turns support a higher bottom in the last couple of months. The index followed by 50% retracement of last up move (10790- broke out of a narrow range, thereby indicating potential 12025), at 11408 for more upsides in the coming weeks. Short term technical indicators too are giving positive signals as the Other indices to watch for: index trades above the 20 day SMA and the 14-day RSI is in Nifty Realty rising mode. With the weekly technical setup too looking The Realty index broke out from the downward sloping encouraging, one can expect the index to continue its channel line and started to rise with fervor. Breakout outperformance. Supports are placed at 2345-2290 while from the said pattern indicates of an upside potential resistances are placed at 2440 – 2500. till 248-250. Hence positive momentum is clearly visible on charts and is likely to continue in forthcoming days, all short term and medium term moving averages are trending upward hence indicating the intermediate trend to remains positive. Supports are placed at 230-220 while resistances are placed at 238 – 248.

November 2020 INSIGHT 68 BOOK REVIEW

The Checklist Manifesto: How to Get Things Right By Atul Gawande

wo reasons for which we our individual ability to deliver its thing until they can do it better than may fail. First is Igno- benefits correctly, safely, or reliably. anyone else. But what do you do when rance- we may err because Knowledge has both saved us and expertise is not enough? What do you science has given us partial burdened us. So it means a different do when super specialist fail? This Tunderstanding of the world and how strategy is needed to overcome fail- is what the author tries to address it works. ures, one that builds on experience in this book called “The Checklist and takes advantage of the knowledge Manifesto” Second is ineptitude-in this instance people have but somehow also makes the knowledge exists, yet we may fail The author has tried to bring up for our inevitable human inade- to apply it correctly. instances from varied fields of quacies. It is a Checklist. medical, aero industry, construction, And infact, in almost any endeavor In the medical profession, specializa- equity valuation to justify the rele- requires mastery of complexity and tion has gone to super specialization vance and practicality of a checklist. of large amounts of knowledge. The and a young doctor is not so yound defeat under conditions of complexity The first evolution of checklist dates nowadays; you typically don’t start occurs far more often despite great back to the pilot era. Flying a plane in independent practice until your effort rather than from a lack of it and was too complicated to be left to mid-thirties. the traditional professional approach memory of any one person, how- to these occurrences is to encourage We live in an era of the super special- ever expert, and hence a checklist more experience and training. But the ist- of clinicians, surgeon, anesthetist emerged. The test pilots made their fact is that the volume and complex- who have taken the time to practice, list simple, brief, and to the point- ity of what we know has exceeded practice, practice at one narrow short enough to fit on an index

