Market Overview Monthly Insight Performance Startup Corner Technical View Prominent Headlines Sector Outlook - Auto Monsoon 2020: Good Start Book Review Q&A with CIO Management Commentary India Inc: Annual Report Card World Economic Event Calendar Stock Picks Economy Review Mutual Fund Overview INSIGHT August 2020 CREDIT RISK

Q&A WITH Mr. Mahesh Patil, Aditya Birla Sun Life AMC Ltd.

WIPRO LTD. | DIVI’S LABORATORIES LTD. FINE ORGANICS INDUSTRIES LTD. Economy INSIDE Review THIS ISSUE 41

Market Startup 1 overview corner 49

Prominent Monsoon headlines 2020: Good Start PROMINENT July2020 HEADLINES 4 50 Q&A India with CIO Inc: Annual Report Mr. Mahesh Patil, Card Co-Chief Investment Officer, Aditya Birla Sun 6 Life AMC Ltd. 55 Stock Mutual Pics fund overview • Wipro Ltd. • Divis Laboratories Ltd. • Fine Organics Industries Ltd. 13 60

Monthly Technical insight view Recommendation 22 performance 65

Sector - Book review AUTO Subscribed by Tien 26 69 Tzuo

Management World commentary economic 32 calendar 74 MarketOVERVIEW

Markets remain at a crucial juncture and after having regained more than 48% from the lows, it has lost steam off late.

Having said that Indian markets when compared to other parts of the have underperformed global peers, world which have received strong probably on account of fiscal It’s nothing new fiscal support. It’s nothing new with stimulus pack led by demand revival with regards to the regards to the dichotomy between in developed markets which is stocks markets & economy, although absent in India. Hence experts are dichotomy between when Reserve Bank of India (RBI) divided at this point of time, some stocks markets & governor himself raises a caution, expect domestic markets to catch economy, although market takes notice. RBI governor up global pee rs while others expect when Reserve Shaktikanta Das said that India’s increasing divergence. Economists financial system remains strong but however opined (even before Govt. Bank of India (RBI) extreme risk aversion could turn came up with the stimulus package) governor himself out to be counterproductive in the that domestic markets given the raises a caution, current scenario. In his foreword demographics and innate strength to the central bank’s bi-annual is good to revive demand on its market takes notice. Financial Stability Report (FSR), own, however there would be a lag Das said financial intermediaries

1 INSIGHT August 2020 like banks and other financial dislocations, in addition to the state institutions should augment capital of global factors like trade and and improve resilience as a top financial conditions,” the central Loan restructuring priority. Augmentation of capital is bank observed. Similar projections could act as a needed by financial intermediaries for FY21 GNPA levels have been done double-edged sword, since RBI’s stress tests indicate that by ICRA Ltd and S&P, which have since it delays the gross non-performing assets (GNPA) been circulated by media articles. inevitable (or NPAs), ratio of scheduled commercial banks However, what remains crucial is could escalate to 12.5% in FY21 from the recovery of SME sector together although giving 8.5% under baseline scenario, while with retail, since experts believe enough time for GNPA could touch 14.7% under a very credit risks could emanate from economic activities severely stressed scenario (which there, which are getting ignored to pick up and hence assumes hypothetically that the GDP now or are considered safe. There give bad loans a would suffer a contraction of 8.9% in are questions raised on the health chance to go back FY21, among other factors). “Financial of the SMEs and how far Govt.’s sector stability is a prerequisite for polices have addressed their pain. to standard, which giving confidence to businesses, Similarly, pay cuts & job losses have itself is dependent investors and consumers. We need also hit organized sector employees on lots of ifs & buts to remain extremely watchful and which can be fathomed from the (mostly economic focused,” Das said in the foreword. increasing withdrawals from EPFO & corporate Das said the RBI report coincides accounts. Notwithstanding such profitability growth) with a growing disconnect between activities, latest set of corporate movements in certain segments of earnings from private banks show financial markets and real sector that loan moratorium books has in think-tank Indian Council for activity. The fact that economic come down drastically and yet banks Research on International Economic growth was already moderating are hurrying and cueing to raise Relations (ICRIER), rural economy when hit by covid-19, has also been funds to shore up the capital base never went down drastically as acknowledged by RBI. Although, Mr. and has kept provisions high with production was there and demand Das also spoke of a gradual recovery excess provisions more than 10% also didn’t get affected. Government from the nationwide lockdown which in some cases. Credit risks are the farm procurement was strong this is becoming visible. “The downside biggest risk at this point of time and year, however the migrants who risks to growth remain significant RBI could as well come up with loan returned back had to work under and full restoration in economic restructuring after moratorium ends MGNREGA provided jobs at much activity would be contingent upon in August. Loan restructuring could lower wage rates, hence income the support for robust health act as a double-edged sword, since of families went down. He opines infrastructure, recovery in demand it delays the inevitable (or NPAs), “In rural areas, where landholding conditions and fixing of supply although giving enough time for isn’t big enough, most families economic activities to pick up and have one or two of their members hence give bad loans a chance to working in cities. Income of those Augmentation of go back to standard, which itself families from remittances didn’t go capital is needed is dependent on lots of ifs & buts up. While agriculture incomes may by financial (mostly economic & corporate have remained static, families had to intermediaries since profitability growth). absorb this loss of additional income RBI’s stress tests With regards to the present from remittances which put added indicate that gross green shoots at hand, like goods pressure on them,”. Rural wages haven’t gone any higher and hence non-performing and services tax (GST), Google mobility trackers, power demand, is a testament to that. Moreover, on assets (GNPA) unemployment rates have started the back of good monsoon prices for ratio of scheduled softening from middle of June and kharif crops would be lower. Overall, commercial banks further in July. Besides, economists majority of the economists believe could escalate to have also now debated with new per capita income of households 12.5% in FY21 from found strong impetus towards will come down as there are more rural economic revival. According hands because of migrants. Lastly, 8.5% under baseline rural is generally associated with scenario to Dr. Ashok Gulati, Infosys chair processor for agriculture farm sector, however a bigger pie is constituted by non-farm sector

August 2020 INSIGHT 2 which has been hampered by months now. India is now reporting disruptions and lockdowns. Thus, the close to ~50,000 new cases, which initial gung-ho with regards to the is hardly abating, although the Although, the listed rural story needs a relook. Moreover, recovery rate at 64.5% has been space is relatively Covid-19 is believed to have made in heartening. Government’s Unlock insulated and the roads and spreading across newer 3.0 is also not expected meaningfully formal sector could districts and poses challenge for alter much activity, hence business have actually gained the rural economies. Initial reports disruptions are an unenviable at the cost of the started doing rounds in June when outcome as intermittent lockdowns migrants returned home. Cities such across states are here to stay for a informal and small as Chennai & Bengaluru has been while albeit Confederation of Indian players. In fact, the grappling with the spread of the virus Industry (CII) expects a V-shaped early bird results for across newer districts and tier 3 or recovery. Q1FY21 have been 4 towns which are synonymous with Needless to say, these disruptions better than expected rural. Needless to say, COVID-19 still have resulted in fizzling out of the remains the biggest stumbling block pent-up demand captured by the despite India facing intermittent lead indicators and would have an was down 35%. The article further lockdowns and restrictions for 4 impact on corporate earnings as states that performance could have well. Although, the listed space is been worse if not for the 27 percent relatively insulated and the formal decline in their raw material cost and 33% cut in discretionary expenses. Covid-19 is believed sector could have actually gained at the cost of the informal and small These numbers however risk further to have made in roads players. In fact, the early bird results deterioration as more companies and spreading across for Q1FY21 have been better than report results, particularly outside newer districts and expected. In fact, majority of index the index space. The future has poses challenge for companies have reported better more uncertainty ahead and it is a the rural economies. than expected results across sectors given that it will take time before a Covid vaccine reaches every Initial reports led by cost savings as well as on tax. The combined profit before nook and corner of India, even it is started doing tax (PBT) of the 95 companies that available today itself, nevertheless rounds in June when have declared result fell 8.6 percent a discovery would be the brightest migrants returned year on year (YoY), while their net spot for the markets. The positive home. Cities such profit and net sales were down 3.4% outcomes of trials from the vaccines as Chennai & each during the first quarter. The is certainly keeping the enthusiasm alive, as a discovery will mark Bengaluru has been results were dominated by IT & financial services companies which normalization. In the meantime, grappling with have been least impacted. The real border tensions and the US-China the spread of the pain could be witnessed in the relations could also play a spoilsport virus across newer manufacturing sector and hence and keep markets busy. Besides, US districts and tier 3 excluding IT & financial stocks, presidential elections which will start or 4 towns which are picture was indeed different. The in November 2020 could well turn synonymous with article revealed that combined net out to be important events for equity markets as well. rural sales of 67 early bird companies was down 23% YoY in Q1FY21, while PBT

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 August 2020 ndia has the potential he pandemic to become a magnet has reduced the PROMINENT Ifor digital innovation Tpurchasing power by focusing on areas like of people as incomes HEADLINES talent, policy framework have gone down. JULY 2020 and trust… DEBJANI Something needs to be GHOSH, Nasscom done urgently to offset he industry to President this negative impact and come forward increase demand. This Tand invest as his pandemic has can only happen if the Indian economy remains led to enormous cost of doing business structurally strong. Teconomic con- goes down and we focus Highlighting a series sequences by way of on better manufacturing of reforms, including lockdown which brought processes to ensure moderation in corporate serious dislocation both quality… R C BHARGAVA, tax rate, announced on demand and supply chairman of Maruti by the government sides. Q1 and Q2 will not Suzuki India Ltd. in the last six years to be lofty performances encourage investment, to say the least, he think he government is the investment by local Q3 and Q4 of the current unlikely to meet companies would instill fiscal year, there would Tthe Budget targets confidence into foreign be a very sharp V-shaped for 2020-21 due to the companies to put money recovery, not necessarily COVID-19 crisis but into India - ANURAG that anything fundamen- contraction in economic SINGH THAKUR, Minister tal will happen or may growth may not be as of State for Finance happen but because of a severe as being pointed lower base. Nonetheless, out by the outside world, ndian investors need fiscal year as a whole TARUN BAJAJ, secretary to play a much more would end on a negative of the Department of Iimportant role in trajectory… NK SINGH, Economic Affairs (DEA) providing funds to our 15th Finance Commis- start-ups. Most of our sion Chairman or the month of high quality successful June, going by good start-ups are he green shoots the current trends, getting sold to foreign are visible F we have certain trend companies and the risk based on high T about how many people taking ability in India frequency indicators... have made payment so needs to be promoted a we will watch them as far, and also the e-way lot more to support our we go along. It’s not as bill...truck movement...all start-up ecosystem… PIY- if we concluded that these things are giving USH GOYAL, Commerce the economy has green encouraging signals that and Industry Minister shoots and therefore we the economy is coming will not take any more back to the realm sooner he government is steps. We have kept than what was being making all efforts all options absolutely anticipated when the for ease of doing open. The government is T lockdown was started business in the fertiliser willing to participate with in March… AJAY BHU- sector so that it can be everybody and see what SHAN PANDEY. Finance made ‘aatmanirbhar’ in the best has to be done. Secretary. true sense and farmer Interventions can hap- community can be pen even in the future served better… D V depending on how the SADANANDA GOWDA, industry responds… NIR- Chemicals and Fertilisers MALA SITHARAMAN, Minister Finance Minister

August 2020 INSIGHT 4 resently our econ- he overall recovery omy is facing lots in the economy Pof challenges. Twill take between Government is positive 2-3 years. But, we will and supportive and at the see sectors come up very An across the board exten- same time as a facilitator, quickly. Some important sion of moratorium on loan we are keenly taking lots sectors with large multiplier repayment may not be of decisions regarding and large potential for how we can be helpful in employment, which are required beyond August promoting industry, trade still struggling, and without 31. There are certain sec- and business... This is the support, they will actually time we need cooperation not be able to fully recover tors that still need support from all stakeholders… in this time… SUNIL KANT NITIN GADKARI, Road and the Reserve Bank MUNJAL , Hero Enterprises Transport, Highways and Chairman of India (RBI) will take a MSME Minister calibrated approach… iven the severity of he Indian economy RAJNISH KUMAR, State the economic situ- needs major reforms ation, in the near- Bank of India chairman in areas like land, G T term there is room for more labour and banking, in fiscal support, particularly addition to the measures already undertaken like the for vulnerable households GST and bankruptcy law… and SMEs. Over the medi- DAVID PETRAEUS, KKR um-term, India will con- Global Institute chief tinue to have a very limited fiscal space, and a credible e have and well-communicated announced consolidation plan will be Wpackages along urgently needed once the the way and most of the coronavirus pandemic packages so far have really subsides… VITOR GASPAR, Banks and the NBFCs been about cushioning Director of the International should undertake COVID the demand shock. We Monetary Fund’s Fiscal haven’t, so far at least, been Affairs Department stress tests and proac- going to the rebuild of the tively raise capital and demand phase. We will he rural economy is not wait for a difficult in the future. We do have doing slightly better monetary and fiscal space Tthan the urban econ- situation to arise amid to do that - SANJEEV omy which is still grappling the COVID-19 pandemic. SANYAL, Principal Eco- with COVID-19. Rural econ- nomic Adviser omy, which accounts for The economic impact 65 per cent of population of the pandemic -- due slowdown in and 25 per cent of GDP, is demand could lead actually proven to be a buf- to lockdowns and antic- to a financial crisis, A fer because of expanded ipated post lockdown the impact of which will MGNREGA spending. The vary from sector to sector. compression in growth government needs to build The path of the recovery on “some silver linings” in -- may result in higher and growth of the Indian the farm sector, driven by economy will depend upon non-performing assets the prospect of a favour- the trajectory of the novel and capital erosion of virus, as well as various able monsoon, to speed up fiscal measures taken by the economic recovery… banks… SHAKTIKANTA the government… SANJIV D SUBBARAO , Former DAS, RBI Governor MEHTA, Chairman and Reserve Bank Governor Managing Director, HUL

5 INSIGHT August 2020 facilities, we have the manpower and technologies also. We have also the large domestic market which will give us the scale and size which we will able to compete on the cost front. So, in that aspect that land and labour reforms are crucial and few states like UP and Rajasthan have amended their labour laws and they scrapped all these existing laws which makes easier to hire the labours. Further, there are clear opportunities in few sectors on manufacturing side and these sectors on example are chemical space as lot of manufacturing units have already shift from China because of strict pollution norm imposed in China, then textiles, pharmaceuticals more on API side. On Consumer durables & Electronics side, currently we have large imports coming from China and if we substitute that with local manufacturing and few companies Q&A WITH CIO like Apple for example have announced that they will source from Mr. Mahesh Patil - Co-Chief Investment India going forward in next 3-4 years, almost one third of their sourcing Officer, Aditya Birla Sun Life AMC Ltd. from India. That could be a huge opportunity in manufacturing space and could be one more leg for India’s Q: The present crisis has brought India into a different growth economic growth. Currently, Capex lots of changes that the way the trajectory. So, we have been trying to is very slow and for last 4 years we businesses are done. So how do you make India a large manufacturing have seen the capex in the country see the formalization happening in base for global supply chain and we has been weak and going forward the economy in the post covid world, started the initiative when Modi organic capex for domestic demand the bigger becoming bigger and government came into power 7 years will take some time to pick up. If we reinvention of India? back. Lot of things happened on are able to augment that to cater to infrastructure side like road A: After every crisis, there is infrastructure, rail infrastructure, something new to learn and it is for port infrastructure, ease of doing everyone including us as we are business transparency and on Currently there is looking into our business. In every taxation front also government has crisis, we look at our business opportunity since taken care of that by reducing the processes, how we can make it better China which is a tax rate to 15% for any new and sustainable and give us the large supplier to manufacturing set up. Although comparative advantage. Coming to there are some challenges which are the global supply India Inc. the crisis is an there like labour, on land reforms unprecedented one and couple of chain and large which need to be taken care before things that we see coming out if we manufacturers, is we can see manufacturing pick up in are able to manage it better, one is at now facing some big way. Currently there is the India Inc. at the country level, opportunity since China which is a heat firstly because then at company specific level how large supplier to the global supply they will be able to reinvent of trade war between chain and large manufacturers, is themselves. I would say that the crisis US and also after now facing some heat firstly because is something that we can take the COVID-19 crisis lot of trade war between US and also advantage of because our Prime after COVID-19 crisis lot of of countries globally Minister Mr. Modi also said the same countries globally are also looking thing that you should look at as an are also looking for for alternatives to China. So, India opportunity and we can assure the alternatives to China. has good opportunity to take benefit, new reforms which could propel as we can create manufacturing

August 2020 INSIGHT 6 the global supply chain by taking the payments and ecommerce market share and that can accelerate platforms. If the companies are able the investment towards to adopt the transition faster, they So, with the inflation manufacturing sector. Coming back will be able to gain the head start remain benign in to COVID crisis, the structural and that will provide a cost current environment, changes which we are going to see advantage which can be used to pass interest rate will first are for the companies which are on the customers and gain market strong, healthy balance sheet and share. So, we are going to see those remain low for have first advantage and clear companies to emerge stronger quite some time and professional management, these which will adopt the digital and not that would mean companies will emerge stronger out only in front end but also in back companies specially of this crisis and gain market share end. Another is behavioral change and that will happen across the because of social distancing and the the companies sectors. Financial sector is much fact that the virus will remain for a dependent on retail more prominent to see such long time and lock down is not the credit in India consolidation. We have seen solution for that, so you will see the to witness good mushrooming of financial services people will focus on personal health companies in last 10 years and a lot of and hygiene. So, the companies demand. the companies will perish and which are in health & hygiene are probably few companies would seeing good traction and again move there could be big demand for survive with strong robust risk to organized platform. So, lots of household appliances like management framework and strong companies which are in the refrigerators, washing machine, parentage. So, after the crisis, we will consumer business are seeing big dishwashers, etc. and that is the see the bigger companies will become opportunity as its products are seeing segment in India penetration is still bigger however that doesn’t mean good traction. Because of social low. So that is the big change. that SME & MSMEs will die as they distancing, there are changes Because of the overall deflationary are the backbone of big companies. happening like one in automobile environment & because of economic The large manufactures always don’t sector, consumers are focusing on slowdown, inflation will remain a bit manufacture everything so the personal mobility rather than social depressed in India. We have seen big outsourcing will happen and small & mobility like OLA & UBER. In this transformation on the food articles medium enterprises will survive situation, people are preferring their side on both on the manufacturing having good business model. own mode of transport and avoiding side and distribution side, Secondly, India Inc is moving towards mass transport system which could dismantling of APMAC, mean that digital platform to adopt digital in big lead the increase demand for 2 end prices for consumers remain way and that is a big disruption that wheelers and basic 4 wheelers and benign and we will not see prices some companies are able to adopt that the trend we have seen in China rocketing. So, with the inflation and others are way behind. After the also. So good retail sales have been remain benign in current digital mobile revolution unleashed seen in auto sector post the lockdown environment, interest rate will by JIO it’s become easier for people to while there is no doubt that lower remain low for quite some time and get the digital platform. And that has income level and job loss could be a that would mean companies specially accelerated after the COVID crisis problem. But, wherever, people can the companies dependent on retail because people are relying more on afford they will purchase and basic credit in India to witness good digital and that change will continue mobility whatever required will be in demand. Once the situation and increasingly will adopt digital demand. Also Work from Home is normalizes and liquidity starts going to be a new reality, companies moving, you will see more and more and businesses are now realizing consumers will use credit for not that lot of work can be done from only long-term benefits like housing home. People are working for 3 Because of social but also for basic consumer needs as months from home. Many parts of the interest rate go down as we have distancing, there the employees are working from seen in US. So, we can see the are changes home and already technology giants penetration of retail credit can go up said that they are seeing about 75% happening like one going forward. Focus on health and of their people will be working from in automobile sector, protection is going to increase, health home, even Google and other IT insurance and life insurance is the consumers are companies have said that nearly sector where we have seen steady focusing on personal 60-70% of their employee will be growth like term plans and I think working from home. Working from mobility rather than that will gain traction and the home requires an environment like social mobility like company which is offering protection mini office and there will be demand both in health and as well life will see OLA & UBER. for home appliances like ACs. So, traction and we will see good growth