69 INSIGHT November 2020 card, with step-by-step checks for successful checklist, there line of The answer for it was in the con- takeoff, flight, landing, and taxiing. action was having an array of people struction industry where the con- So is the case in medical where four and equipment at the ready- trauma struction schedule was essentially vital routine data points are looked surgeons, a cardiac anesthesiologist, one long checklist from civil work to at initially-body temperature, pulse, a cardiothoracic surgeon, bioen- structural engineering steps incorpo- blood pressure, and respiratory rate- gineering, support staff, a cardiac rated and a check list is prepared and they give health professionals a basic perfusionist, operating and critical sent to the subcontractors and other picture of how sick a person is. care nurses, intensivists is present in independent experts so they can dou- an instance when required in case of ble-check that everything is correct, Moreover in complex environment, a cardiac and respiratory arrest. This that nothing has been missed. The experts are up against two main was a checklist for drowning victims result is a remarkable: a succession of difficulties. The first is the fallibility with a cardiac arrest. day-by-day checks that guide how the of human memory and the attention, building is constructed and ensure especially when it comes to mun- Checklist provides a cognitive net. that the knowledge of hundreds, dane, routine matters that are easily They catch mental flaws in all of perhaps thousands, is put to use in overlooked under the strain of more us- flaws of memory and attention the right place at the right time in pressing events. Or the other risky and thoroughness. In the science of the right way. Now in the process thing is to lull themselves into skip- complexity- there are three different that in case of a variance occurring, ping steps even when remembered. kind of problems in the world: the and hence a complex situation, Checklists seem to provide protection simple, the complicated, and the were generally expert’s individual against such failures. They remind us complex. Simple problems like baking judgement is supreme and his of the minimum necessary steps and a cake requires a recipe and brings personal judgement holds sway. But make them explicit. They not only high likelihood of success. Compli- this seems to be a flaw and is flawed offer the possibility of verification cated problems are ones like sending with risk in decision making. Rather but also instill a kind of discipline a rocket to the moon where timing the case in point here which the of higher performance. Which is and coordination become serious author is referring to has a “submittal precisely what happened with vital concerns. Complex problems are schedule”. This is a checklist, but it signs- though it was not doctors who the one where the outcome remains didn’t specify construction tasks; it deserved the credit. highly uncertain. specified “communication tasks”. For The author brings an instance of a The author highlights that thinking the way the project managers death critical care specialist at Johns Hop- about averting plane crashes in with the unexpected and the uncer- kins Hospital named Peter Pronovost 1935, or stopping infection of central tain was by making sure the experts who came up with a checklist to lines in 2003, or rescuing drowning spoke to one another- on X date ward-off central line infections and victims, the problem in each instance regarding Y process. So, to sort out a the results were dramatic with ten- was simple one, despite the number complex problem another checklist day line infection rate went from 11% of contributing factors. First instance mentioning the communication to zero. After following this for fifteen was to focus attention on the rudder line and confirmation in a desired more months, the results were stag- and elevator controls, second was to timeframe and the builders trusted in gering. The checklist had prevented maintain sterility and the third was the power of communication among forty-three infections and eight to be prepared for cardiac bypass. All the experts and the person involved deaths and saved two million dollars were “forcing functions”: relatively rather than any individual. For in costs. The checklist applied were: straight forward solutions that force complexity, the construction industry Doctors are supposed to a>wash the necessary behavior- solutions is way too expert in mastering the their hands with soap, b>clean the like checklists. But can a checklist be perfection of tracking and commu- patient’s skin with chlorhexidine helpful in averting a failure when the nication checklist and hence we see antiseptic, c>put sterile drapes over problems combine everything from less accidents of building collapse the entire patient c>wear a mask, hat, simple to the complex. in an era of skyscrapers and less sterile gown, and gloves, and e>put time in than earlier decades. Serious a sterile dressing over the insertion errors in this business is a failure of site once the line is in. Though these communication. steps are no-brainer and known and Checklist provides This was the understanding people in taught for years. But despite being a cognitive net. the skyscraper-building industry had silly, the silly mistakes proved to be of They catch mental grasped. More remarkably, they had a serious concern. flaws in all of us- learned to codify that understanding Another case with regards to a flaws of memory into simple checklists. They had made cardiac case of failure the conclusive and attention and the reliable management of complex- evidence was coordinated efforts thoroughness. ity a routine. The routine requires and an empowered team and the balancing a number of virtues: checklist to the people with the freedom and discipline, craft and least power in the process. For a protocol, specialized ability and

November 2020 INSIGHT 70 group collaboration. And the checklist every single step. They turn people’s few minutes. But after about sixty to help achieve the balance, they brains off rather than turn them on. to ninety seconds at a given pause have to take two almost opposing point, the checklist often becomes a A good checklist, on the other hand, forms. They supply a set of checks to distraction from other things. And the are precise. They are efficient, to the ensure the stupid but critical stuff risk of over skipping, shortcutting is point, and easy to use even in the is not overlooked. And they supply a risk. Hence, he suggests keeping it most difficult situations. They do not another set of checks to ensure short by focusing on what he called try to spell out everything- a checklist people talk and coordinate and accept “the killer items”. The steps which cannot fly a plane. Instead, they responsibility. are most dangerous to skip and provide reminders of only the most sometimes overlooked, nonetheless. Hence checklists in odd corners critical and important steps- the ones The wording should be simple and everywhere. Even in the restaurant that even the highly skilled profes- exact. Even the look of the checklist industry for every customer for sionals using them could miss. Good matters and ideally should fit on customized services and the recipe of checklists are, above all, practical. one page and with fonts, uppercase/ food for excellence. Even if the indus- He also highlights that when making lowercase, color distraction etc. One try is more of an art than a science. a checklist there are number of key most important thing is the checklist In the lines the, WHO name a set of decisions. You must define a clear should be tested in the real world and official standards for safe surgical pause point at which the checklist is keep checking for its practicality and care was invented with the expert supposed to be sued. You must decide usage and consistency. advice and research of the author and whether you want a DO-CONFIRM Finally, the checklist of the working many expert opinions. checklist or a READ-DO checklist. group combined in one and had the The checklist cannot be lengthy. A The problem in surgery has, essen- following points. The final WHO safe rule of thumb some use is to keep tially four big killers wherever it is surgery checklist spelled out nineteen it to between five and nine items, done in the world: infection, bleeding, check in all and was implemented in which is the limit of working mem- unsafe anesthesia, and what can only some eight hospital across the world, ory. As some situation you have to be called the unexpected. For the first both poor and rich countries with react in seconds and in some with three science and experience have WHO aids. Before anesthesia, there given us some straightforward and are seven checks. After anesthesia, valuable preventive measures which but before incision, come seven more contrary to the general thinking is checks. Finally, at the end of the missed and simple failures. Hence In the investing operation, before the team wheels the perfect for a classic checklist and world also, the patient from the room, come five final steps to prevent the mishaps. And for author gives checks. Specified checks ensured that the fourth killer- the unexpected- example of Monish stupid stuff isn’t missed (antibiotics, requires the most promising thing Pabrai, Guy Spier allergies, the wrong patient) and a to stop and discuss though the case few communication checks to ensure together- to be ready as a team to & one from the people work as a team to recognize identify and address each patient’s MF industry. All of the many other potential traps and unique, potentially critical dangers. them use checklist subtleties. The result was startling to say the least. The checklists had Before this the author was trying to and in their case, spared more than 150 people from make things effective in his endeavor it has saved them harm- and 27 of them from death. to come up with a checklist for the lot of time, error Complications fell by 36% and deaths WHO. He met Daniel Boorman from and brought fell by 47%. the Boeing Company in Seattle, Washington. He was a veteran who in methodical In the investing world also, the author studied thousands of crashes and approach to gives example of Monish Pabrai, Guy near crashes over the years and he investing. Even Spier & one from the MF industry. has made a science of averting human it is highlighted All of them use checklist and in their error. in the book case, it has saved them lot of time, error and brought in methodical His take after years of experience in that Warren approach to investing. the airline industry and with checklist Buffet also has in averting crisis is that a Bad check- mental checklist There are many instances which the list are vague and imprecise. They author has mentioned in the book are too long; they are hard to use; for evaluating how checklists have saved lives, they are impractical. They are made business. brought in more efficiency, minimized by desk jockeys with no awareness of errors, saved time, empowered people the situations in which they are to be with discipline in their profession and deployed. They treat the people using bring in amazing outcomes for the the tools as dumb and try to spell out betterment of himself and humanity.

71 INSIGHT November 2020 November 2020 World Economic Calendar November 2020

Monday Tuesday Wednesday Thursday Friday 2 3 4 5 6 IN: Markit India PMI Mfg US: Durable Goods Orders IN: Markit India PMI Services UK: Bank of England Bank Rate US: Change in Nonfarm Payrolls US: ISM Manufacturing US: Factory Orders US: ADP Employment Change US: Initial Jobless Claims US: FOMC Rate Decision (Upper Bound) CH: Caixin China PMI Mfg US: Cap Goods Orders Nondef Ex Air US: Trade Balance UK: Markit/CIPS UK Construction PM US: Unemployment Rate JN: Jibun Bank Japan PMI Mfg US: ISM Services Index JN: Jibun Bank Japan PMI Services US: Wholesale Inventories MoM EC: Markit Eurozone Manufacturing PMI CH: Caixin China PMI Services EC: Retail Sales MoM JN: Household Spending YoY INSIGHT 9 10 11 12 13 CH: Trade Balance CH: CPI YoY US: MBA Mortgage Applications IN: Industrial Production YoY US: U. of Mich. Sentiment US: Consumer Credit JN: BoP Current Account Balance JUK: Industrial Production MoM IN: Exports YoY EC: GDP SA QoQ JN: Leading Index CI UK: Jobless Claims Change JN: Machine Tool Orders YoY IN: CPI YoY US: PPI Final Demand MoM