7 INSIGHT August 2020 in these companies. So, these are the are coming with their packages to changes and transformations coming attract large manufacturing set ups. out from this crisis. Land is not a problem at all as there The fact that other are lots of lands available in various asset classes like real Q. When we talk about India taking areas and just have to make that the supply chain lead in some of the estate are still down, available. When the large companies sectors whether it is in chemical, interest rates are will set up and get benefit, they will electronics, pharma APIs, so how do then give opportunity to several very low and bank you see that these structural changes small and medium enterprises to FD rates have come are going to be quite meaning full supply to the larger companies. So, in nature to have impact on Indian down, equity as asset lot of components manufacturers companies? Next this pent-up class has witnessed and ancillary companies will demand which we have witnessed, mushroom up and that will provide higher participation whether that would be sustainable? opportunities for mid and small across the world. A: So, on the opportunity which companies. In sectors where we we talked about for the Indian have some kind of advantages like companies that will be a part of global skill and technical manpower are probably contributed by the factor supply chain and there I think scale the area where we can scale up much – work from home. Besides, there is and size will be important because faster. some amount of savings (for some what China did was big scale and size of course) because of curtailment in Talking of the current demand and that gives you cost advantage discretionary and on travel, salon scenario, in the month of June, we which you could leverage for global etc. and that is channelized into have seen good pick up in various supply chain. And so, it is important markets. The fact that other asset sectors have surprised in terms to build scale and size and to that classes like real estate are still down, of numbers and that could be on extent, larger companies which make interest rates are very low and bank account of pent up demand after the large capex will get advantage and FD rates have come down, equity lockdown got over and is expected good thing is that there are lots of as asset class has witnessed higher to continue for the months of June spaces where we import and there participation across the world. In & July too and only in the month of are larger domestic markets we cater. US too, retail participation has hit August, we would get a true picture It is important that government the roof. The breadth of the market of underlying demand. However, should provide the necessary has hence improved for last couple recovery will be much sharper than infrastructure, clearances so that of months else normally a bounce earlier anticipated because of fiscal companies can come up and scale up off was expected in frontline stocks. & monetary stimulus not just for the manufacturing facilities. Many Since Jan 2018, there has been a India but around the world. However, states are looking for this opportunity big divergence in performance of things are looking promising even as states revenue will go up, so they large caps & mid and small caps. for the banking sector which has Even within Nifty, removing the witnessed decline in moratorium top six stocks, the performance from first phase when it was ~30%. was completely different and that In the NBFC space, the comparable When the large is explained by Nifty or BSE Sensex numbers were ~50-70% in the first equal weighted index which has companies will set phase of moratorium, and has since been in a downturn since 2018. come down. In the banking sector, up and get benefit, There was value in mid and small we expect that number to be ~20%. they will then give cap names and also within large caps Recently, Bajaj Finance has reported opportunity to which were not front liners. Besides, that the moratorium number which India also suffered in last two to several small and has come down from 28% to 15% and three years due to various issues these are encouraging signs. medium enterprises in banking and financial services to supply to the Q. Retail participation has crisis, GST, demonetization etc. larger companies. So, increased massively and as an Relative performance between Nifty lot of components outcome some of the midcaps have and mid & smallcap indices were at surged at great speed. How do you decadal low, hence there was clearly manufacturers and read both these cases and whether value. However, risk is also higher ancillary companies there could be sustenance in either and chances of survival is less and will mushroom up of these? some could perish in crisis periods, although the ones which survive will and that will provide A: Normally, retail participate later make a lot of money and one has to in the cycle when there is certainty opportunities for mid pick the right stocks. The situation is and markets are steady rather than and small companies. thus tricky with lot of stocks having when there is uncertainty, like now. already rallied, the only thing in However, this time it’s different,

August 2020 INSIGHT 8 favour of retail investors is that we A: Investors who are not seasoned are at the bottom of economic cycle, get scared when they see severe hence even if these stocks correct loss on their investments and when Based on P/E in near term, if they hold onto these market corrects. Equities can be valuations, market names, they are expected to bounce very punishing and even in the will look expensive back provided the companies are present crisis stocks fell by 50-60% decent ones. Going ahead, there in the mid & small cap space. but at P/BV basis, could be higher volatility as retail Investors who are participating markets are 7-8% participants may exit in event of any for the first time should look at lower than long term further crisis or risk as the correction large cap themes because there is average and once it will be equally sharp. In the mid and stability and have ability to survive small cap space, it will be much more and gain market share as well. If normalizes markets accentuated. From our perspective, one wants to look beyond large will generate returns we believe that there is value in caps, then one should consider from a three-year the mid and small cap space if we Multicap funds where there is a perspective, and pick the right stocks- companies blend of large, mid and small caps. which can survive, have decent Fund managers select these mid and probably more than management and balance sheet and small caps based on their merits long term average has competitive strength, can deliver and thus investors can get the flavor returns. good returns over next three-year of mid & small caps. If one wants time frame. We don’t expect a sharp to have exposure in mid & small economic recovery rather a slow and cap space only, then it is advised and we don’t know how the virus gradual recovery with ups and downs to invest in mid & small cap funds will behave in future and whether and one has to be careful trading over rather in direct equity since a wrong there is a second wave. Markets here and while one can make money investment can result in huge losses, should pause at these levels and hence right stock pick is the key. in some of the companies but lose could even correct but it would not bigger amounts in others in the mid So, for retail investors direct equity be very sharp and hence market will & small cap space. participation is advised in large & create a higher bottom. From a three established names while for flavor of Q. What is your advice for first time months perspective, risk reward is mid & small caps, it is better to route retail investors who haven’t seen investments through mutual funds. tilted towards risk and one should the crisis, how do they handle this For first time investors, participation be prepared for some correction. kind of market and how they should through multicap funds would be the We are in a recovery phase and invest? right choice. economy is expected to recover from fourth quarter and if it continues to Q. What would be the direction grow at targeted rate then markets of the market from here on after are justified even at these levels We have clearly seen sharp rally from March lows? the bottom of the provided the holding period is markets witnessed A: We have clearly seen the bottom more than three years. Based on of the markets witnessed in March. in March. The way P/E valuations, market will look The way we are witnessing recovery expensive both at trailing as well as we are witnessing in broader economy, the way forward multiples since earnings are recovery in broader liquidity has improved, the way depressed. At P/BV basis, markets are economy, the governments & central banks are 7-8% lower than long term average way liquidity has supportive of the economy, it feels and once it normalizes markets will improved, the way that markets will hit higher highs generate returns from a three-year & higher bottoms from here on. governments & perspective, and probably more than Hence, we are entering into new bull long term average returns. However, central banks are market what it looks like. Having the road ahead will be bumpy and supportive of the said that since the rally has been so thus one needs to be cautions at this economy, it feels sharp, there are challenges ahead juncture. Long term investors need that markets will and it would not be a V shaped to invest steadily into this market as hit higher highs & recovery for the economy. Growth markets may surprise you and may projections for Indian economy higher bottoms from not correct and continue to go up as well as global economies are and ride over the wall of worries and here on. Hence, we negative for this year and earnings might correct later as nobody knows are entering into new will also be impacted for companies. where the correction would be. So, bull Market. More importantly, coronavirus one needs to invest steadily and not haven’t peaked out in India yet aggressively at this juncture.

9 INSIGHT August 2020 Q. Do you think earning recovery should not invest in. Companies this year is going to be unique and which are strong in their particular probably earnings growth picks up business or the niche that they While investing in next year? have created are the one to be the mid-small cap concentrated upon i.e. credible A: This year there will be sharp space one should not player in their own segment or decline in earnings across the be aggressive like created a particular advantage. In board except for few sectors this crisis one also need to look putting all eggs in like pharmaceuticals, consumer at companies with strong balance one basket, it’s better companies, FMCG, telecom, utilities. sheet, some amount of debt is ok Overall, for Nifty we expect ~15-20% to diversify because but too much leverage would place decline in FY21 earnings. However, there is bound to them in a situation of improper stability in earnings is expected management and survivability. be some amount from fourth quarter onwards and Secondly select stocks which have of error in one’s companies start reporting positive some coherent strength like cost earnings growth. For FY22, the judgment in that advantage, distribution franchise or best way to look at or compare will space. brand, that would help the company be with FY19 numbers because of to perform better than its peers. One reflation demand in many sectors in need to keep at the back of the mind FY22 which would have been deferred remain for some time and people that in the mid & small cap space because of low consumer sentiments, are likely to avoid going to malls, there is ought to be a lot of volatility low income levels in FY21. There multiplexes even if everything opens but as long as one is monitoring will be sharp jump in FY22 earnings up. Airlines is one such area where and tracking the company and the over weak base of FY21, however one is ought to see a lot of pain. basis against which one has invested important thing to observe is Hence in those spaces one can expect remains good then the investor whether demand sustains. Earnings a delayed recovery and investor should hold on to its investment. CAGR between FY19 & FY22 would should remain careful in medium While investing in the mid-small cap actually help in understanding the term perspective. However, there is space one should not be aggressive potential of individual companies. always opportunity in such scenario like putting all eggs in one basket, it’s as the better companies in the sector Q. What is the best strategy to invest better to diversify because there is will survive, companies with good in midcap by saving our capital as bound to be some amount of error in balance sheet will gain market share. well? one’s judgment in that space. So, one So, there is price to everything, should minimize the risk involved by A: If one wants to invest in though we remain negative in some spreading across larger number of midcap one has to portray a lot sector but there will be opportunity stocks like 10-15 good stocks. of cautiousness. One need to see that one need to capitalize also. the track record of the company Q. Presently with job cut and job Q. Your views on the regulators in which could give a guidance as to losses in the economy which are the mutual fund and in capital market? how these companies have behaved sectors you don’t want to invest in? do you think they have an oversight in bullish and bearish scenarios. A: Income level of a person is role considering the scams that had Lot of emphasis need to be placed impacted heavily with salary cut or been taking place recently? Mutual on management and corporate job loss and as a result of that there fund has been generating negative governance issues in the past. will be a lot of pain felt across various return –your views regarding such This procedure is however done sectors and companies. High ticket performance? to eliminate companies which one consumer discretionary will take a A: Regulation that are present lot of time to recover. Also, some now are quite tightened. Even for stress may be felt in the NBFC’s and companies also who had an oversight For Nifty we expect small banks, the ones which have approach are now regulated, ~15-20% decline provided unsecured credit, there corporate governance regulation too in FY21 earnings. one might see a higher level of NPA’s has improved compared to what it where people can’t pay. Immediate was 5-10 years back and has been However, stability impact might not be felt due to the tightened strictly. There is bound to in earnings is moratorium but may be after six- be one black sheep and that process expected from fourth month one can see the true impact. is seen globally also. The frauds quarter onwards Apart from that, company specific that has happened previously in and companies start issues are the ones which need to companies and for investment as be emphasized not because of the well like some rogue traders whose reporting positive job losses but due to the behavioral action gave us the moral losses. earnings growth. changes that has occurred because But now with stringent regulatory of the crisis. The virus is ought to practices the number of frauds

August 2020 INSIGHT 10 cases has decreased significantly. In year, economy will also pick up after the recent period if you have seen all the challenges which we saw like frauds coming up was basically Demonetization, GST, the Banking If we look at the because government has become Crisis, NBFC crisis but eventually price to book value very strict, the regulator has become the Covid crisis came in. However, parameter, it is very stringent. Even for audit firms, we will eventually overcome this government has set strict guide lines crisis as well, though the recovery currently lower to punish in case of any deviations. that was expected in the market and than the long-term Regulators are always looking out to in the economy has been delayed. average. So, in next protect not only the larger investors So, one need to remain patient 1-2 years when the but the small and marginal investors and wait as every asset class has as well and changing and tightening the property of mean reverting economy will be rules as and when required. towards its long term average. normalized, then Mutual fund in the last 2-3 years And for negative return generated in that scenario the had difficulty to pace up with the in mutual funds, one has to keep in market is expected market return because there was a mind that the return the mutual fund narrow rally in this period with only to give return in mid would generate would be market a few selected stocks performing tens at ~15%. dependent. Unfortunately, India’s and the broader market was not economic growth in the last 3-4 participating which within time will years has passed through some crisis also normalize and mutual fund phases. Against which our growth case as most of the companies’ which were slightly underperforming came below the long-term growth March quarter performance has against its benchmark will also come and the stable growth rate which declined due to Covid-19 crises. back as historically mutual fund further got reflected in companies So, PE multiple of most companies’ has outperformed its benchmark. earnings and in the market as well. looks expensive. Now if we look at So, one need to remain patient and We were on the path of recovery and the price to book value parameter stay invested and not miss out the it seemed that things will look up this (intrinsic value of the company on sudden rally in between. Equity net asset basis), it is currently lower market outlook looks promising than the long-term average. So, in in the longer term but uncertainty next 1-2 years when the economy might persist in the shorter term, will be normalized and if the book Mutual fund in the hence asset allocation should be apt. value is also coming to normal level, last 2-3 years had One need to diversify properly in all then in that scenario the market difficulty to pace asset classes. is expected to give return in mid up with the market Q. Currently Nifty trailing PE is at tens at ~15%. While if we see on the basis of PE multiple and project return because there 27x-28x while other indicators are at comfortable levels like Market forward earnings for next 3 years was a narrow rally in Cap to GDP ratio. Looking at the and assumed that the PE multiple this period with only current situations, history shows goes back to normal than the market a few selected stocks that there are less chances of return will be slightly lower at ~8-10% (based on the assumptions performing and the getting a CAGR return of more than 5% in next 3 years. So, do we invest of future earnings). So that is the broader market was in these times or stay away? range we should be looking at for the not participating market return in next 3 years. So, if A: If we see at the trailing earnings which within time we look at only the trailing earning, than we are betting on the future we will not be able to draw a right will also normalize more to get the return. Currently, conclusion. But we should be careful and mutual fund the earning got depressed because and prepared that if earning support which were slightly of various reason so trailing earning is not there than the market can go is looking expensive. So, we can see underperforming down. For a long term perspective, some downside in the market in the risk reward looks better than the against its near term. But for the long-term long term average level. Further we benchmark will investors we have to look at various should also look at the earnings yield also come back other parameters as earnings can to bond yield. Currently it has come be miss leading or does not give you as historically down from their historical average the right picture at times. So, in that level. Going forward, interest rates mutual fund has times when earnings are depressed, are expected to remain low and if outperformed its book value is good indicator to that is the situation than the return benchmark. look at to see the potential of the on equity and cost of borrowing company. Currently that is the decline, the cost of capital will also

11 INSIGHT August 2020 decline. So, we give a higher multiple financial sector is expected to go in to the company for the same earnings problem from here on but would as cost of capital is low. We think that also recover in a span of time and PSU banks are the cost of capital will remain low for come back in prominence. So, as cheap but continue extended period of time. we come out of crisis the structure to struggle except is expected to change and a lot of Q. Post Covid, which sectors are for couple of banks consolidation will happen in sectors. expected to be leader in next 4-5 But banking and financial sector is like SBI which is years? the backbone of Indian economy and expected to do good. A: As I said it earlier big is becoming is an important sector which will But other PSU banks bigger. Big companies will be help in bringing back the economy will struggle as there gaining market shares and will on track. Apart from these, because continue to be doing better. It will of the Make in India theme, sectors will be shortage of be in every sector like banking which are able to be capitalize on capital and NPAs sector where big banks have capital that will have a better future like are continuously flow and gain market share. In chemical sector as India is becoming mounting. consumer discretionary sector, a global supplier of chemicals. as the penetration level increase Companies with increase in R&D and shifting from unorganized to expense for specialty chemicals can time with valuation going down organized, which is expected to emerge big. For the larger sectors especially for the export-oriented get accelerated given the current like infrastructure I don’t think companies due to US market and situation. So, the sectors where there is any positivity as of now, auto pricing pressure. But after the Covid penetration level is low and where ancillary can become big if they are crisis, the sector looks more resilient there is shift in from unorganized able to cater the global supply chain as US market pricing pressure to organized is expected to do well as there is big shift happening in decline and there was consolidation like consumer durables, retail, transition of the auto space. So, it is in generic pharma space. Indian health, insurance, hygiene. Insurance the company who can cope up with companies with cost advantage will companies are doing good and are the current situation will do well be able to survive. The stringent becoming much bigger along with than the larger sector or the bigger view of USFDA towards the Indian inclusion of insurance companies companies. pharma companies has softened as in index. These are the sector we Q. View on PSU Banks? they are removing warning status should look forward to. Apart from from companies and are giving more that I don’t see anything at this point A: PSU banks are cheap but continue approval. In last 4-5 years, many of time. Further I think banking and to struggle except for couple of companies have invested heavily on banks like SBI which is expected to R&D whose benefit are showing now do good. But other PSU banks will in form of new products. So, from In consumer struggle as there will be shortage of here on we don’t see any rerating discretionary sector, capital and NPAs are continuously in the sector, but the sector will mounting. There can be a bit of a as the penetration continue to show a steady growth bounce back from here but creating in earnings and moreover, revenue level increase long term wealth will be difficult for visibility has improved compared to and shifting from PSU banks. I don’t see much of the other sector. So, it is expected that unorganized to opportunity in PSU banks unless the sector will continue to do well government decide to privatize organized, which in the medium term and can see a some of the PSU banks. Apart steady growth in the sector. Domestic is expected to get from SBI which is very differently pharma also is growing steadily and accelerated given the managed with decent management, there will be expected growth of current situation. strong balance sheet and investment 10-12% over medium term. Further, in subsidiaries which are creating So, the sectors where there will be some company specific return for them. So, I think a shift movement as the company which penetration level from PSU banks to private is going had invested in R&D and have their is low and where to accelerate going forward. presence in US market will do well. there is shift in from Q. View on pharma, weather the So, we don’t see any spectacular unorganized to current rally is sustainable? return from the sector what we have seen in last one year. We see a steady A: The recent pharma rally is organized is expected growth in the pharma sector from a because of couple of factors. Pharma to do well. medium-term perspective. sector was quite depressed for some

Disclaimer: Stocks conveyed by Fund manager are just for illustration and these are not recommendations

August 2020 INSIGHT 12 STOCK PICKS

Wipro Ltd.

CMP: Rs 280 Rating: BUY Target: Rs 325 Share holding pattern as on June 2020 (%) Company Information BSE Code 507685 NSE Code WIPRO Bloomberg Code WPRO IN ISIN INE075A01022 Market Cap (Rs. Cr) 160350 Outstanding shares (Cr) 571.4 52-wk Hi/Lo (Rs.) 286.8 / 159.4 Avg. daily volume (1yr. on NSE) 6,13,90,900 Promoters, 74.0% FII, 7.8% Face Value (Rs.) 2 DII, 7.6% Others, 10.5% Book Value 100.8

Investment Rationale constant currency terms declined from America contributes 59% to total Q1FY21 Result Analysis 7.5% in Q1FY21. (versus expectation of revenues, followed by Europe 23.7% Wipro Ltd. managed to beat the de-growth of 6.8% QoQ). EBIT grew and the rest of the world at 17.3%. modest earnings expectations. Wipro by 3.3% to Rs 2,782.2 crore and margin Revenue from America was down 7% Ltd.’s quarterly profit rose even as rose 146 bps QoQ to 19.06% during QoQ in CC terms thus performing the Covid-19 pandemic continued Q1FY21 led by operational efficiency better versus Europe (down 9.7%) and to take a toll on business. Net profit (+100bps) and FX (+100bps), partially rest of the world (down 6.1%). off-set by provisions (-50bps). BFSI rose 2.8% over the previous quarter More steam left on margins performance remained subdued to Rs 2,411 crore in Q1FY21 supported The positive in this quarter was (-8.7% YoY/-6.9% CC) primarily due to by other income (up 10% QoQ) and strong growth in margins. Group lower discretionary spending by the good operating performance. Street EBIT margin expanded ~80bps banks, especially in the US. In Health estimates had pegged profit at Rs to 18.1 while IT services operating Business unit (HBU), volume drops & 2,069 crore. Total revenue fell 5.3% margin improved to 19.0% (vs. 17.6% furloughs in payment provider seg- over the previous quarter to Rs 14,922 in Q4FY20 and 18.4% in Q1FY20). The ment led to revenue declines (-2.9% crore—higher than the estimated healthy expansion in margins was YoY/-2.1% CC). CBU (-3.7% YoY/-2.5% Rs 14,414 crore. In dollar terms, IT led by improving operational effi- CC) and Technology (-2.2% YoY/- services revenue stood at $1921.60 ciencies and tightening of expenses 1.4% CC) underperformed as well. million in Q1, a decrease of 7.3% (+100bps) along with favorable FX In terms of geography mix Revenue QoQ. Sequential revenue growth in movements (+100bps), partially

13 INSIGHT August 2020 off-set by provisions (-50bps). Wipro Key Concall Highlights also focused on lowering sub-con- Management Outlook: Management believes that tracting costs, heavy reduction in believes that the the demand environment going for- variable payments & gross utilization ward will be driven by cloud, cyber was by 160bps QoQ as lower leaves demand environment security and digital transformation. taken by employees. Management going forward During the latter part of the Q1FY21, has indicated that it will continue to will be driven deal momentum picked up and the rationalize any incremental expendi- by cloud, cyber order book saw a YoY improvement. tures and will be able to sustain the Management indicated that the deal margin in Q2FY21. However, the com- security and digital pipeline remains healthy despite the pany expects that certain costs like transformation. velocity of decision making lagging travel will increase once the activities During the latter the pre-Covid levels. Strong deal come back to the normal levels. part of the Q1FY21, pipeline for Cloud offerings, digital Going forward, it is expected that operations and platform services, the company to continue to witness deal momentum engineering and security services margin improvements, mainly led by picked up and the provides much greater visibility to operational efficiency, rupee depreci- order book saw a YoY the company in the coming quarters. ation and improvement in growth. improvement. No formal quarterly guidance: Acquisition to strengthen Wipro avoided providing a formal position quarterly revenue guidance for the Wipro will acquire Ivia Servicos De will also help the company to source Sep’20 quarter. It suspended formal Informatica Ltda (IVIA), a specialized local talent for its global business at outlook last quarter due to the uncer- IT services provider in Brazil, for a cheaper cost. Moreover, Wipro will tainty in demand environment, akin US$22.4mn in cash. Management also acquire Salesforce implemen- to peers. However, it confirmed that believes that the acquisition gives the tation partner 4C, an independent the revenue visibility for Q2 is much company an access to the new set of Salesforce Platinum Partner, for better than that the start of Q1. With customers in the Financial Services, $79 million (68 million euros). This regards to margins, Wipro suggested Retail and Manufacturing sectors acquisition will help Wipro to become that it would look to defend the mar- in Brazil where Wipro’s presence a dominant player in Europe and a gins in a narrow range in the near is limited. lVlA’s local talent and leader in Salesforce’s Quote-to-Cash term as some of the costs come back long-standing relationships com- domain. Both the transaction is as the situation returns to normal bined with Wipro’s global expertise expected to close by September 30, (e.g. travel), while expects more will help expand their geographical 2020. As per the management, the tailwinds from lower subcontracting footprint in Brazil. The acquisition company will continue to look for expenses going forward. will also help Wipro set up delivery companies that are reinforcing posi- in the North East of Brazil leveraging tion in areas that feel are strategic; Verticals: Wipro indicated that it is lVlA’s workforce. The acquisition it can be specific market, specific seeing some stability in in Consumer, industry, or specific technology. Technology and Communication verticals (34% of Revenue) and Wipro 3Yr. Price Chart expects demand to pick up in the coming quarters. Wipro expects BFSI 310 vertical (30% of Revenue) to remain 290 under pressure due to declining profitability and higher provisioning. 270 Healthcare should do well as volumes 250 related to Elective surgeries should come. Medical & Life sciences is also 230 impacted by low volumes. Pipeline 210 is strong in new deals and new 190 logos. Wipro is keenly watching US elections as it has implications on 170 its ACA business. Commentary over 150 other verticals broadly implies wait & watch mode and general view of recovery (uncertain to achieve Jul-20 Jul-19 Jul-18 Jul-17 Oct-19 Oct-18 Oct-17 Apr-20 Apr-19 Apr-18 Jan-20 Jan-19 Jan-18 Q3FY20 run-rate) is also cautious

August 2020 INSIGHT 14 implying continued slide in Q2FY21. the consumer (e-commerce & new In terms of longer term, demand is age Media), communications and driven by three Cs –Cloud, Collab- Thierry Delaporte technology verticals, which con- oration, Cyber security. Also, Wipro tributes 34% of revenues, is positive sees opportunity in Digital operations (new CEO & MD) for the company. New opportunity and Platforms. highlighted that will emerge with increased cloud adoption, Automation and workplace Order book: In the latter half of the focus will be on modernisation. Clients are looking Q1FY21, deal momentum picked up profitable growth for higher efficiencies (RTB) and and thus the pipeline is healthy. But with necessary vendor consolidation (benefit for the decision-making from clients is incumbents). Going forward, man- not back to pre-COVID levels. There investment as and agement wants to focus on profitable was uptick in demand of services in when required. He growth. Company will be making the domain of cloud, infrastructure also highlighted investments in order to boost reve- services, digital operations & plat- nue growth. Hence, the margin will forms, cybersecurity ad engineering. that cloud and be in the narrow band. Deal momen- Management commented that the other digital tech tum was stronger in the second order book has improved on a yearly is expected to half of the quarter, which provides basis in Q1FY21. accelerate in future better visibility. Wipro has net cash New CEO commentary: In June’20, and will be key focus of Rs. 299 bn on balance sheet (Rs. 52/ Wipro appoints Thierry Delaporte sh which is 20.2% of Mcap). Wipro as CEO & MD (based in Paris). Mr of the company. showed excellent performance on Delaporte was COO and member of both OCF and FCF fronts. So, it is Executive Committee at Capgemini expected that the company will make Strong regulatory action against group and has in past has headed a sizeable payout to shareholders outsourcing in Wipro’s key geo- its BFSI vertical (CY13-17). Delaporte through Buyback in September graphical markets. highlighted that he has been in 2020. This would lead to sharecount touch with the senior team since 3-5 Further Deterioration of demand reduction and boots EPS as well. weeks and clients since joining. He environment. Further, the induction of a new CEO highlighted that the focus will be on with focus on profitable growth and profitable growth with necessary Valuation its immense experience in IT field investment as and when required. In the current environment, we see make us positive on the company’s He has also stressed on connect with the IT Services sector as an attractive future growth. Going ahead, Wipro is different levels of people at CXO and investment destination, because expected to witness healthy growth other levels in an enterprise. He also of WFH and INR limiting the Covid revenue mainly led by healthy highlighted that cloud and other impact in FY21 and strong recovery traction in deals, growth focus of new digital tech is expected to accelerate in FY22 on pent-up demand. Wipro’s CEO, acquisition of new logos and in future and will be key focus of the major positive in Q1FY21 is surge in traction in digital revenues. Hence, company. margin. Wipro hasn’t given guidance we recommend our investors to BUY for the next quarter, but company the scrip for a target of Rs. 325 from Key Risks expects the September quarter to 12-18 months investment perspective. Rupee appreciation and/or adverse be one of stabilization. As per the Currently, the scrip is valued at P/E cross-currency movements. company, demand has bottomed in multiple of 16x on FY21E EPS.

Particulars (in Rs Cr) FY19 FY20 FY21E FY22E Net Sales 59018.9 61137.6 62849.5 66306.2 Growth (%) 8.3 3.6 2.8 5.5 EBITDA 11616.9 12342.3 13072.7 13592.8 EBITDA Margin (%) 19.7 20.2 20.8 20.5 Net profit 9022.2 9768.9 9993.1 10410.1 Net Profit Margin (%) 15.3 16.0 15.9 15.7 EPS (Rs) 14.9 17.0 17.5 18.2 Consensus Estimate: Bloomberg, Ashika Research

15 INSIGHT August 2020 STOCK PICKS

DIVI’S Laboratories Ltd.

CMP: Rs 2,616 Rating: BUY Target: Rs 3,050 Shareholding Pattern as on 30th June 2020 Company Information BSE Code 532488 NSE Code DIVISLAB Bloomberg Code DIVI IN ISIN INE361B01024 Market Cap (Rs. Cr) 69485 Outstanding shares(Cr) 26.54 52-wk Hi/Lo (Rs.) 2,537.7/1,466.9 Avg. daily volume (1yr. on NSE) 7,13,000 Promoters, 51.97% FIIs, 18.17% Face Value(Rs.) 2.0 DIIs, 16.80% Others, 13.07% Book Value (Rs) 275.61

Company overview drug) and Dextromethorphan (cough dependency on Chinese API is nearly Divis laboratories ltd (Divis) is suppressant). 70%. Government has announced a global drug contract manufacturing package of Rs 10,000 crore the first Investment Rationale company serving 20 of the top 25 ever stimulus package to boost up the API the key growth driver global companies with over 100 domestic pharma API industry and to The COVID-19 crisis has opened up a projects in the pipeline. It collab- reduce the import dependency. So, huge opportunity for Indian pharma orates with innovator companies it is a huge opportunity for domestic API manufacturers as the global and through the early drug development pharma API manufacturers and Divis Indian large pharma companies are stage to the commercialization stage. is one of the leading player in the API looking for alternative of China for Divis derives nearly 90% of revenue space with nearly 50% of its revenue sourcing API. Further, the current from generic APIs and custom comes from generic API. In the past standoff between India and China synthesis for innovator companies few months, API prices have surged has led Indian government to impose while Nutraceuticals contribute sharply (in the range of 20% to 80%) restriction on Chinese imports and rest of the revenue. It is the largest across various products. The surge to make India self reliant on key manufacturer of peptide reagents in the prices could be attributable essential items. Pharma API is one and is a leader in products such as to possible supply disruption from of the key essential items that India Naproxen Sodium (anti-inflammatory China following an industrial lock use to import from China and Indian

August 2020 INSIGHT 16 out due to outbreak of Corona virus. Capex expansion to boost growth This is expected to immensely benefit In order to meet the demand com- API focused companies like Divis. Divis Custom pany has announced a capex of Rs Further, the Government of India synthesis division 1,200 crore towards two brownfield is also making efforts to boost API projects which was scheduled to is also on strong production and is in the process of be completed by FY20. However, charting a road map for the same. footings and due to constraints on movements / Being a leading player in the API company is engaged travelling amid COVID-19 outbreak, space with ample headroom to ramp with 6 out of 10 large the capex plans has been deferred up the production would enable the pharma companies and the management expects to company to comfortably cater to the complete the expansion by H2FY21. increased demand. Divis is also going (in terms of revenue) After the completion of the capex, to get the benefit from backward across the US, EU and company will apply for regulatory integration, an aggressive capex plan Japan for more than approvals of the added capacities incurred in the past and outsourcing 10 years. for regulated markets (US and EU). opportunities. Divis started commercial supplies to Custom Synthesis segment is on non-regulated markets from brown- strong footings field projects at Unit 1 and Unit 2 in Feb 2020 and Mar 2020, respectively. Divis Custom synthesis division is Due to high entry barrier in contract Company is also working on debot- also on strong footings and company manufacturing business/CDMO, it tlenecking and backward integration is engaged with 6 out of 10 large offers superior growth, margin and programs at Unit 1 and Unit 2 at a cost pharma companies (in terms of reve- return profile compared to pharma of Rs 300 crore and upgrading EOU nue) across the US, EU and Japan for generic business. Divis is the second (export-oriented unit) at a cost of Rs more than 10 years. In Custom syn- largest CDMO player in India and is 190 crore. Historically, company has thesis division, company is engaged growing at stead pace over the years. strong track record of successfully in contact manufacturing services of As per Frost and Sullivan, the market monetizing its capex plans. Hence, APIs (small molecules) and Interme- size of Global Contract Manufac- Divis is expected to be significantly diates for global innovator pharma turing industry is around USD 100 benefiting from ongoing capex and companies with vast portfolio of billion which is growing at 7%-8% this will start reflecting on earnings products across diverse therapeutic annually. Thus, the long-term growth from FY22E onwards. areas. Divis R&D team with over 350 outlook of Divis contract research scientists specializes in developing manufacturing is strong given its Sustained healthy financial innovative processes and continu- expertise and healthy relationship growth ously optimize them to improve com- with global drug innovators. Due to strong moat in business, petency in manufacturing and yield. Divis has maintained good financial growth over the years. In past 5 years Divis 3 year Price Chart (FY15-FY20), company revenue grew at a CAGR of 12%, while EBITDA and PAT grew at 9% and 10% CAGR 2550 in same period. Strong position in CDMO and API generic business aid 2050 Divis to maintain healthy EBITDA 1550 & PAT margins. In past 5 years, company has maintained average 1050 EBITDA and PAT margin of 35% and 26% respectively. Company’s 41% 550 revenue come from CDMO business 50 which is high growth, margin and 18 19 20 return business and that support l-17 l-18 l-19 l-20 v-17 v-18 v-19 an-18 an-19 an-20 Ju Ju Ju Ju Divis to maintain 5 year average J J J Sep-17 Sep-18 Sep-19 No No No Ma r- Ma r- Ma r- May-18 May-19 May-20 RoE of 23%. Further, company has

17 INSIGHT August 2020 also maintained a healthy dividend API companies has been witnessing payout of around 30% in last 5 years. significant improvement in margins. We believe, Divis will maintain such Divis is a leading Further, government is also putting growth momentum in coming years player in generic API efforts to boost the domestic API also given its strong position both in and is going to get the manufacturing in order to reduce the generic API and Contract Research benefit of increased dependency. Divis is also the second manufacturing divisions and higher largest player in CDMO segment in price realization in API generic demand for pharma India which is a high margin and products. API across the globe. high return business due to high entry barrier in this business. Divis Key risks is also doing the capex to boost its Export account nearly 87% of its for Indian domestic API players. manufacturing facilities and to meet revenue, thus any currency vola- Global innovator drug manufactur- the incremental demand for APIs tility could dent the margins of the ers are now looking for alternative and benefit from capex will start company going ahead. destination for sourcing API and reflecting on financials from FY22E API prices have increased sig- there India has the opportunity in onwards. We have positive view on nificantly in past few months, any terms of scale, labor and skill. Divis Divis given its strong business moat, sharp correction in API prices could is a leading player in generic API and leading player in API & CDMO and hurt the realization of the company, is going to get the benefit of increase healthy financial growth over the resulting in dip in margins. demand for pharma API across the years. Hence, we recommend our globe. Due to supply chain disruption investors to BUY the scrip with target Valuation post COVID-19 crisis, the prices of Rs 3,050 from 12 months invest- Post the COVID-19 outbreak and of API have shoot up significantly, ment perspective. At CMP, the scrip question over China’s role in spread- though the price momentum will is valued at P/E multiple of 35.1x on ing the virus, open a big opportunity not be sustained going ahead, but FY22E Bloomberg consensus EPS of Rs 74.5.

Particulars (in Rs Cr) FY19 FY20E FY21E FY22E Revenue 4,803.8 5,394.4 6,121.9 7,205.0 Growth (%) 26.2% 12.3% 13.5% 17.7% EBITDA 1,873.2 1,822.2 2,159.7 2,677.3 EBITDA Margin (%) 39.0% 33.8% 35.3% 37.2% Net profit 1,334.7 1,376.5 1,555.6 1,950.0 Net Profit Margin (%) 27.8% 25.5% 25.4% 27.1% EPS (Rs) 51.9 51.9 59.4 74.5 Source: Bloomberg consensus

August 2020 INSIGHT 18 STOCK PICKS

Fine Organics Industries Ltd.