72 JN: Coincident Index CH: PPI YoY UK: Total Business Investment QoQ US: Initial Jobless Claims US: Monthly Budget Statement UK: Claimant Count Rate UK: Exports QoQ UK: GDP QoQ EC: Trade Balance SA 16 17 18 19 20 IN: Wholesale Prices YoY US: Retail Sales Advance MoM UK: CPI YoY US: Initial Jobless Claims JN: Natl CPI YoY JN: Industrial Production MoM US: Industrial Production MoM JEC: CPI YoY US: Existing Home Sales UK: Retail Sales Inc Auto Fuel MoM JN: GDP SA QoQ US: Import Price Index MoM US: MBA Mortgage Applications US: Leading Index EC: Consumer Confidence CH: Industrial Production YoY US: Business Inventories US: Housing Starts US: Philadelphia Fed Business Outlook UK: PSNB ex Banking Groups US: Empire Manufacturing JN: Housing Loans YoY UK: PPI Output NSA MoM US: Bloomberg Consumer Comfort UK: GfK Consumer Confidence 23 24 25 26 27 EC: Markit Eurozone Manufacturing PMI US: Conf. Board Consumer Confidence US: Initial Jobless Claims JN: Machine Tool Orders YoY IN: Fiscal Deficit INR Crore UK: Markit UK PMI Manufacturing SA US: Richmond Fed Manufact. Index US: GDP Annualized QoQ JN: Leading Index CI IN: Eight Infrastructure Industries US: Markit US Manufacturing PMI US: FHFA House Price Index MoM US: U. of Mich. Sentiment JN: Coincident Index JN: Tokyo CPI Ex-Fresh Food YoY US: Chicago Fed Nat Activity Index US: Durable Goods Orders JEC: Consumer Confidence US: New Home Sales EC: Economic Confidence 30 IN: GDP YoY JN: Industrial Production MoM UK: Mortgage Approvals US: Pending Home Sales MoM JN: Retail Sales YoY

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November 2020 INSIGHT 76 65 INSIGHT September 2020 Ashika Stock Broking Ltd. Gyanada e-learning initiative launching soon!

Ashika Stock broking Limited (“ASbL”) Analysts (including their relatives) Research analysts (forming part of Ashika Group supports charitable foundation to fuel the started its journey in the year 1994 and may have financial interest in the Research Desk) have not received any aspirations of young girls in India. is presently offering a wide bouquet of subject company(ies). And, the said compensation or other benefits from With our vision to develop essential 21st century capacities, computational thinking and working with services to its valued clients including financial interest is not limited to the subject companies or third parties computer-based systems, we will be launching our e-learning module by September,2020. broking services, depository services having an open stock market position in connection with the research and distributorship of financial prod- in /acting as advisor to /having a loan report/ research recommendation. It has been designed as two sub-initiatives: Every Child Can Code (ECCC) and Makers in the making (MIM). ucts (Mutual funds, IPO & bonds). It transaction with the subject com- Moreover, Research Analysts have not became a “Research Entity” under pany(ies) apart from registration as received any compensation from the SEbI (Research Analyst) Regulations clients. companies mentioned in the research 2014 in the year of 2015 (Reg No. report/ recommendation in the past 2) ASbL or its Research Analysts INH000000206). twelve months. Our Wonderkids Shine Again! (including their relatives) do not have The CEL CS Unplugged Challenge 3 and Challenge 5 was hosted ASbL is a wholly owned subsidiary of any actual / beneficial ownership of 5) The subject companies in the in the month of October. Our kids from Gyanada Foundation had Ashika Global Securities (P) Ltd., a RbI 1% or more of securities of the subject research report/ recommendation participated in both these challenges. We’re very proud that two registered non-deposit taking NbFC company(ies) at the end of the month may be a client of or may have been of our kids, Mahek Gupta also of Grade 9, studying in Hindi High Company. ASHIKA GROUP (details immediately preceding the date of a client of ASbL during the twelve School and Vaishnavi Sharma of grade 9, studying in M.D Bhatia enumerated on our website www. publication of the source research months preceding the date of con- School were among the winners in the respective challenges. ashikagroup.com) is an integrated report or date of the concerned cerned public appearance for invest- The challenge aimed to enhance learning through coding. financial service provider inter alia public appearance. However, ASbL’s ment banking/ merchant banking / The participants learnt how to represent binary numbers and engaged in the business of Investment associates may have actual / beneficial brokerage services. their conversion. It was like a mini introduction to the world of banking, Corporate Lending, Com- ownership of 1% or more of securities encryption. The binary numbers were thought of as secret words 6) ASbL or their Research Analysts modity broking, Debt Syndication & of the subject company(ies). and the kids had to convert them to their decimal form. It is very have not managed or co–managed Other Advisory Services. inspiring that our kids take up these challenges and look forward 3) ASbL or its Research Analysts public offering of securities for the to learning something new. There were no significant and mate- (including their relatives) do not subject company(ies) in the past rial disciplinary actions against ASbL have any other material conflict of twelve months. However, ASbL’s taken by any regulatory authority interest at the time of publication of associates may have managed or co– during last three years except routine the source research report or date managed public offering of securities matters. of the concerned public appearance. for the subject company(ies) in the Coding For Kids However, ASbL’s associates might past twelve months. DISCLOSURE Our e-learning initiative with the aim to make technology have an actual / potential conflict of Research reports are being prepared 7) Research Analysts have not served affordable for all, is gaining momentum. Our python workshop interest (other than ownership). and distributed by ASbL in the sole as an officer, director or employee aims at teaching kids how to code, since python is extremely capacity of being a Research Analyst 4) ASbL or its associates may have of the companies mentioned in the easy to use and beginner friendly. Every module or concept under SEbI (Research Analyst) Regu- received compensation for investment report/ recommendation. which is taught in class is backed with a project for kids to lations 2014. The following disclosures banking, merchant banking, broker- understand the application of everything that they learn. Our 8) Neither ASbL nor its Research and disclaimer are an essential part age services and for other products team has thoughtfully designed the code and included kid Analysts have been engaged in friendly projects with the aim to develop interest in them. Our of any Research Report so being and services from the subject compa- market making activity for the fellows who will be teaching are well versed with the content and distributed. nies during the preceding 12 months. companies mentioned in the report / are enthusiastic about learning and teaching. However, ASbL or its associates or its 1) ASbL or its associates, its Research recommendation. We’ve started from basics in our course structure and extend to advanced practical applications, for kids who are interested to learn with us further. With the aim to make it affordable for all, the price of bi-weekly, total of 15 sessions is limited to Rs. DISCLAIMER 1500. The workshop is designed for kids of ages 14 to 16 and will The research recommendations and information are solely for the personal information of the authorized recipient and does not con- be held online, so that kids from any part of the world have the strue to be an offer document or any investment, legal or taxation advice or solicitation of any action based upon it. This report is not access to it. Kids who want to explore coding or those who want for public distribution or use by any person or entity, where such distribution, publication, availability or use would be contrary to law, to know more about python would definitely learn a lot from our regulation or subject to any registration or licensing requirement. We will not treat recipients as customer by virtue of their receiving workshop. For more details or registering with us, sign up on this report. The report is based upon the information obtained from public sources that we consider reliable, but we do not guarantee the google form: https://forms.gle/AAknt5BxsWkwyWz5A its accuracy or completeness. ASbL shall not be in anyways responsible for any loss or damage that may arise to any such person from any inadvertent error in the information contained in this report. The recipients of this report should rely on their own investigations.