CMP: Rs 2,102 Rating: BUY Target: Rs 2,470 Share holding pattern as on June 2020 (%) Company Information BSE Code 541557 NSE Code FINEORG Bloomberg Code FINEORG IN ISIN INE686Y01026 Market Cap (Rs. Cr) 6510 Outstanding shares (Cr) 3.1 52-wk Hi/Lo (Rs.) 2550.1 / 1385 Avg. daily volume (1yr. on NSE) 19250 Promoters, 75.0% FII, 5.8% Face Value (Rs.) 5 DII, 15.0% Others, 4.2% Book Value 201.9

Company overview Investment Rationale green additives. The manufacturing Fine Organics Industries Ltd. (FOIL) Largest manufacturers of oleo- and extraction of green additives is the largest manufacturer of oleo- chemical based additives in India from base oleochemicals is a highly chemical-based additives (chemicals FOIL is a leading player in oleo- complex process and few players derived from natural oils and fats of chemical based additives in India worldwide have the proprietary plant origins) in India, with a strong and caters to various global markets. technology to manufacture these global presence .Having started off as The oleochemical is used in various specialty additives. Thus, the industry a manufacturer of 2 products in 1973, industries including plastic, poly- is dominated by few large players. the company has gradually scaled it mer, food emulsifiers, cosmetics, Company has presence in the com- up to 400+ products currently. Com- etc. FOIL is among the five largest plex part of the value chain and man- pany is a strong global competitor global players in polymer additives ufactures green additives from base in oleochemical based additives and which account nearly 70% of topline oleochemicals and has developed an currently a global leader in Slip Addi- and among leading global players in-house proprietary technology and tives. The company has 2 subsidiaries in specialty food emulsifiers. All its process design through continuous and 1 Joint Venture that has helped manufacturing facilities at multiple R&D. The company is a niche player to expand its global presence. FOIL production sites are fully automated in specialized oleochemical-based operates in 2 segments namely plastic and updated. Company is also one of additives and enjoys the first-mover additives and Food & other additives. the leading players to develop pro- advantage in India. prietary technology to manufacture

19 INSIGHT August 2020 Strong R&D and wide FY21 and FY22, depending on COVID- product portfolio the key 19 situation & regulatory approvals. strengths FOIL is a The recent commercialization of Continuous R&D is a key to the leading player in 32,000 tpa Ambernath facility (50% success of FOIL’s growth in additive oleochemical based of existing capacity) in August 2019, which is likely to address any business, which is primarily based on additives in India customization. Though R&D spend capacity constraints. It would be is paltry at 2% of revenue, as the busi- and caters to various ramped up gradually with optimum ness is more knowledge intensive, global markets. utilization will to be achieved in FY22. unlike a typical manufacturing set up, The oleochemical Company has also commenced the which tends to be more capital inten- is used in various construction of 10,000 tonnes of capacity at Patalganga, Maharash- sive. FOIL R&D efforts are geared industries including towards improving production tra. As the construction takes 9–10 processes and the quality of its exist- plastic, polymer, months, the capacity is likely to be ing products, in addition to creating food emulsifiers, commissioned by Q4FY21 and will new additives. In the last few years, cosmetics, etc. help FOIL cater to food additives’ FOIL has been striving to achieve a demand from exports and domestic balanced mix in its product portfolio markets. Furthermore, the company and focusing more towards major is evaluating the German JV once categories like personal care and feed Expansion to drive growth again as it’s a good opportunity. The nutrition. Started with 2 products in In order to cater the growing need ramp up of new plant will drive the 1973, company has scaled up to 400+ for oleochemical based additives, operating leverage and profitability of products catering to various indus- company has been expanding its the company once the new products tries like plastics, food, cosmetics, facility. Though initially it will put starts coming up and capacity utiliza- etc. The same chemical ingredients some pressure on the bottomline due tion ramping up to optimum level. are used for these 400+ products but to increased depreciation cost and Robust financial performance the specifications of these products interest expense, but when all the Over the years, FOIL has maintained are different. Thus, with the slight capacities will commercialize and good financial performance on modification in specification of one will reach its peak utilization level, the back of its leading position in product, create a new product which then it will start reflecting on the oleochemical based additives and caters to different end users. Thus, bottomline. In FY20, company has strong customer base. FOIL has 650+ FOIL enjoys the flexibility to cater to already commercialized 3 new lines direct customers and more than 130 the changing market demands and which have increased its capacity by distributors, who sell products to avoid dependence on any one major 50% at 101,300 tpa. Further, company more than 5,000 customers. Direct product category. Continuous focus has proposed to expand its plants at customers include MNCs, regional on R&D and wide product portfolio Patalganga facility (10,000 tpa) and and local players, who largely are the key drivers for FOIL’s growth. German facility (10,000 tpa) which manufacture consumer products/ are expected to commercialize at petrochemical and polymer products globally. Company’s marquee clients FOIL 3 yr Price Chart include top FMCG and petrochemical 2600 players and that enables FOIL to 2400 sustain healthy topline and bottom- 2200 line growth over the years. During FY15-FY20, revenue grew at a CAGR 2000 of 11%, while EBITDA and PAT grew 1800 at 17% and 25% CAGR in same period. 1600 Superior product portfolio and cater 1400 to the niche market support FOIL to 1200 sustain average EBITDA margin of 1000 20%+ during FY15-FY20. Healthy cash 800 flows help FOIL to remain negative net debt to equity at -0.14x during 600 FY20. Sustained margins help FOIL to maintain superior return ratios. In Jul-18 Jul-19 Jul-20 Jan-19 Jan-20 Mar-19 Mar-20 Nov-18 Nov-19 Sep-18 Sep-19 May-19 May-20 last 5 years, company has maintained

August 2020 INSIGHT 20 average RoCE and RoE of 30% and revenues from polymer additives and 28% respectively. Oleochemical the rest from food & other additives. based additives is a sunrise sector FOIL is the largest Off late, company has developed and given its environmental friendly high margin complex products like products and high entry barrier due oleochemical specialty feed nutrition additive for to complex manufacturing process, derived additive clients in Europe and the US and has we believe FOIL will report much manufacturer in thus resulted in higher gross margins stronger financial growth in coming India and the gradual for company in Q4FY20. However, years. revenues have got impacted due to replacement of lower exports to China and manu- Key Risks petrochemical based facturing impacted due to lockdown As 55% of company’s revenue come additives towards in March. Management expects the from exports vs 15% FOIL imports, possibility of regaining pre-Covid thus any currency fluctuations could greener oleochemical operational level post Aug–Sep due dent the margins of the company. additives still to slow recovery in existing business FOIL’s primary raw materials are remains a structural and challenging environment in new business development. Company derived from vegetable oils, which story and biggest include rapeseed oil, palm oil, palm has newly commissioned facility at kernel oil, sunflower oil, etc, thus driver. Ambernath, however this unlikely to any volatility in raw material prices bump up revenues given uncertainty, could have negative bearings on the although depreciation has increased China unlike for petrochemical based earnings and margins. in Q4FY20, at the same time tax rates additives. The company has pro- have gone down. Given sustained Valuation prietary technology to manufacture traction for niche business, abundant these specialty additives which is a FOIL is the largest oleochemical raw material source, strong client highly complex process of extraction derived additive manufacturer in base, high margins and return ratios of green additives from base oleo- India and the gradual replacement and robust balance sheet, FIOL chemicals. The company hence of petrochemical based additives remains a strong play. Thus, we operates in a niche segment and towards greener oleochemical recommend our investors to BUY the enjoys the first-mover advantage in additives still remains a structural scrip with target of Rs 2,470 from 12 India. Besides, since it is a customer story and biggest driver. Moreover, months investment perspective. At centric product, it ensures customer the company can source raw mate- the CMP, the scrip is valued at P/E stickiness and low-price sensitivity. rials majorly from domestic markets multiple of 28.5x on FY22E Bloomberg The company derives majority of and hence has no dependence on consensus estimate EPS of Rs 72.8.

Particulars (in Rs Cr) FY19 FY20 FY21E FY22E Net Sales 1,060.3 1,038.1 1,128.7 1,393.7 Growth (%) 23.8% -2.1% 8.7% 23.5% EBITDA 230.2 240.5 248.6 321.9 EBITDA Margin (%) 21.7% 23.2% 22.0% 23.1% Net profit 136.2 164.8 164.8 223.2 Net Profit Margin (%) 12.8% 15.9% 14.6% 16.0% EPS (Rs) 44.4 53.8 53.8 72.8 Consensus Estimate: Bloomberg

21 INSIGHT August 2020 Monthly Insight Recommendation Performance Sheet

Script Buying QTY Bought Value Target Target Booked on Booked Value till Profit Return Holding Annu- Date Rate Price Return Price date Days alised Return

Wipro Ltd. 03-Aug-20 1786 280 500080 325 16.1% DIVI’S Laboratories 03-Aug-20 191 2616 499656 3050 16.6% Fine Organics Indst. 03-Aug-20 238 2102 500276 2470 17.5% ICICI Securities 01-Jul-20 1050 476 499818 620 30.2% Apollo Tyres 01-Jul-20 4600 109 501341 130 19.3% Galaxy Surfactants 01-Jul-20 335 1490 499300 1680 12.7% Nestle India 01-Jun-20 28 17571 491987 19500 11.0% Tech Mahindra 01-Jun-20 925 541 500453 ADD Abbott India 01-Jun-20 30 16979 509375 19464 14.6% Bharti Airtel 04-May-20 973 508 494138 610 20.1% 20-May-20 606 589784 95646 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 502356 ADD Britannia Industries 01-Apr-20 184 2719 500320 ADD 27-May-20 3384 622704 122384 24.5% 58 154% TCS 01-Apr-20 274 1827 500508 ADD HDFC Bank 01-Apr-20 586 852 499290 ADD Britannia Industries 02-Mar-20 169 2962 500578 3400 14.8% 29-May-20 3384 571940 71362 14.3% 88 59% Aarti Industries 02-Mar-20 510 990 504747 1177 18.9% 05-May-20 1139 580712 75965 15.1% 64 86% Metropolis Healthcare 02-Mar-20 266 1880 500080 2200 17.0% Bajaj Finance 03-Feb-20 115 4306 495177 5000 16.1% Gujarat State Petronet 03-Feb-20 2040 246 501493 300 22.0% 01-Apr-20 169 344168 -157325 -31.4% 58 -197% Granules India 03-Feb-20 3600 140 502632 170 21.8% 07-Feb-20 164 591156 88524 17.6% 4 1607% Concor 01-Jan-20 868 575 499091 665 15.7% Mahanagar Gas 01-Jan-20 475 1066 506426 1164 9.2% 23-Jan-20 1162 551950 45524 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% 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 Hygiene 01-Nov-19 40 12325 492982 14078 14.2% 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 560000 58499 11.7% 59 72%

August 2020 INSIGHT 22 Script Buying QTY Bought Value Target Target Booked on Booked Value till Profit Return Holding Annu- Date Rate Price Return Price date Days alised Return 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 Life 01-Jul-19 2250 222 499773 265 19.3% 27-Aug-19 258 579510 79737 16.0% 57 102% 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 Automation 01-Jun-19 19 26087 495655 30195 15.7% 25-Oct-19 29105 552999 57344 11.6% 146 29% 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% Crompton Greaves Cons. 01-Apr-19 2138 234 501153 256 9.2% 20-Sep-19 251 536681 35528 7.1% 172 15% 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% 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 Hygiene 01-Jul-18 51 9900 504900 11100 12.1% 17-Jul-18 11100 566100 61200 12.1% 16 277% 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% 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 Seamless 01-Jan-18 990 505 499950 585 15.8% 09-Jan-19 483 478170 -21780 -4.4% 373 -4% 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%

23 INSIGHT August 2020 Script Buying QTY Bought Value Target Target Booked on Booked Value till Profit Return Holding Annu- Date Rate Price Return Price date Days alised Return 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 Finance 01-Mar-17 5263 95 499985 120 26.3% 22-Dec-17 120 631560 131575 26.3% 296 32% 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 Services 01-Nov-16 909 550 499950 650 18.2% 07-Apr-17 650 590850 90900 18.2% 157 42% 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 Finance 01-Aug-16 963 519 499797 608 17.1% 19-Oct-16 608 585504 85707 17.1% 79 79% 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% 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 & Mahindra 01-May-16 752 665 500080 775 16.5% 20-Dec-17 775 582800 82720 16.5% 598 10% 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%

August 2020 INSIGHT 24 Script Buying QTY Bought Value Target Target Booked on Booked Value till Profit Return Holding Annu- Date Rate Price Return Price date Days alised Return 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%

25 INSIGHT August 2020 SECTOR OUTLOOK

AUTO: MOVING TO PERSONAL MOBILITY

he world has confronted an unprecedented wise manner, but still now lot of manufacturing plants incident when COVID-19 spread over 180+ are far away from reaching its pre-covid level utilization countries and on early March WHO declared rate. The 52 days lockdown across the country has put it as a pandemic. The outbreak of COVID-19 the economic growth momentum on the back burner and hasT brought the entire world to grinding halt impacting push the country’s economy towards contraction from the entire global economic activities. The first case in growth for first time since independence. Automobile India was confirmed in January and on 25th March, sector, one of the key industry in manufacturing space, government has announced the responsible of employing significant lockdown in order to curb the employment is one of the biggest spread of the virus. In India, the sufferer due to lockdown. In past one lockdown has been the longest in Automobile and half year Indian auto sector has comparison to other countries and sector, one of the gone through rough patch affected even now some of the states are by rise in ownership cost, transition also imposing the local lockdowns key industry in towards BS-6 emission norms and to reduce the intensity of the virus manufacturing space, sluggish demand. Now, the outbreak which is still not showing any sign of COVID-19 is a setback for the of peaking out. Lockdown has been responsible for industry which is already facing tepid very stringent across the country employing significant demand. There was nil production impacting the overall manufacturing employment is one of during 2 months lockdown and zero & other economic activities in India, sales as retailers need to shut their though essential items were out of the biggest sufferer shops owing to lockdown imposed by the restrictions. However, from May due to lockdown. the government. However, gradually, onwards, government has started after the lockdown was lifted up in lifting up the lockdown on phase from May onwards, the sales have

August 2020 INSIGHT 26 started recovering and it nearly surge in car demand in China. People reached to 65-70% of pre-COVID moved away from public transport, in level. The most encouraging fact is China car demand fear of infection. China car demand that retail sales have been increasing surged post SARs and surged post SARs and it was going faster than wholesale dispatches and strong pre-SARS as well. China PV overall booking is also increasing and it was going strong demand and macroeconomic growth steadily approaching towards the pre-SARS as well. remained strong in the years after pre-COVID level. The major OEMs SARS. There could be demand for have also started double shift in both 2 wheelers and entry level order to increasetheir productions passenger cars. People who are as they believe that with the onset of festive seasons in commuting on trains, public buses will preferably move coming months will drive the demand.Though there are to 2 wheelers which is a large segment. While the users of lots of darker side of COVID-19 outbreak on the sector car-sharing platforms such as Ola/Uber/Meru/Local Taxis there is also a brighter side, i.e. growing importance are more likely to consider personal car ownership and of personal mobility over public/shared mobility. As It that will create a demand for four wheelers. There are happened in the past, i.e., post SARS, there was a surge around 400-500K cars on these platforms (cumulative), in car demand in China. People moved away from public which is around 45% of total car industry and bulk of these transport, in fear of infection. Hence, the same thing is OLA/UBER is in top 20 cities. So, the demand for new own expected to happen in India also post COVID-19. But how car might be limited to these top 20 cities. As per industry successful it could be is the question as the outbreak of estimates, around 1 million people use OLA/Uber and COVID-19 and lockdown across the country has resulted other ride-sharing cabs in India. Out of 1 million people, in job losses and lower salaries/incomes. As personal around 25% of the users already own a car, so they could mobility is becoming an important aspect of today’s life, go back to using their own cars. A more important data lower income is also a challenge for affording a new car, showed that, out of total commuters in OLA/UBER around so there could be a healthy demand for used cars. Used 40% are regular commuters and they may need to buy a cars serve the personal mobility factor and also available car.Post COVID-19 there could be reduction of 50% users at steep discount to new owned vehicle. in OLA/UBER and around 5 lakh users will use their own vehicles or buy new vehicles(around 2.5 lakh has their Moving to personal mobility from public/ own cars).So, as per estimates there could be incremental shared mobility demand for nearly 2.5 lakh vehicles approx. post Covid 19 The outbreak of novel coronavirus COVID-19 during last as most will prefer personal mobility. Post SARS, in China winter and its subsequent spread into a pandemic has car demand was predominantly from first-time buyers. catalyzed many changes in the human life world over. The Car demand in India, despite low penetration, is already most notable feature of the COVID-19 consequences is the 60% upgrade/replacement demand. Even if first-time product innovations, and learning & working practices. buyers increase, replacement demand will likely come As the COVID-19 is very infectious, it spread very fast down. However, macro recovery in India remains the across the world and only way to curb the spread is key for car demand. The outbreak of COVID-19 triggered social distancing and avoid crowd. Hence, in light of this sharp increase in job losses and salary cuts which could situation personal mobility is very important in order to further add stress to the likely recovery in car demand in stay away from getting infected. Post SARS, there was a 2020.

PV sales growth in China vs GDP growth trends

Source: Industry report

27 INSIGHT August 2020 COVID impact trigger surge in pre-owned is expected to sustain on the back of personal mobility to car sales maintain social distancing for next 1year, lower income The unprecedented event of COVID-19 impacted the due to salary cut & layoff and more options available auto sector badly and as per SIAM (Society of Indian for buying through organized channel. However, with Automobile Manufacturers), it will take little bit longer ~45-50% of the PV industry demand is contributed by first time to reach the peak sales achieved in 2018. In pas- time buyers and ~20% for upgraders, India will remain as senger vehicles in particular, the April-June period saw new vehicle market. sales drop of 78.43%, making it possibly the worst-ever quarter.However, as against new car sales, green shoots Market size of used car industry of new car market (in times) 5.0 are visible in the used-car market. As per the industry, it has been seen that booking/inquiry numbers for new cars have reached 80-85% of the pre-Covid-19 levels, for used cars the same has gone up to 115%. Used vehicle industry witnessed growth of ~15-20% YoY in June led 1.5 by increasing preference for personal mobility, pent up demand and lower income due to pay cuts & layoffs. Post COVID, around 85-90% of the customers are likely to use India Developed nations 2W/PV as mode of transport & this coupled with better Source: news article financing schemes will benefit pre-owned space in the near term. Used car market in India has low penetration compared to other developed nations. Market size of Indian used car industry is only ~1.3-1.5x of new car Recovery witness faster in Rural segments market (v/s 4-5x in developed nations) which indicates The rural economy should be less impacted than urban huge growth opportunity. As per a survey ~85-90% of due to Covid-19 as the spread is largely in the latter, the respondents want to buy a vehicle post lockdown and agriculture should suffer less from the lock-down. of which ~70-75% respondents want to purchase a used Covid-19 should also trigger a shift towards personal vehicle due to COVID-19. Another additional factor that mobility, where a section of public transportation users will go positively for used vehicles is reduction in average should switch to owned cars & 2 W. According to the replacement cycle from 7 years to around 4 years cur- channel partners, with the opening of the lockdown since rently. Considering the increasing demand for used cars, May, there has been robust demand recovery in rural and OEMs such as Maruti and VW and online channels like Tier2/Tier-3 belt. 2W & PV segments witnessed higher Cars24, Cardekho, Carwale are also planning to increase inquiries for entry level segments (~30-35% recovery in their presence in tier2/3 regions. Major online channels inquiries across the segments) led by pent up demand have seen ~40-45% increase in buyers in June month and increased preference for personal mobility and lower indicating a substantial shift in preference towards used cancellation rates for pre-lockdown bookings.Escalation vehicles post COVID-19. With the entry of several online of lockdown has certainly impacted urban demand which platforms, share of organized pre-owned car market has put pressure on OEMs sales volume. Rural demand has increased to ~18-19% as they provide more reliability, emerged as a green shoot in an otherwise worrisome attractive financing schemes, wide range of products and demand outlook for the Indian auto industry in FY21.The better aftermarket services. In order to follow the social agricultural sector package announced by the central distancing, customers are preferring through online government, under the ‘Atmanirbhar Bharat’ initiative, booking and also purchasing the coupled with a healthy monsoon, vehicle parts through online. Around is likely to benefit the auto sector. 60-70% of the customers opted for 2 W inquiries have increased most buying used vehicles and equip- Used vehicle industry post lockdown where entry level ment through online channel after witnessed growth of segment (100-110cc) witnessed most inquiries. Around 70% of the lockdown. Better financing options ~15-20% YoY in June are also supporting the used vehicle bookings made during the lockdown business. Financing for used car has led by increasing are expected to convert into sales. However, due to uncertainty of recovered quickly post lockdown as preference for people are preferring to buy a 4W for regular income and increased loan family commute and social distanc- personal mobility, moratorium financers become more selective in disbursing the vehicle ing. To meet the demand, financial pent up demand and institutions have also increased their loan. For PV segment, rural markets focus on used vehicle space and lower income due to have come back stronger leading to now contributes around 17-18% of pay cuts & layoffs. higher than expected inquiries for the total vehicle financing. Growth PV models despite lockdown largely momentum for pre-owned vehicles for entry level segment (< Rs6-7

August 2020 INSIGHT 28 lacs). Tractor demand has also seen healthy recoveries levels still remain low. Production challenges have eased (~35-40% of the normal) led by good Rabi output, better in the one and half month as most suppliers have received crop yield (~10-15% higher than the normal), expectations regulatory approvals to commence operations. Financing of normal monsoon and immediate payment for crops by environment has also started to ease with OEMs tying the government. The stringent financing norms, likely up with lending companies for high loan-to-value and erosion of purchasing power with pay-cuts/lay-offs and relaxed initial monthly payments. However, it will take higher inventory across 2W/PVs to keep wholesales under little bit longer time for Indian auto industry to reach the check for next 2-3 months. It is expected that demand peak of 2018 sales amid uncertainty around COVID-19 to normalize by the end of H1 led by strong rural senti- pandemic, weak economic activities and job losses & pay ments, festive season and stabilized income situation for cut. individuals/institutions. 2W registrations are picking up Split of India’s GDP (%)

Agriculture, 18%

Services, 55% Manufacturing, 27%

Source: Industry report Source: RBI

PV registrations are also picking up 2W penetration in India (% of households)

Source: Industry report

Auto registration picking up India’s auto registration which declined to zero in May Source: Industry report due to 3 months lockdown starting from March 25, have shown some improvement.Passenger vehicle and Search trend for 2W web portals 2 W registrations in week-ending 6-Jun recovered to 35-40% of the pre COVID levels from 25% in week-ending 30-May. Tractors picked up even faster with last week registrations at 53% of pre-COVID level versus 33% the week before, and were down just 9% YoY. Trucks are yet to show any signs of improvement though. Google web search trends show a continued sequential improvement in consumer interest in autos. Google search activity Source: Industry report for top car OEMs is now at 96% of the pre-COVID level while that for key 2W portals is even higher. There is a pent up demand and potential customers are now more Rebound is expected in FY22E inclined to go online than offline. Taxi aggregators have FY21 will be a complete washout year for Indian Auto gradually resumed operations, though app activity still manufacturers as multiple headwinds weigh on the now is low, suggesting a reluctance for shared mobility. demand cycle revival. Indian Auto industry was already Google mobility data shows Indians are incrementally facing headwinds in the form of demand slump due to spending more time buying essentials and are gradually NBFC crisis, economic slowdown and transition to BS returning to the workplace. OEMs are also ramping up VI and now with the virus breakout along with ensuing their productions and supply chains, although utilization lockdown further hurt the sector for some more quarters

29 INSIGHT August 2020 to come. There will be no meaningful Another factor that will support the demand recovery even in H2FY21e optimistic view is positive news from and expect the potential recovery The 2 years of sharp China. Given China’s auto market to be sharp in FY22E, however, it all is more comparable to India, some depends upon how fast macro-eco- de-growth in FY20 & similar positive rebound in India nomic activity picks up.The 2 years FY21E create a very can also be expected. Volkswagen of sharp de-growth in FY20 & FY21E said that car sales in China are create a very low base to support low base to support rebounding driven by passengers a strong growth in FY22E. As per a strong growth in who wanted to shift from public the reports, GDP is also expected transport to owned vehicles. While to sharply recover in FY22E after FY22E. the rebound would not be so large or contraction in FY21E. Indian auto comparable to pre-pandemic levels, industry could see strong rebound it is a welcome sign that the company in FY22E if the macro economy reported higher volumes year-on- improves. In the past, it had been seen that auto volumes year in car sales during last week of April. Additionally rebounded sharply during FY10-11 post 2008 global other demographic factors like presence of large first recession. Another positive factor would be the lag effect time buyer population in India should come to aid during of historic relief packages announced by the government. the later stage of recovery.

PV YoY Volume growth (%) 2 W YoY Volume growth (%) 40% 40%

30% 28.2% 30% 25.7% 26.0%25.6% 20% 20.7% 20% 13.9% 14.8% 12.3% 11.6% 10% 9.3% 10% 7.2% 7.9% 7.3% 7.9% 6.9% 5.1% 4.9% 3.9% 2.7% 2.6% 2.9% 3.0% 0% 0.2% 1.3% 0% -6.1%

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY07 FY08 -7.9%FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 -10% -10%

-17.9% -17.8% -20% -20%

-30% -30% Source: Industry report Source: Industry report

CV YoY Volume growth (%) Tractors YoY Volume growth (%) 50% 30% 25% 40% 38.7% 21.7% 21.8% 33.3% 20% 20.6% 30% 28.6% 15% 20% 20.0% 18.2% 17.6% 10% 10% 11.5% 8.2% 4.9% 4.1% 5% 0% -2.0% -2.8% 0% -10% FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 -5% -20% -20.2% -21.7% -10% -10.7% -10.0% -13.0% -30% -28.8% -15%

-40% -20% Source: Industry report Source: Industry report

Automobile Domestic Sales Trends (in units) Category FY15 FY16 FY17 FY18 FY19 FY20 Passenger Vehicles 2,601,236 2,789,208 3,047,582 3,288,581 3,377,389 2,773,575 Commercial Vehicles 614,948 685,704 714,082 856,916 10,07,311 717,688 Three Wheelers 532,626 538,208 511,879 635,698 7,01,005 636,569 Two Wheelers 15,975,561 16,455,851 17,589,738 20,200,117 21,179,847 17,417,616 Quadricycle 0 0 0 627 942 Grand Total 19,724,371 20,468,971 21,863,281 24,981,312 26,266,179 21,546,390

Source: SIAM

August 2020 INSIGHT 30 Among all the negatives The outbreak of COVID-19 has there are some positive post COVID-19 people will prefer to disrupted the global economic factors that have communicate through their private growth by bringing the entire emerged from this transport compared to public/sharing world under grinding halt. Almost pandemic. One positive transport. Further, rural part of India every sector got affected due to that have come out will witness faster recovery than the lockdown which government is the importance of urban as rural is much less affected imposed to curb the spread of the personal mobility and by COVID-19. Post the lockdown, virus. Indian auto industry hit hard that will create demand auto registration is also showing due to this pandemic and FY21E will for new owned as well some improvement and retail book- be the complete washout year for as used cars as post ing has nearly reached 80-85% to Indian OEMs. Among all the negatives COVID-19 people will pre-COVID level. Low base in FY21E, there are some positive factors that prefer to communicate government stimulus package to the have emerged from this pandemic. through their private economy and steady improvement One positive that have come out is transport compared in income level will support Indian the importance of personal mobility to public/sharing auto sector growth in FY22E, hence and that will create demand for transport. strong rebound in the sector is only new owned as well as used cars as expected in FY22E.

Peer Set Company Name Mcap Revenue EBITDA PAT EBITDA PAT ROE ROCE D/E P/E EV/ P/Bvps (Rs crs) (Rs crs) (Rs crs) (Rs crs) Margin Margin (%) (%) (x) (x) EBITDA (x) (%) (%) (x) Maruti Suzuki India Ltd. 186855 75660 7313 5559 9.7% 7.3% 16.7 23.4 0.0 27.0 20.6 3.5 Bajaj Auto Ltd. 89568 29919 5096 4890 17.0% 16.3% 21.8 28.2 0.0 17.0 15.9 3.4 Mahindra & Mahindra Ltd. 75166 95179 12564 -1364 13.2% -1.4% -3.4 5.7 2.1 12.7 8.0 1.9 Eicher Motors Ltd. 58381 9154 2180 1796 23.8% 19.6% 19.1 24.4 0.0 26.5 21.5 4.5 Hero MotoCorp Ltd. 55516 29255 4061 3625 13.9% 12.4% 26.4 33.0 0.0 18.0 N/A N/A Tata Motors Ltd. 32681 261068 17987 -10975 6.9% -4.2% -37.2 -14.6 1.8 19.4 2.9 0.6 TVS Motor Company Ltd. 19106 18849 2273 655 12.1% 3.5% 20.3 12.8 3.5 27.1 16.7 4.4 Ashok Leyland Ltd. 15030 21951 3233 457 14.7% 2.1% 27.1 17.1 2.2 41.0 N/A N/A

Source: ACE Equity & Bloomberg

31 INSIGHT August 2020 MANAGEMENT COMMENTARY

Management Commentary

Tata Consultancy Services Among the emerging markets, APAC the $20 million plus brand bringing Ltd. de-grew by 3.2%, EMEA by 11.7% and the total to 130; 13 clients in the $5 India by a significant 27.6%. million plus band bringing the total (Date: July 9, 2020) to 564 and 52 clients in the $1 million ignio™, the cognitive automation Q1 saw the full quarter impact of plus band taking the total to 1,066. COVID on business and it played software acquired 8 new logos in out broadly along the lines that Q1. During the period, 13 customers The sharp decline in revenue had management had outlined in April. went live on the product. TCS a proportionately large negative BaNCS™, company’s flagship impact on the operating margin. During Q1, revenue dipped by 6.3% product suite in the financial In the cost management measures, year-on-year in constant currency services domain had 7 new wins company took supportive approach terms and 7.8% in dollar terms. Life and 5 go-lives in Q1. Company had to employees and suppliers, and Sciences and Healthcare continue 3 new wins in Insurance, 2 for the looked at only other efficiency to be the bright spot and company Wealth Management product, 1 for levers. These measures and some continues to grow in double-digits Market Infrastructure and 1 for Asset currency tailwinds helped to deliver this quarter. However, all other Servicing. an operating margin of 23.6% and net business verticals suffered from income margin of 18.3%. revenue declines of varying degrees. In Q1, company added 4 more clients in the $100 million plus band To help enterprises adapt to The biggest impact was obviously bringing the total to 48; 11 clients in the post-pandemic consumer in retail cluster which includes travel, preferences, company launched transportation and hospitality. But Contactless Experiences™ as a with most manufacturing activities Q1 saw the full multidisciplinary service offering grinding to a halt, all big sporting and suite that addresses the need to entertainment activities canceling quarter impact eliminate in-person interactions and widespread financial distress, of COVID on across a wide range of use cases, almost every vertical got impacted business and it spanning multiple industries from across every market. played out broadly curbside pickups for contactless Virtually all markets declined in Q1, along the lines that shopping to remote valuation and with the exception of Europe which management had clients inspection from an insurance grew 2.7% and Latin America which outlined in April perspective. was flattish at 0.2%. North America - TCS The total contract value of deals declined by 6.1% and UK by 8.5%.

August 2020 INSIGHT 32 signed in the quarter was $6.9 billion. Digital revenue during the quarter near term. In BFSI, the contract value was $2.1 grew at 25.5% YoY in constant The company does not expect any billion, and the Retail order book currency and now accounts for 44.5% material impact from the recent H1B was $0.9 billion. The TCV from deals of the revenue. visa ban in the near term as it has de- signed in North America stood at $3.3 Large deal wins were $1.7 risked the business model through billion, again a healthy trend from a billion for the quarter. Large deal localization. quarterly run rate perspective. pipeline has improved over the Geography wise, Europe grew by On an aggregate level, company past three months, as clients look 4.4% YoY in constant currency, while believes that they have bottomed out at expanding engagements with North America remained stable. in Q1 and company should now be the company due to their trust on on a path of growth from where it is company and the exemplary service As per the management, currently. delivery in the crisis. Infosys is discretionary spending was slow in seeing significant traction in cloud, April and is now coming back. Management indicated supply-side digital, cybersecurity, workplace challenges resulted in 20% impact on Clients are looking at building transformation, cost efficiency, and overall revenue during the quarter. resiliency in their operations, consolidation related opportunities. improving efficiency, and cutting Company’s order book during BFSI after an initial drop in early costs. There is a growing interest the quarter was very healthy at part of quarter one, saw a faster in remote workplace solutions, USD 6.9 billion, driven by three recovery in business volumes and employee experience, cloud solution, broad spending trends on secured deals during the quarter, especially in and cyber security. There is growing workspaces and remote working, U.S. and APAC banking. acceptance that pace of digitization front-end transformations and core must accelerate. transformation Initiatives. Company won 15 large deals in quarter one, out of which five deals Company has announced a On the operations front, company were in Financial Services, three landmark digital transformation has fully institutionalized its Secured deals each in Retail, Energy, Utilities, engagement with Vanguard. Infosys Borderless Workspaces model and Resources and Services and Hi-Tech, will partner with Vanguard to are now implementing it for many of and one deal in Manufacturing. drive the digital transformation of its customers as well Region-wise, 13 were from Americas the record-keeping services onto Infosys Ltd. and two were from Europe. The a cloud-based platform. Coupled communications vertical is largely with a strong Q1 results, this gives a (Date: July 15, 2020) stabilized; the Energy & Utilities, powerful foundation for the rest of Management still sees the elements Retail, and Manufacturing verticals the year. of uncertainty in the global economy. should see some challenges in the There is weakness in spending, Despite this, visibility is higher given especially in the area of discretionary that the business has adapted to spend, as clients continue to focus some of the shocks brought on by the on preserving cash and maintaining pandemic. Accordingly, revenue and Infosys has liquidity. All this translates to margin guidance were reinstated, announced a a deal pipeline, which is robust which came as a surprise. landmark digital with focus on cost takeout, digital For FY21, company has guided transformation transformation, captive takeover, and the revenue growth guidance of engagement with vendor consolidation. 0–2% (YoY, CC) and EBIT margins of In order to sustain safety & hygiene 21–23%. Vanguard. Company will partner with in office locations and also to leverage Management indicated supply-side technology infrastructure to enable challenges resulted in 10% impact on Vanguard to 99% of company’s 240,000 employees overall revenue during the quarter. drive the digital across 46 countries to work from The results for Q1 was strong transformation home. Company has ensured the across multiple dimensions; of the record- highest level of service for its clients. revenues, continued differentiation keeping services The extensive digital investments Infosys has made over the past in digital offerings, large deal wins, onto a cloud-based operating margins, collection several years enable to operate with and cash flows, and reduction in platform. tremendous stability and combat employee attrition. uncertainty with resilience.

33 INSIGHT August 2020 Company aim to increase capital was smaller acquisition, but it gives services and company’s digital return to shareholders, thus continue a good access into Northeast Brazil, operations and platform services to maintain a very strong debt free it gives access into a new set of that company have been seeing a and liquid balance sheet. Cash and customers that the company doesn’t good momentum in these services investments at the end of quarter have in Financial Services, Retail, along with engineering and security one was $3.8 billion, excluding the Public Sector and Manufacturing, services as well. $536 million earmarked for dividend Services. The company that have not payout made in early July. There are three components to invested enough in their digital Yield on cash balance declined company’s margin expansion for Q1, transformation over the last years to 6.11% in quarter one compared one is the operation which is nearly have felt the pain during the crisis. to 7.06% in quarter four, due to 1% where company really went after So, the winners in the industry will be declining interest rates in India. the traditional levers, it manages to the ones who have been able to adapt Quarter one was also marked the utilize people very well. Company and shift the fastest to the evolution 20th consecutive quarter of positive really had a look at variable work of this demand. forex income, despite significant force with improving utilization currency volatility globally. Return on and offshore rate is also improving. Britannia Industries Ltd. equity increased to 27.7% compared And of course, there is a component (Date: July 17, 2020) to 25.9% in quarter four ‘20. on automation which is not visible The Company witnessed volume externally. That has also played up. growth of 21.5% YoY out of total Wipro Ltd. Management has seen more growth of 26.5% YoY and remaining (Date: July 14, 2020) stability in CBU, Technology and 5% is on account mix and price in Company has continued to work Communications in terms of where 50:50 ratio. extensively from home and at any it can be in Q2. Other BUs also The Company’s other expense point in time doesn’t have more witnessed overall stability but other contracted on account of lower A&P than 4,000, 4,500 people in offices BUs, it needs to wait and watch how spends to the extent of 200 bps in and company has been able to work the environment sort of progresses. 1QFY21. seamlessly including delivering There is greater stability and transition, including delivering The Company witnessed double visibility in Q2. Management believe to complex development projects digit category growth in April-May that they should see an uptick in including meeting all SLAs as per the and expect the same for next 2-3 performance in the BUs, SBU, tech, requirements from home. quarters. communication, health also should Company has done very well on hopefully do better because some of For the Company rural cash conversion, which is the third the elective surgeries, etc., which got contribution stood at ~37% of total metrics company track closely. pushed out, probably they will come revenue. Company’s operating cash flow was back. As per Management, availability 127% of EBITDA and free cash flow In the latter half of quarter, the played a big part in this quarter. was 157% of net income. deal momentum picks up and the The Company’s growth stood ahead Demand environment is driven by pipeline continue to remain very of market and also gained market three ‘C’. The first is Cloud, second healthy. Company has been seeing a share. is Collaboration and Third is Cyber. good pipeline for offerings on cloud, The Company new plant for Management is also seeing great ensuring that customer employees Adjacency business will take another uptick in offerings like VDI, SDWAN are able to work from home and 18-20 months. excellent traction for its digital remotely. Some of the infrastructure operations and platform offerings in As of now, the company is not this post COVID era witnessing significant downtrend in From the sector standpoint, Wipro has seen more terms of consumption. while company have had a tough stability in CBU, Adjacency Business: Q1 probably across all sectors, but Technology and The Company is confident that specifically company is seeing some Communications in croissant and salty snacks will be stability returning in consumer well accepted by the consumers, business unit, in tech business unit terms of where it can the test marketing for both the and in communications business unit. be in Q2. products has already been done. The recent acquisition, though it Thus, management expects to launch

August 2020 INSIGHT 34 both the product in next 6 months Distribution reach: Britannia’s direct wafers during FY20; whereas with right marketing mix after the distribution reach, which fell to 19.7 Crossiant/ Salty snacks continue to prevailing pandemic situation gets lakh outlets in March 2020, recovered remain in testing phase. Management over. back to 21.5 lakh outlets in June 2020. highlighted they have solid scale Rusk & Bread outgrew the The number of rural preferred dealers up plan for wafers (which has been company’s overall growth. Home rose to 22,000 from 19,000. The Hindi- growing 40% YoY) and is exploring consumption of Britannia bread is speaking belt witnessed a good growth new formats. of 1.6x-1.8x over the last two years. 100% and for rusk would be slightly Inter-corporate deposits (ICDs): As Britannia’s share has increased in higher than biscuit. per Management, group ICD stood most channels— General trade growth Dairy segment growth was led by within the limits approved by the has been 30% higher than overall cheese and management expects to board and is in the same range of growth. Modern trade sales were hit as bring the price down comparable to the total investments. Management a lot of stores were shut. The alternate competitor after deployment of plant commented that although overall channel (railway, institutional for commercial production in 18-20 ICDs remained flat QoQ at Rs. 630 canteens, airlines) were also hit. months. crore in Q1FY21, ICDs to Go Air (Rs. E-commerce did well but the channel For the Company, wafers have 250 crore as of Mar’20) has been paid only contributes 1% to revenues. been doing well after 2 months of off during the quarter. New product launches: In Q1FY21, slowdown in Q1FY21. The company International business: Middle East the company launched 2 new will also invest in building new line in and Africa back to growth trajectory. products, lassi and layer cake in few Ranjangaon plant for wafers. Rest of International growing at a places and are taking them to PAN Overall, the company is on right strong pace. India after witnessing good response track with regard to adjacency from the consumers. Britannia Management Guidance: For the business. launched Winkin’ Cow Thick Lassi in Company, the focus will remain on Cost control: Management said that two flavors (Classic and Mango) and rural and traditional trade and will there has been some increase in cost Rs 5 price point Layerz Cake during try to rebuild Modern trade channels due to safety procedures, manpower the quarter. while expects e-commerce (1% of shortage and vehicle availability. total business) to continue growing New Categories (2% of overall However these have been more aggressively. The Management revenues): Meaningful contribution than offset by cost reduction and expect gentle commodity inflation came from Milkshakes / Cream increased efficiency efforts like low in coming quarter. The Company is distributor attrition, zero market focusing on building new IT system returns, low ad-spends, zero stock for distribution and targets to have write-off, reduced distance to market Britannia focus will strong IT at the end of the year. (dropped from 470 to 320 km in remain on rural Hindustan Unilever Ltd. first month; increasing now), direct and traditional sales from factory to distributors, (Date: July 21, 2020) trade and will try working capital reduction, avoidance General outlook of discretionary spends and to rebuild Modern July saw initial signs of stress renegotiated contracts. trade channels while as virus pickup, resulted into gradual lockdown in several parts Capex plans: The management has expects e-commerce of the country which further led to guided capex of Rs7 bn for bakery (1% of total business) uncertainty in demand and supply products over the next 2-3 years. to continue growing chain disruption. This is in addition to maintenance aggressively. The capex and capex already planned for Hopefully, the economy should pick the dairy business. The Company Company is focusing up and demand should be back on is looking for 5 more new plant in on building new track by the end of this year or early Bihar, UP (UP is emerging as the IT system for next year. second largest market), Orissa, Tamil distribution and Currently, it is difficult to gauge Nadu and more line for Ranjangaon targets to have strong demand at the end-consumer level. It for bakery products. Britannia will be easier to gauge the underlying plans commercial production at its IT at the end of the demand trend once supply is upcoming dairy plant (Ranjangaon) in year. normalized and trade pipeline is the next 20 months. filled up, hopefully by 2QFY21.