We, at Gyanada Foundation, engage students in practical learning. For this we provide kids with Gyanada Lab Kits. To help us fund these kits, visit: https:// gyanada.org/donate.html. You can also write to us at [email protected] or connect with us at 9819044922. Our bank details are: GYANADA FOUNDATION HDFC Bank, Stephen House Branch, Current A/c No. 50200002885400 IFSC CODE: HDFC0000008 MICR CODE: 700240002

65 INSIGHT September 2020 77 INSIGHT November 2020 Group Companies

Ashika Stock Broking Ltd. Ashika Capital Ltd. (Member : NSE, bSE, MSE, MCX, ICEX Depository participant (SEbI Authorised Merchant banker) of CDSL / NSDL, AMFI Mutual Fund Advisor,Group Research Analyst) Companies CIN No. U30009Wb2000PLC091674 CIN No. U65921Wb1994PL217071 AshikaSEbI Registration Stock NoBroking : INZ000169130 Ltd. Ashika Capital Ltd. (Member : NSE, BSE,SE MSE,bI Regsitration MCX, ICEX No Depository : INH00000006 participant (RA) (SEBI Authorised Merchant Banker) of CDSL / NSDL, AMFI Mutual Fund Advisor, Research Analyst) AshikaCIN No. U30009WB2000PLC091674 Wealth Advisors Pvt Ltd. CIN No. U65921WB1994PL217071 CIN number – U65999Wb2018PTC227019 AshikaSEBI Registration Credit No Capital : INZ000169130 Ltd. SEbI Registered Investment Adviser (RbI Registered NbFC) SEBI Regsitration No : INH00000006 (RA) SEAshikabI Registration Investment number –Managers INA300013759 Pvt. Ltd. CIN No. L67120Wb1994PLC062159 CIN number – U65929MH2017PTC297291

Ashika Global Securities Pvt. Ltd. Ashika Investment Managers Pvt. Ltd. Ashika Credit(RbI Registered Capital N Ltd.bFC) Ashika Global Securities Pvt. Ltd. CIN number – U65929MH2017PTC297291 CIN No. U65929W(RBI Registeredb1995PTC069046 NBFC) (RBI Registered NBFC) CIN No. L67120WB1994PLC062159 CIN No. U65929WB1995PTC069046

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Toll Free No.: 1800 212 2525 For any research related query: [email protected] [email protected]

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