35 INSIGHT August 2020 Strategy remains unchanged with would get a sense of the underlying The Out-of-Home business (5% of the company wanting to drive and demand. the portfolio, mainly Ice-creams and deliver consistent, competitive, 8% volume decline was reported Water Purifiers) declined 69% YoY profitable and responsible growth on on a like-to-like basis on 7% sales and is likely to remain weak going the back of 5 fundamentals of growth, decline. forward. which include ‘purposeful brands’, 80% of the portfolio (non- Merger with GSKCH ‘improved penetration’, ‘impactful discretionary) has grown at 6%. The merger with GSKCH could innovations’, ‘design 4 channel’ and HUL was at a 70% operational level not have come at a better time from ‘fuel for growth’ in April, which was better in May. the perspective of introducing an It is difficult to have a demand in-home consumption and immunity Rural demand outlook – A good prognosis at this stage. Liquidity building product. harvest, government spend, and a pressure remains elevated and good monsoon are leading to higher The nutrition business is off to a there is volatility in costs. There are growth. good start with 5% growth in 1QFY21 vertical/localized lockdowns putting and is tracking well ahead of market Urban growth has also been pressure on operations. with volume share gain. affected by the lockdown. Performance and demand During the quarter, the company HUL maintains that rural is environment launched pouch packs of Horlicks witnessing green shoots and is not HUL believes it has made good and Boost. yet a full-fledged revival even as progress over the last few months, Since there are no royalty costs performance vs. urban is likely to be with satisfying results. Its dynamic now, they were able to offset the better. response to a changing environment transition costs in the GSKCH has supported its performance. Impact on discretionary businesses business. Skin Care, Color Cosmetics, and Initially, HUL was operating HUL will come out with more Deodorants (15% of portfolio) declined only with 20% SKUs in month of innovations as the market grows. 45% YoY in the June quarter. Skin April-2020 to overcome supply chain GSK sales (Nutrition business) form Care showed signs of improvement disruptions, currently it is operating 10% of the overall business. in June and is likely to do better going at 50% of pre-covid SKUs and plans forward. Other points to reach 80% SKUs as supply chain Distribution channel and growth: and demand situation normalises and Management highlighted that plans to permanently curtail balance it has seen healthy traction in 20% of SKU with an intent to improve HUL highlighted General Trade (GT) and robust profitability. that it has seen growth in E-commerce channels. In response to consumer demands, healthy traction in However, Modern Trade (MT) production of sanitizers and General Trade (GT) channel continues to be impacted handwash was ramped up by 100x and robust growth as stores remain shut. Growth in and 5x, respectively. Over 50 new in E-commerce GT channel has been on account of products were launched to cater to channels. Production rising frequency (in trips) to kirana the rapid change in demand in the stores especially in rural areas with hygiene and sanitization space. HUL of sanitizers preference for lower pack sizes. utilized spare capacities to address and handwash Tea has seen inflation. In tea the demand in Health, Hygiene and was ramped up portfolio, the company has taken Nutrition (HHN) category. by 100x and 5x, judicious price increases in some Distribution pipeline that was lost respectively. Over products and will be taking in few in March was re-gained in June. Out 50 new products other products soon i.e., wherever it of the 12% decline in pipeline, 6% at makes sense. distributor level has been regained. were launched to In Detergents, the company is Out of the balance 6%, 3-4% was cater to the rapid looking to pass on the benefits of towards trade stock and some was change in demand lower crude costs to boost growth. the underlying demand which was in the hygiene and lost due to the shut-down. sanitization space. Saw strong double-digit growth across food and Beverage portfolio In 2QFY21, with the distributor (Jams, ketchups, coffee and tea) as pipelines normalizing, the company consumption shift to in-home.

August 2020 INSIGHT 36 Given successful relaunch (changed over April 2020 and were higher by gold loan and loan against securities communication from fair skin to HD 38% in June over May 2020 businesses. Home loan and credit Glow) of Fair & Lovely one year back, card distribution businesses About 9% of the bank’s portfolio is led to gain in market share, Mgt does restarted from June and other under moratorium, out of which 90% not see much impact of the name businesses from July are from Moratorium 1.0, i.e. before change as it has strong plans in place 31st May 2020 and 70% customers As of 20 July, BAF is operational for relaunch. who availed Moratorium 1.0 have in 2,322 locations, i.e. 85% of its The Shikhar app is available in cleared dues business locations have reopened more than 150,000 stores. The app Slippages stood at 1.2% on and management expects FY21 AUM saw doubling of order value as account of accelerated recognition growth at 10-12%. compared to pre-COVID levels. of customers who were not under During Q1FY21, management HDFC Bank Ltd. moratorium. focused on health cards and health insurance, to generate higher fee (Date: July 18, 2020) On cost front, the bank would be aiming for 35% cost to income ratio income. Improvement in high-frequency over a 3-4 year period indicators points to sharp recovery in During the quarter, Bajaj Finance the economy from April 2020. Rural For Aditya Puri’s successor, the earned Rs 1.47 billion fee from economy has been more insulated bank has provided the name of the switching from term loans to flexi from the virus impact. candidate to RBI and is awaiting their loans, which earns 25-50bps higher nod. The management also referred pricing than regular term loans. Bank re-iterates that growth is not that the successor has been with the merely being chased as the Bank will The option to switch to flexi loans bank for long, thereby signaling of an not compromise on credit quality. is offered to customers who have internal employee of the bank to take never been overdue. Of the Rs 86 95% branches are operational along up the charge. billion worth of customers who with ~13,000 ATMs with an uptime Regarding the vehicle lending switched to the flexi option, Rs 50 of ~92%. 2/3rd employees (outside business’ probe for misconduct, the billion were not in moratorium. branches) are working from home. bank re-assured of no bearing on its In the last 7-8 years, flexi loans as a The bank acquired 1.2 million portfolio but personal misconduct on product has been very profitable and liability customers, approximately the part of some employees with marginally higher credit losses. 13,000 accounts a day. This is about The bank said they will return the Utilization rate on flexi loans is 60- 80% of pre-covid levels money in case of Altico Capital as 80%. Adjusted for the margin, flexi Payment business has bounced directed by RBI book has performed better over the back to 70% of the January levels in last 7-8 years. Bajaj Finance Ltd. June. New Credit card acquisition has Despite impact on cost of funds, fell by 87% and spending has fallen (Date: July 21, 2020) liquidity buffer will be kept high for by 48% Businesses were closed till 10th the next one quarter. May and were gradually restarted The bank has restricted most of as lockdown eased starting with Several cost-cutting measures have fresh consumer lending and expect urban B2B, rural B2B, auto finance, been initiated, including fixed pay them to pick-up by Sept 2020 cuts (5% at the junior level to 17.5% at For the Retail book, originations the senior-most level), no incentives fell by 70% during the quarter, both Improvement in for Q1FY21, call centre optimisation, as a combination of tightening high-frequency freeze on travel, advertising & of credit standards as well as indicators points to promotion and deferred other discretionary costs till Sep’20 some amount of pessimism in the sharp recovery in the borrowers economy from April Bounce rates across segments have For corporate banking focus is on 2020. Rural economy been dropping 300–400 basis points AAA rated corporates. The slowdown has been more per month for the past few months. in SME book was partially offset by insulated from the Collection efficiency improved the ECLGS scheme virus impact - HDFC 800–1000 basis points MoM in June Corporate collections in April were Bank and is expected to improve by the 45% of April 2019, increased by 47% same magnitude in July as well.

37 INSIGHT August 2020 Credit card originations were Demand is not the issue in non- the fall of market share in the recent started in June. The company intends par savings. It has been consciously quarter and planned to resolve muted to be among top 3-4 credit card reigned in to have a balanced product investment performance attributed issuers in India. mix. to slippages on market share in the medium term. As the company returns to full Cost ratios were lower YoY due business levels in FY22, Cost to NII is to decline in variable and semi- 70-75% of the revenue is dependent expected to decline to 28-29%. variable expenses on lower volumes. on the equity AUM. As a result of the Investments in technology and equity mix coming down, revenue HDFC Life Insurance employee wellbeing continued even and revenue yield were affected. Company Ltd. during difficult times Margins across product categories (Date: July 21, 2020) Initiatives have been taken on have been largely maintained. 80-85% HDFC life has witnessed better fixed costs, one of the largest of the impact on revenue is due to traction month on month in contributors to which is manpower. reduction in the AUM. Individual protection business There is no intent on mass layoffs. Large portion of the fall in equity No increments/new hiring have been Management believes that in the AUM in March 2020 was because of done long term, life insurance will emerge the MTM impact. However, in Q1FY21, as an important avenue for protection Solvency ratio at 190% was aided by the AUM has recovered on the back of as well as long term savings. strong profit and favourable market broader recovery in equity markets. conditions More than 75% branches have Equity AUM is very sensitive to been operationalized over the last 3 Over the last quarter, due to how markets perform and hence months volatile capital markets and higher most of the increase in book size of Only 39 COVID claims have been demand for the Protection business, equity AUM comes from the MTM raised so far – 37 in the Savings it has decided to raise Rs 6 billion of movement. Therefore, the recovery business and 2 in the Protection Tier-II bonds and would provide 15% in equity AUM would depend on the segment of capital cushion outlook for equity markets. Around 1.94 lakh policies were HDFC Asset Management The AMC has earned 6-6.5% of yield sold during the quarter led by digital Company Ltd. on debt investments in the last 12 months. acquisition (Date: July 23,2020) The company is looking at While renewals have been strong, The rise of capital market in the launching thematic funds which it management have been cautious on month of June has led to an increase hasn’t done much before. sustainability given weak economic in AUM, and future revenues from conditions equity assets would depend on how The company remains positive on Demand for ULIP is expected to markets shape up over the next few the benefits of SIPs as an investment remain soft throughout the year. months. vehicle. Steps are being taken to correct the investment performance Innovative traditional offerings would Post lockdown, only 140+ branches which should result in better market help address other insurance needs (total branches 221) are open with share in SIP flows. As far as term plans are concerned, very few employees who are required customers are sticking to 2-3 large for enabling critical operations. The increase in other income was primarily on account of increase in players only. HDFC Life’s share The management acknowledged of term business has more than surplus on the corporate balance doubled. Focus on annuity will also sheet, which increased by Rs. 3-3.5bn yield results in terms of continued QoQ to Rs. 42.2bn in Q1FY21. Most traction. HDFC Life believes of this corpus is invested in tax free that in the long bonds. Besides benefitting a higher Demand is expected to pick up in term, life insurance absolute amount of corpus, lower the latter part of the year. Protection yields and increase in the value of demand would remain strong. will emerge as an collateral (Rs90mn; related to Essel Protection is a fairly large market important avenue for exposure) benefitted other income. with enough room for everyone to protection as well as The current sense is that grow. Gain for one player doesn’t long term savings. retail investors may wait before imply loss for another. participating in the capital markets.

August 2020 INSIGHT 38 There will be some more time before ICICI Securities Ltd. in the number of customers trading they repose their faith in mutual fund on a daily basis. (Date: July 23, 2020) products, especially equities. Launched ‘ICICI Direct Insta’ Have maintained stringent risk Though retail participation in account which is the open- parameters to provide MTF funding the market turnover has increased architecture platform. Customer due to high market volatility. Only but delivery volume has come acquisition happens digitally end-to- given to those customers who have a down, which suggests that most end. ISEC has moved to completely strong equity business with ISEC. retail investors are only trading digital account opening process Employee cost looks higher due speculatively rather than making from mid-April and the run rate to variable costs (performance- long-term investments. for new account opening has been based incentives) paid to employees On the expense ratio front, the steadily increasing. ISEC opened according to the set certain company is not looking to reprice 20k such customer accounts in the performance targets. If these aren’t anything on the equity book. Further, quarter. This channel is now used for met going ahead, these costs will the company is of the opinion that customers sourced by other means come down. Also, CSR expenses for investors coming in directly are too. FY21 have been largely offloaded in now no more sensitive to TERs. As the Q1. long as the focus on investment Company added about 80,000 new performance is maintained, inflows customers including activation of old Company is soon going to launch or distributorship sensitivity to TER customers as well as new to market a product that allows customers should not be much. customers mainly via digital channel. to access US equity as well as debt market. The intent is to diversify the Across industry witnessed Open architecture model has product mix as well as build on a reasonably high redemption in April, enabled to acquire customers from dollar asset base over the long term. but redemptions began to taper in different banks. No revenue sharing The product will help mass affluent May. As of now redemptions have arrangements with any of the other and wealthy customers to digitally reduced to Rs. 1‐1.5 bn in a month banks. 100% of the revenue goes transfer funds for buying in the US down from Rs. 70‐80 in a day. As a to ISEC. The customers are largely market. result, AUM for credit risk funds have acquired from HDFC Bank & SBI. declined significantly. Shift of AUM Activation rate is currently at 58% In Q1FY2021, ISEC expanded its from high margin Credit risk fund to vs. 71% in Q4FY20. The number looks equity market share by 260 bps lower margin products resulted in 4/5 lower as earlier majority of sourcing YoY to 10.7%, with its equity ADTO bps decline in debt fund margin. channel used to be ICICI Bank. (average daily turnover) increasing by Investment performance in some Now, there are 4 different sourcing 115% vs 62% for the market. Similarly, of the larger equity funds has been channels. its derivatives market share went lower than expectations. As per up 150 bps YoY to 8.9%, and I-Sec ICICI Bank now contributes 65% of company’s internal discussion, the derivative ADTO rose 32% vs 9% new account openings vs 80% earlier. investment styles will be diversified for the market. During the quarter, in various equity funds and this is In the equities business, the I-Sec made available the third- work-in-progress. In line with this company witnessed 90% YoY increase party derivatives strategy platform view, the company has hired 3 new Sensibull on icicidirect. fund managers (1 in the PMS) for The company continues to receive which the AMC has received good ICICI Securities is encouraging response to Prime, feedback. soon going to launch its annual subscription-based plan As of now, there is reasonable a product that allows that provides a package of privilege overlap in equity holdings across customers to access pricing, exclusive research, and funds. The management desires to higher eATM (payout within 30 mins reduce overlap over a period of the US equity as well as of selling stocks) limits per day. next two or three quarters. Each debt market. The Currently there are over 3.75 lakh fund needs to have more distinct intent is to diversify Prime subscribers. investment style. the product mix as The quarter saw weakness in the The AMC has appointed well as build on a overall MF industry with redemption Nomination and Remuneration pressures persisting in debt funds. Committee who is conducting the dollar asset base over the long term. I-Sec however improved its net flows search for new CEO. and market share in equity funds.

39 INSIGHT August 2020 Income from distribution of ABB shall continue to strengthen The company continues to focus non-MF products like loans, fixed customer engagements vide voice of its efforts on cash collections and income products, corporate bonds customer, channel meets, webinars cost optimization initiatives. The and deposits, insurance, bank FDs, and virtual campaigns that will aid company holds on to its consistent AIF, PMS, SGBs, NPS, etc., were also the recovery period in the “new cash position, which at the end of the impacted during the quarter as a normal”. quarter stood at Rs. 1495 crore. significant portion of these business India focused portfolio, customer During the quarter, the first of its are contract based and the COVID- 19 value discovery workshops and kind commissioning of ABB’s circuit induced lockdown effected closure of digital platform leadership will make monitoring system (CMS 700) for a their sales. the company well positioned to leading data center company, which In Investment Banking, the navigate the crisis impacted market. facilitates detailed monitoring of company has strong IPO pipeline (as energy consumption of up to 96 Currently there is no visibility per SEBI filling) of 13 deals amounting sensors, was undertaken. on likely order cancellations post to over Rs. 38,200 crore. Total orders for the quarter was at lockdown. However, does not expect Rs 1200 crore and for H1 2020 it was Strong investment banking material order cancellations. Rs. 3153 crore. During the quarter, revenues were due to some large In order to tide over the current the company succeeded in securing block trades as well as QIP mandates. situation, focus on the right orders in varied sectors, including This is likely to continue in 2Q too. sectors like F&B, data centers, power distribution equipment, Regulatory guidelines: There is pharmaceuticals, energy, chemicals, automation projects for process a SEBI regulation on collection of and railways & metros, which are industries, food and beverage upfront margin in cash and derivative likely to demonstrate selective shoots and electronics. Sectors with segments. There are also some of growth, will be critical. continued investment include, rail changes in the margin requirement Target is to make ABB India forex infrastructure, industrial buildings as for these segments. There should neutral by increasing the company’s well as water and waste-water. not be any impact of the same on exposure to the group’s global supply ABB India continues to have a the cash market. SEBI regulation on chain and be a major beneficiary of stable order backlog as of June 30, intra-day margin collection – this will the China+1 strategy. 2020, at Rs. 4,671 crore widely spread have some impact on the industry across various end markets. ~10% but it’s too early to comment. While The impact caused by lower of orders are via the government SEBI’s guidelines are positive in the revenues during the quarter was (Railways, Utilities, etc.). long term, there could be short-term offset to a reasonable extent by Building automation is one of the challenges. various cost saving initiatives that were implemented by the company as focus areas for ABB India. Whole of ABB India Ltd. well as favorable forex valuations. Delhi airport is on ABB’s automation system. Many hotel chains are also (Date: July 24,2020) using ABB’s automation. ABB’s business model resilience 15% EBITDA level is the target set and robust fundamentals kept its by the Global CEO for the ABB group. strength despite interim disruptions ABB India continues on account of the COVID-19 crisis to have a stable Raw material cost target is and lockdown. order backlog as maintained at around ~65% of sales. Enabled business continuity As global uncertainty continues of June 30, 2020, of customers and partners with due to the COVID-19 situation, local at Rs. 4,671 crore extensive use of remote service markets are expected to remain widely spread across technology and ABB AbilityTM digital subdued with diminished per capita solutions. income. various end markets. ~10% of orders are Electronics manufacturing is set All its factories have reopened in via the government to increase in India and the industry the past 10 days. Utilisation levels largely depends on robotics. Hence it can be scaled up to make up for the (Railways, Utilities, will be strong growth opportunity for negative impact of lockdown. etc.). ABB India.

August 2020 INSIGHT 40 ECONOMY REVIEW

ECONOMY REVIEW: CREDIT RISK - RBI FSR

rivate banks have stepped up provisions to fight few states have also contributed its part in impacting against Covid-19 led NPAs since the six-month supply chains again. It is in this context that the Reserve moratorium is coming to an end in August and Bank of India released “Financial Stability Report” where needless to say, they anticipate a spike in bad the central bank warned that the gross nonperforming Ploans. Besides, private banks have also raised capital, just assets (GNPA) ratio of all scheduled commercial banks in case the need for it, suggesting the picture is murkier (SCBs) may increase from 8.5% in March 2020 to 12.5% by for them too. So far, private banks have increased March 2021 (based on baseline scenario of stress tests). provisions despite a declining trend in loans under RBI Governor Shaktikanta Das wrote in the foreword of moratorium seen in the past two the report “The financial system in months as revealed by the latest set India remains sound; nonetheless, of quarterly results. Experts believe in the current environment, the that despite the decline in loans Reserve Bank of need for financial intermediaries under moratorium particularly in India released to proactively augment capital Moratorium 2.0, majority of banks “Financial Stability and improve their resilience has could witness significant loans Report” where acquired top priority,” RBI governor turning bad, however managements, the central bank also had a word of caution for stock both PSU as well as private were warned that the market investors and referring to optimistic and expected only a the sharp recovery in the markets small fraction to turn bad even gross nonperforming from their March lows, Das wrote at the time of declaring Q4FY20 assets (GNPA) ratio that the Financial Stability Report results. The optimism behind such of all scheduled (FSR) coincides with a growing a move was based on a pick-up in commercial banks disconnect between the movements economic activity amid the easing (SCBs) may increase in certain segments of financial of Covid-19 lockdown, borrower from 8.5% in March markets and real sector activity. profiles and sufficient cash balances. “Contagion risks warrant constant However, since then some of the 2020 to 12.5% by vigilance by all stakeholders in the enthusiasm have faded as opined by March 2021 (based on financial system,” Das noted. He the economists now as suggested by baseline scenario of asked financial intermediaries to economic indicators in July, besides stress tests). undertake a reappraisal of their the intermittent lockdowns across business models. The governor said

41 INSIGHT August 2020 that asset markets have to adapt to a new normal in a adequacy of banks, risk perception is equally important. non-disruptive manner. Going forward, Das said that In FY20, banks have parked funds with RBI rather than once we enter the post-pandemic phase, the focus would lend. be on the calibrated unwinding of regulatory and other dispensations. FSR states that based on analysis over last Wholesale Credit Growth 3 yr CAGR (%) 36.77 40 3 years, it found that public sector banks (PSBs) were 31.98 30.75 risk averse compared to private banks (PVBs) and while 30 22.67 15.61 20 14.22 12.63 PSBs restricted themselves majorly to ‘AA and above’ 9.35 10 2.05 1.92 entities, PVBs registered positive credit growth across all 0 -2.86 rating categories. However, in FY20, the behavior of PVBs -10 -5.6 -7.61 -9.54 -20 also changed and there was moderation in aggregate Total AA and Other Below Unrated Non PSU PSU above Investment Investment credit growth driven by PVBs, reflecting heightened Grade Grade All Borrowers grouped by rating categories Borrowers grouped by risk aversion as well as muted demand in sluggish Borrowers Ownership macroeconomic conditions. Hence, apart from green PSBs PVBs Source: RBI FSR shoots in economic revival & revival in demand, capital

Disaggregated Wholesale Credit Growth (qoq unless mentioned otherwise) (%) FY19 Jun-19 Sep-19 Dec-19 Mar-20 FY20 PSBs 2.61 2.58 -0.33 -0.91 7.13 3.08 PVBs 23.79 3.15 3.82 0.25 1.37 2.19 Aggregate 8.52 2.76 0.99 -0.54 5.24 2.79 Source: RBI FSR Sectoral Credit Growth (%) Sector Q4FY20 FY20 Average Risk Weight (FY20) Mfg. of fuel products 49.49 29.1 47.18 Wholesale/Retail services 11.76 8.89 104.54 Financial Services 10.2 14.1 40.8 Mfg. Basic Metals and Metal products 5.27 -5.25 87.66 Agriculture & Allied 4.37 1.25 121.9 Postal, Telecommunication and IT services 4.1 7.61 63.9 Mining/Oil and gas extraction 3.31 -5.93 95.92 Mfg. of Chemicals, Rubber and Glass 2.92 -0.03 88.35 Mfg. of misc. items 2.86 2.61 135.97 Generation/Distribution of electricity 2.84 -3.87 77.39

Source: RBI FSR

FSR stated that RBI had provided regulatory and For private banks, 49% of total customers have availed supervisory measures to inter-alia mitigate the burden moratorium but as % of total outstanding, the figures of debt servicing and enable the continuity of viable stood at 31%. While the similar figure for PSBs, 67% of businesses and households. RBI decided to provide total customers availed moratorium and as % of total a relief to the standard bank accounts availing a loan outstanding it was 68%. Non-banking financial companies moratorium between March 1 and May 31 and later (NBFCs) had granted a moratorium to 29% of their extended till August 31st. The 90-day non-performing customers and 49% of their total outstanding. Certainly, asset (NPA) norm would exclude the moratorium period these figures have improved for next three months as for such accounts and hence there will be standstill on all signaled by the recent earnings released by private banks such accounts, although banks would have to maintain for the quarter ended June 2020 where moratorium an additional provisioning of 10% on such accounts. RBI’s has declined drastically for them. While the general FSR states that nearly half of the customers accounting expectation is that a significant amount of loans under for around half of outstanding bank loans opted to moratorium will result into NPAs, nobody is sure of the avail the benefit of the relief measures as of April 2020. share (%) of the moratorium book, however, they hold

August 2020 INSIGHT 42 excess provisions which provides are defaulted on, the gross NPAs of comfort. Just after releasing NBFCs will more than double and Moratorium 1.0 numbers by banks, According to media reach 9.6% of loans as of March 2021 Anil Gupta, sector head, financial articles, ICRA in a from 4.6% as of March 2020. Thus, sector ratings, ICRA Ratings June report estimated the deterioration in asset quality expressed his views that customers of NBFCs will eventually be borne who were in need for cash have NPAs to rise to 11.3- out by banks. This has been further already opted in for the moratorium 11.6% by March 2021 accentuated after IL&FS crisis, since and there may not be a substantial from around 8.6% in only higher rated entities were able rise in their number in the extension March 2020 while to raise funds. FSR states that banks period. According to media articles, and market borrowings account for ICRA in a June report estimated NPAs Standard & Poor’s, in over 70% of total outside liabilities to rise to 11.3-11.6% by March 2021 a report in June, the of the NBFC sector. With the waning from around 8.6% in March 2020 same to reach 13-14%. of market confidence, the share of while Standard & Poor’s, in a report NCDs in total borrowings of the in June, the same to reach 13-14%. NBFC sector declined from 49.1% at ICRA report further estimated that end FY17 to 40.8% at end-December even if 10-20% of the customers 2019. The consequent funding gap availing moratorium were to default, the slippage rate for was met through bank borrowings, which rose from 23.1% banks could rise to 3-8% of advances. Thus, if 20% of the of total borrowings to 28.9% over this period. This can also loans under moratorium eventually turn bad, NPA levels be gauged from the increase in share of the scheduled could double from 8.5% levels in March 2020. For NBFCs, commercial banks in total bilateral exposures between ICRA estimated 52% of assets under management under entities in financial system, albeit total outstanding moratorium as of May 2020. Even if 10% of these loans bilateral exposures declined marginally during FY20.

Analysis of Loan Moratorium Availed as on April 30, 2020 Sector Corporate MSME Individual Others Total

% of total % of total % of total % of total % of total % of total % of total % of total % of total % of total customers outstand- customers outstand- customers outstand- customers outstand- customers outstand- ing ing ing ing ing

PSBs 28.8 58.0 73.9 81.5 80.3 80.0 48.8 63.7 66.6 67.9

PVBs 21.6 19.6 20.9 42.5 41.8 33.6 39.1 40.9 49.2 31.1

FBs 32.6 7.7 73.3 50.4 8.4 21.1 75.8 4.8 21.4 11.5

SFBs 78.8 43.7 90.5 52.3 90.9 73.2 64.6 12.3 84.7 62.6

UCBs 63.4 69.3 66.5 65.5 56.8 62.0 35.6 59.2 56.5 64.5

NBFCs 39.7 56.2 60.7 61.1 32.5 45.9 37.3 41.4 29.0 49.0

SCBs 24.7 39.1 43.1 65.3 52.1 56.2 45.7 55.7 55.1 50.0

System 30.8 41.9 45.8 65.0 50.4 55.3 45.7 54.6 48.6 50.1

Source: FSR, RBI

Loans under Excess Provision Excess provisions moratorium (%) (Rs cr) % of moratorium book HDFC Bank 9.00% 5450 6.0% Axis Bank 9.70% 6898 12.7% ICICI Bank 17.50% 8275 7.5% Kotak Mahindra Bank 9.65% 1266 6.4%

Source: Company, Ashika Research Calculations

43 INSIGHT August 2020 SCB’s GNPA Ratio SCB’s NNPA Ratio

Source: FSR, RBI Source: FSR, RBI

SCB’s Quarterly Slippage Ratio SCB’s Provision Coverage Ratio3

Source: FSR, RBI Source: FSR, RBI

Capital to Risk Weighted Asset Ratio Fortnightly credit growth (% yoy) 16% 14% 12% 10% 8% 6% 4% 2% 0% Jul-18 Jul-19 Jul-20 Jan-19 Jan-20 Sep-18 Sep-19 Mar-19 Mar-20 Nov-18 Nov-19 May-19 May-20 Source: FSR, RBI Source: RBI

Gross payable of NBFCs to the Financial System

a. Share of Top 3 Lender Groups b. Share of Top 3 Instruments

Source: FSR, RBI Source: FSR, RBI Gross payable of HFCs to the Financial System a. Share of Top 4 Lender Groups b. Share of Top 3 Instruments

Source: FSR, RBI Source: FSR, RBI

August 2020 INSIGHT 44 Bilateral Exposures between Entities in Financial System

a. Amount b. Share of Different Groups

Source: FSR, RBI Source: FSR, RBI

According to the FSR, 65.3% of small (EPFO). According to recent media business loans and 56.2% of retail articles, 8 million subscribers have loans were under moratorium as According to RBI withdrawn Rs 30,000 cr between on 30 April, against only 39.1% of data, the gross bad April & July 2020. The comparable corporate loans. It is no surprise loan ratio for retail figures between April and end- that the SME sector is probably June stood at 5.58 million, thus a one of the hardest hit and it can loans has increased staggering 2.42 million salaried be gauged from recent surveys in the six months individuals have withdrawn in June conducted which shows the pain is from September 2019 alone. In that sense, the latest decline there despite collateral free loans to March 2020. While in moratorium loan book of the from Govt. While the SME segment prominent private players should be has been perceived to be the riskiest, retail delinquencies taken with a pinch of salt. A section retail segment has been the safest rose 20 basis of people also feels that the decline zone for the banks, the notion could points (bps) to 2% in moratorium levels may have been however change given the job losses, in March, this is achieved by not extending loans to pay cuts. Personal loans, Credit cards some who have asked for it, while few could witness higher delinquencies before the full force didn’t apply afresh for Moratorium together with personal loans, two- of the coronavirus 2.0. Thus, there is ambiguity, wheelers and together with slower pandemic hit. unfortunately the same will be known credit growth ahead, NPA levels (as % only by September quarter and of advances) might remain elevated. clearly by December quarter. For Retail loan origination of HDFC Bank too declined 70% in Axis Bank whose moratorium loan book declined to 9.7% quarter ended June 2020 led by 86% drop in origination in of outstanding loans has adopted an approach of recovery personal loans. According to RBI data, the gross bad loan of moratorium 1.0 rather than extension of moratorium ratio for retail loans has increased in the six months from and has only extended to those who are impacted by September 2019 to March 2020. While retail delinquencies Covid and done based on review for extension. A financial rose 20 basis points (bps) to 2% in March, this is before express article states that such an approach might the full force of the coronavirus pandemic hit. However, be catastrophic given high failure rate of auto-debit the bad loan ratio for industries declined 320 bps points transactions on the National Automated Clearing House to 14.1% in March. One has to keep in mind that opting (NACH) platform which shot up to 45% in June against the for availing moratorium comes with a steep cost as six-month range of 31-38%. In comparison, the bounce interest due will be added with principal and hence have rates stood at 18-19% till 2 years ago. The value of the to repay a higher amount. Clearly, the income level of transactions that ‘bounced’ was Rs 26,850 crore or 38% of salaried individuals has taken hit and could be judged the total mandates. The article states that most of these from the number of salaried-individuals who withdrew transactions are EMI payments, insurance premium money from their Employees’ Provident Fund account debits or SIP mandates.

Sector-wise GNPA Ratio and Stressed Advances Ratio

Source: FSR, RBI

45 INSIGHT August 2020 GNPA Ratio of Major Sub-sectors within Indistry

Source: FSR, RBI

Now coming back to the credit growth and asset quality from 4.2% and 2.3% to 7.3% and 3.9%, respectively, over of banks as well as NBFCs, FSR states that yoy credit the same period. Needless to say, high NPAs will result growth for SCBs which weakened during H1FY20 further in higher provisions & write offs and hence erosion of trended lower to 5.9% by March 2020 and remained capital. Under baseline scenario, systemwide capital muted till early June 2020. Large borrowers which adequacy ratio (CRAR) is projected to decline to 13.3% once led to the asset quality review of banks, their in FY21 from 14.6% in FY20 while it could drop to 11.8% proportion have declined in FY20 and FSR states that under the very severe stress scenario which might result on an incremental basis, credit and NPA accretions are in five banks fail to meet minimum capital requirements. occurring in the small borrower category in the recent Although, the FSR haven’t specified names, it has clearly period. Large borrowers accounted for 51.3% and 78.3% of hinted at weak PSBs, thus paving the way for further the aggregate loan portfolio and GNPAs, respectively, of mergers ahead. Under the baseline scenario, the common SCBs as of FY20. The FSR states that “Given the fact that equity Tier I (CET 1) capital ratio of SCBs may decline impact of moratorium is still uncertain and evolving, the from 11.7% in FY20 to 10.7% in FY21 & under the very exact nature of how the same will play out on the quality severe stress scenario CET1 could drop to 9.4%. While of banking assets is difficult to ascertain accurately. the regulatory moratorium may be holding back some Therefore, this will only be ascertainable with passage stress, the industry-wise composition of good quality of time, and outcomes would be disseminated in the loans of public and private banks reveals that some of the forthcoming publications of RBI, from time to time.” The industries with higher share of such loans across bank stress tests conducted by RBI indicate that the GNPA groups are severely affected by the Covid-19 pandemic, ratio of all SCBs may increase from 8.5% in March 2020 the RBI said. The regulator describes good quality loans as to 12.5% by March 2021 under the baseline scenario. FSR those which are standard and have not yet seen instances cautions that if the macroeconomic environment worsens of default. The sectors with the highest share of “good further, the ratio may escalate to 14.7% under the very quality loans”, which might get affected, include general severely stressed scenario. Under baseline scenario, PSBs’ purpose loans by non-banking finance companies, GNPA ratio of 11.3% in March 2020 may increase to 15.2% generation of electricity, NBFCs in the housing sector and by March 2021, GNPA ratio of PVBs and FBs may increase development financial institutions.

Macroeconomic Scenario Assumptions (%) 20 .8 .6 13.9 .3 12.8 12.1 11 11 11

15 10.9 10.6 10.2 10.1 8.9 8.8

10 6.5 5.9 4.2 4.1 5 0 -5 -0.5 -1.3 -3.5 -4.4

-10 -4.9 -5.5 -7.2

-15 -8.9 GDP growth Combined CPI inflation Weighted Exports to- Current gross fiscal average GDP ratio account deficit to- GDP lending rate balance to- ratio GDP ratio

Baseline Medium Stress Severe Stress Very Severe Stress Source: RBI FSR

August 2020 INSIGHT 46 Projection of SCBs’ GNPA ratios (%) 16.3 15.9 15.5 15.2 14.7 14.2 13.5 .3 12.5 11 8.7 8.5 8.3 7.7 7.3 5.8 5.1 4.5 4.2 3.9 2.3

Mar-20 Mar-21 Mar-20 Mar-21 Mar-20 Mar-21 Mar-20 Mar-21 PSBs PVBs FBs All SCBs Actual Baseline Medium Stress Severe Stress Very Severe Stress Source: RBI FSR

System Level CRAR (%) once the contagion risks settle, they will need capital for 13.3 growth in FY22, which is expected to be strong. So far, 12.7 private and public sector banks have announced over 12.1 Rs 1 lakh crore in capital raising using mix of private 11.8 11.3 placements, rights issues and follow-on public offers to raise the funds. PSBs like Bank of Baroda, Punjab National Bank and Canara Bank have announced an intention to tap the markets for equity capital. NBFCs like Shriram Actual Baseline Medium Severe Very Severe Stress Stress Stress Transport Finance Ltd., M&M Financial Services Ltd., PNB Housing Finance, JM Financial have also followed Mar-20 Mar-21 Source: RBI FSR suit to raise capital. According to a report from Fitch ratings, capital raising by PSBs from markets will not be Asset quality of NBFCs as defined by GNPA ratios enough and they would probably need recapitalization improved in successive quarters till Dec’19, only to surge from Govt. Besides, it is necessary since the economic in March 2020 quarter. The CRAR of the sector stood at recovery remains shaky due to continued acceleration in 19.6% in March 2020, which was lower than its level a new Covid-19 cases. According to Fitch, capital raising year ago. As highlighted before, NBFCs have increasingly by private banks will add 200-245 bps to their CET 1 being dependent on banking ratios, further widening gap with sector for funds. At the same time PSBs. Media articles however state Smaller / mid-sized and AA or lower that government is in discussions rated / unrated NBFCs have been Stress tests carried with the 15th Finance Commission shunned by both banks and markets, out for the NBFC on the issue of bank recapitalisation accentuating the liquidity tensions sector’s aggregate and will decide on the requirements faced by NBFCs. FSR states that this credit risk for of the sector for a five-year period, was also reflected in the lacklustre quarter ending said the chairman of the commission response to the Targeted Long-Term NK Singh. However, he also opined Repo Operations 2.0 (TLTRO 2.0). Dec’19 was carried that recapitalisation is not a panacea Stress tests carried out for the NBFC out under three for the banking sector and much sector’s aggregate credit risk for scenarios: increase in deeper reforms are needed. Singh quarter ending Dec’19 was carried GNPA by (i) 1 SD; (ii) said liberalising the banking and out under three scenarios: increase insurance sectors should be a in GNPA by (i) 1 SD; (ii) 2 SD; and (iii) 2 SD; and (iii) 3 SD. high priority for the government. 3 SD. It is assessed that the sector’s It is assessed that the Without outright privatisation, the CRAR would decline from 19.4% to sector’s CRAR would government should think of ways to 17.2% in the first scenario, to 16.4% decline from 19.4% improve the quality and predictability in the second scenario and to 15.2% of financial intermediation, he said. in the third scenario. Given the to 17.2% in the first Given the scenario on hand, banks interconnected behavior of financial scenario, to 16.4% in as well as NBFCs would need capital markets, the impact will be quite the second scenario to grow and break the morbid credit large and hence the need for raising and to 15.2% in the growth of ~6% in the economy, capital, not across private banks but third scenario. clearly it also needs to be backed up across PSBs and NBFCs too. Besides, by demand too.

47 INSIGHT August 2020 Asset Quality and CRAR of NBFCs (%) GNPA Ratio NNPA Ratio CRAR Mar-15 4.1 2.5 26.2 Mar-16 4.5 2.5 24.3 Mar-17 6.1 4.4 22.1 Mar-18 5.8 3.8 22.8 Mar-19 6.1 3.3 20.1 Sep-19 5.6 2.9 19.9 Dec-19 5.9 3.1 19.5 Mar-20 6.4 3.2 19.6 Source: RBI FSR Fund raising plans Private banks Amount (Rs cr) ICICI Bank 15,000 Axis Bank 15,000 HDFC Bank 10,000 Yes Bank 15,000 Kotak Mahindra Bank 7,400 IDFC First 2,000 IndusInd Bank 3,288 Federal Bank 4,000 AU Small Finance Bank 2,500

PSBs Amount (Rs cr) State Bank of India 20,000 Bank of Baroda 9,000 Canara Bank 7,000 PNB 10,000

NBFCs/HFCs Amount (Rs cr) HDFC 45,000 Shriram Transport 4,000 M&M Financial 3,500 Edelweiss Financial 1,500 PNB Housing 1,500 JM Financial 800 Source: Media articles

System level CET1 (%) Stressed CET1 Ratio (Fitch-rated banks, %) 14 11.7 12 10.7 10.2 9.6 9.4 10 8 6 4 2 0 Actual Baseline Medium Severe Very Severe Stress Stress Stress

Mar-20 Mar-21 Source: FSR, RBI Source: Financial Express, Fitch ratings

August 2020 INSIGHT 48 START-UP CORNER At Ashika Capital, we are extremely passionate about fostering symbiotic relationships that are aimed at building and sustaining high-growth founder led businesses. We strongly believe that financial capital is the first steppingstone to build a scalable, sustainable and impactful business. Therefore, our endeavour is to identify great entrepreneurs in pursuit of building businesses that carry magnanimous investment potential. Here is an Mr. Mihir Mehta INSIGHT into businesses that we have worked/working with – Auto Brix AutoBrix (formerly Cleanse Car), is an app-based end to end doorstep Auto services startup which caters services ranging from Car Wash, Bike Service, Tyre Change, Battery Services and Roadside Assistance (RSA). In a market that is about US$200 Billion in value (pan-India), the company’s vision is to build the largest and most trusted automobile servicing company that provides best in class solutions to its customers. A technology centric & data driven powerhouse backed by an extremely passionate team and investors, Autobrix has successfully cracked the code of auto services with car wash as an entry point and have helped its washing executives and Mechanics to earn more than average market compensation. Not just that, the company also aims to train and deploy more than 25,000 mechanics and other auto services executives in the next 5 years. The company has saved more than 32 million litres of water in just 18 months of operations and aiming to save more than 1 million litres of water every day, as their technique enables them to wash one car using only a mere 100 ml of water. Autobrix is currently serving more than 33,000 cars every day and has recently launched bike servicing solutions as well. The company has marked its presence across 7 cities in the country and have posted INR 15 Cr. revenue during FY20 and is currently clocking a monthly revenue run-rate of INR 2 Cr.

IIO Technologies IIO Technologies, a pioneer & first mover in the Drone Defense Solutions & Tactical Drones in India. In a market that is expected to grow at an unbelievable CAGR of 29% (Period: 2018-2024), the company’s vision is to build the largest and most trusted anti-drone solution provider in the country. The Company has already garnered orders from government agencies and has a robust pipeline. In this high-growth sector, they have come out to be a market leader and are growing continuously in a fast-paced environment. A technology-centric & data-driven powerhouse with a focus on indigenization and “Make in India” and backed by an extremely passionate team, IIO Technologies has successfully developed a platform named Skyfort - A fully customizable and scalable software platform which can be integrated into all existing and upcoming sensors to gear up against network-centric operation requirements. IIO Technologies currently hones five anti-drone products includingSkyfort Brahma, 3Dev, 3Netra, IIO C5+R3+EO and IIO G1 Drone Gun. IIO Technologies is currently looking to raise US$1.0 Mn for its next phase of expansion.

Plant Power A plant-based nutrition brand founded by a veteran nutritionist, who in her practice came across a gap in the choices available for clean and honest food brands with the vision of “Making plant-based alternatives available to daily life”. Their price tested basket of diverse product SKUs include an entire range from Protein bars to nut butters and Indian snacks as well, having seen a sales growth of over ~7x since their seed funding, 12 months ago. Propelled by a perfectly blended distribution ecosystem comprising both Offline and Online channels such as Modern Trade, General Trade, Pharmacies as well as Own and multiple Aggregator websites such as Amazon, Big Basket, Nature’s Basket, and several others. This business sees a repeat purchase rate of ~45% and has touch points across 400+ cities, targeting health conscious consumers aged 18-50 years, across the dedicated, puritans and fence sitters’ categories. They are looking to raise capital for further expansion.

These are the top three business opportunities that interested stakeholders can pursue from an investment standpoint. If you are interested to know more about these companies from the perspective of business operations, investment thesis, exit opportunities and more, please drop in a line to us at [email protected].

49 INSIGHT August 2020 MONSOON 2020: GOOD START

South West Monsoon, which accounts of LPA over South Peninsula and 96% for ~70% of annual rainfall in India, IMD’s second long‐ of LPA over North-East India, all with has been forecasted to be “normal” range forecast update a model error of ± 8 %. The monthly (96% to 104% of long period aver- has retained its rainfall over the country as whole is age (LPA)) this year. The Indian “normal” monsoon likely to be 103% of its LPA during Meteorological Department’s (IMD) prospects, at 102% July and 97% of LPA during August, second long‐range forecast update of LPA versus 110% both with a model error of ± 9 %. The has retained its “normal” monsoon actual rainfall last IMD expects currently ENSO Neutral prospects, at 102% of LPA versus 110% year based on the conditions are prevailing over the actual rainfall last year based on the prevalence of ENSO (El equatorial Pacific and Neutral IOD prevalence of ENSO (El Nino) condi- Nino) conditions with conditions are prevailing over the tions with some possibility of devel- some possibility of Indian Ocean. Global models are opment of weak La Niña conditions in development of weak indicating cool ENSO conditions are the later part of the monsoon season. La Niña conditions in likely to prevail during the monsoon IMD expects fairly even regional the later part of the season with some possibility of devel- rainfall distribution and is likely to be monsoon season. opment of weak La Niña conditions in 107% of LPA over North-West India, the later part of the monsoon season. 103% of LPA over Central India, 102%

IMD Forecast Region wise rainfall forecast 45 108% 107% 40 106% 33 35 104% 103% 30 102% 102% 102% 25 100% 20 16 17 16 17 98% 15 96% 10 96%

5 94% 5 15 41 25 14 0 92% Deficient Below normal Normal Above normal Excess (less than 90) (90-96) (96-104) (104-110) (more than 110) 90% Country as a Northwest India Central India South Peninsula East & northeast Probability - IMD Climatological probability whole India Source: IMD Source: IMD

August 2020 INSIGHT 50 All India cumulative rainfall this monsoon season as of Thus, improvement of these HFIs coupled with the July 22, 2020 is 6% above the LPA. Meanwhile, the IMD higher rabi procurement, timely onset of monsoon, good has said that the monsoon has covered the entire country reservoir levels & robust ongoing kharif sowing pattern as of June 26, 2020 and the month July is anticipated to all auger well for prospects of rural economic recovery. witness an equally good precipitation. IMD predicts 103% IMD’s track record in monsoon forecast rainfall of the LPA for July. The overall rainfall in June was 118% of the Long Period Average (LPA), thereby marking Monsoon IMD’s April IMD’s June Actual the best monsoon performance in the first month of ( June‐Sep) forecast (% of forecast (% of rainfall (% of the season since 2014. Spatially, now 29 of the 36 sub- year LPA +/‐ 5%) LPA +/‐ 4%) LPA) divisions have received excess/normal rainfall, thereby 2011 98 95 102 showing signs of normal monsoon this year. With 35% of the country’s area, receiving normal rainfall, compared 2012 99 95 93 to only 17% at the end of June. On a geographical basis, 2013 98 98 105 rainfall in the Central India subdivision was 105%, East and Northeast subdivision was 116%, Northwest India 2014 95 93 88 subdivision was 84%, while in the South Peninsula, and it 2015 93 88 86 was 116% of the LPA. In terms of area covered, 84% of the 2016 106 106 97 country has received normal to excess rainfall. Further, Reservoir levels remained positive compared to long 2017 96 98 95 term average levels. Water storage available in 123 key 2018 97 97 91 reservoirs as on July 23, 2020 is 66.372 BCM, which is 39% of total live storage capacity of these reservoirs. Thus, the 2019 96 96 110 live storage available in 123 reservoirs as per 23.07.2020 2020 100 102 ? Bulletin is 155% of the live storage of corresponding period Source: IMD of last year and 119% of storage of average of last ten years. Consequently, sowing activity in the Kharif season Progress of monsoon: above normal had a good start. As of July 24, 20120, 800 lakh hectares of IMD has said that the monsoon has covered the entire land were sown vs. 763.07 lakh hectares normally. Good country as of June 26, 2020. The normal date for rain in central and western India saw Cotton sowing Southwest monsoon to cover the entire country is July 08, progress at a good pace. Central India accounts for the 2020. Therefore, the Southwest monsoon this year has bulk of pulses and oilseeds production in India. With an covered the entire country 12 days prior to the normal estimated 105% of LPA rainfall in central India, it should date. The monsoon has arrived 7-12 days in advance in be positive for pulses and oilseeds production. North- central India and north-west India, which is supporting west and north-east India are predominantly paddy early sowing in this belt. Central India has benefitted producers. With 116% of LPA rainfall in north-east and the most with rainfall in excess of 59% of normal, which 84% of LPA in north-west, paddy production will need has supported sowing particularly in Madhya Pradesh. to be closely watched. The only positive aspect amidst Till July 22, cumulative rainfall was 6% above normal imminent growth contraction in FY21 is the anticipation with the weekly rainfall 12% below normal. On a regional of faster rural economic recovery in comparison to cumulative basis, most of India remained in normal to urban economic recovery. The government focused rural excess rainfall. Out of the 36 sub-divisions across India, programs and recently announced extension of PM Garib till date, 29 have received excess/normal rainfall and 7 Kalyan Yojna until November bode well for rural demand have received deficient rainfall. Rainfall has been above & income. This has started getting reflected in certain average in South Peninsula and East & North East India HFIs such as tractor sales, fertilizer sales, faster decline in while it is average in Central India and it is below average rural unemployment rate than urban unemployment rate, in Northwest India. increasing number of persons applying for MGNEREGA.

Region wise Rainfall Trends Regions 16 to 22 July, 2020 01 June to 22 July, 2020 Actual (mm) Normal % Departure Actual (mm) Normal % Departure (mm) from LPA (mm) from LPA Country as a whole 59.5 68.0 -12% 388.6 366.3 6% Northwest India 41.6 52.6 -21% 185.5 219.8 -16% Central India 43.7 77.2 -43% 411.2 392.9 5% South Peninsula 63.3 51.0 24% 361.1 310.7 16% East & northeast India 123.0 99.1 24% 766.6 661.6 16% Source: IMD, LPA: Long Period Average

51 INSIGHT August 2020 Categorywise no. of subdivisions and % area (sub-divisional) of the country Category Week: 16-07-2020 Period: 01-06-2020 To 22-07-2020 To 22-07-2020 No. of Sub-di- No. of Sub-di- subdivi- visional subdivi- visional sions %area of sions %area of country country Large Excess 5 9% 2 5% Excess 7 17% 9 26% Normal 10 24% 18 47% Deficient 10 35% 7 22% Large Deficient 4 15% 0 0% No Rain 0 0% 0 0%

Source: IMD Source: IMD

Source: IMD Source: IMD

Reservoir levels: high storage levels all BCM. Thus, the live storage available in 123 reservoirs around as per 23.07.2020 Bulletin is 155% of the live storage of Reservoir levels remained positive compared to long corresponding period of last year and 119% of storage of term average levels. Water storage available in 123 key average of last ten years. Moreover, out of 123 reservoirs, reservoirs as on July 23, 2020 is 66.372 BCM, which is 92 reservoirs reported more than 80% of normal storage, 39% of total live storage capacity of these reservoirs. 31 reservoirs having storage 51%-80% and 10 reservoirs However, last year the live storage available in these reported storage upto 50%. Larger river basin of Narmada reservoirs for the corresponding period was 42.826 BCM is in deficit while Ganga, Godavari, Krishna and Indus are and the average of last 10 years live storage was 55.824 in surplus.

August 2020 INSIGHT 52 28-May-20 18-Jun-20 2-Jul-20 16-Jul-20 23-Jul-20 No. of Reservoirs 123 123 123 123 123 Live capacity at FRL (BCM) 171.1 171.1 171.1 171.1 171.1 Current live storage (BCM) 58.03 54.11 54.89 61.7 66.4 Corresponding storage last year 34.11 29.58 29.2 41.1 42.8 Corresponding storage last 10-year average 34.7 32.02 35.74 46.4 55.8 % storage as FRL capacity 33.9 31.6 32.1 36.1 38.8 Corresponding % last year 19.9 17.3 17.1 24.0 25.0 Corresponding % (last 10-year average) 20.3 18.7 20.9 27.1 32.6 Current year's storage as % of last year 170.1 182.9 188.0 150.1 155.0 Current year's storage as % of last 10-yr average 167.2 169.0 153.6 132.9 118.9 Reservoir surplus/(deficiency) (%) 67.2 69.0 53.6 32.9 18.9 Source: Central Water Commission, as on July 23, 2020 Reservoir storage levels Regions No. of Total live Current % of live storage capacity Status Deviation reservoirs storage storage from Avg of last Last year Current capacity (bcm) (bcm) normal 10 years Northern region 8 19.17 8.23 43% 45% 40% Normal 8% Eastern region 18 19.43 5.66 29% 17% 27% Normal 10% Western region 42 35.24 13.85 39% 20% 30% Excess 30% Central region 19 44.45 19.95 45% 25% 33% Excess 36% Southern region 36 52.81 18.69 35% 24% 33% Normal 6% Total India 123 171.10 66.38 39% 25% 33% Normal 18% Source: Central Water Commission; as on July 23, 2020 Note: Northern region: HP, Punjab & Rajasthan; Eastern region: Jharkhand, Odisha, Tripura & West Bengal; Western region: Gujarat & Maharashtra; Central region: MP, UP, Uttarakhand & Chhattisgarh; Southern region: Karnataka, TN, Andhra Pradesh, Telangana & Kerala

River basin-wise reservoir status River basin FRL capac- Storage (bcm) Storage (% of FRL) % departure from ity (bcm) 2020 2019 10 yr avg 2020 2019 10 yr avg 10 yr average Ganga 30.184 15.729 7.180 10.068 52.11 23.79 33.36 56.23 Indus 14.819 6.359 7.114 6.035 42.91 48.01 40.72 5.37 Narmada 22.344 5.730 5.808 6.063 25.64 25.99 27.13 -5.49 Tapi 7.394 3.677 0.378 1.940 49.73 5.11 26.24 89.54 Mahi 4.012 1.395 1.694 1.637 34.77 42.22 40.80 -14.78 Sabarmati 1.042 0.334 0.055 0.186 32.05 5.28 17.85 79.57 Rivers of Kutch 1.186 0.314 0.082 0.251 26.48 6.91 21.16 25.10 Godavari 17.714 6.731 1.940 4.155 38.00 10.95 23.46 62.00 Krishna 33.573 12.002 8.707 10.978 35.75 25.93 32.70 9.33 Mahanadi & neighboring EFRS 13.842 4.967 2.928 4.130 35.88 21.15 29.84 20.27 Cauvery & neighboring EFRS 8.359 3.797 1.597 3.339 45.42 19.11 39.94 13.72 West flowing rivers of South 16.622 5.337 5.343 7.042 32.11 32.14 42.37 -24.21 Total 171.091 66.372 42.826 55.824 38.79 25.03 32.63 18.90 Source: Central Water Commission, as on July 23, 2020

Basin wise storage position: Crop acreage –Kharif sowing healthy Better than normal: Ganga, Indus, Narmada, Tapi, Planting has been completed in three-fourth of kharif Sabarmati, Rivers of Kutch, Godavari, Krishna, Mahanadi sowing area already, riding mainly on good monsoon and & Neighbouring East Flowing River and Cauvery & higher water storage in reservoirs. According to weekly neighbouring EFRs. data released by Agriculture Ministry on Friday, kharif Close to normal: Narmada and Mahi. sowing has so far covered around 800 lakh hectares (lh), nearly 18.5% more area than 675 lh planted in the Deficient: West Flowing Rivers of South. corresponding week last year. There is nearly 25% more Highly deficient: NIL

53 INSIGHT August 2020 planting in pulses and oilseed crops as compared to same year. With a total coverage of 118 lh, cotton is already week last year. Thanks to increase in sowing in Rajasthan, close to normal planting area and about 23% more than Madhya Pradesh, Maharashtra and Karnataka, the area 96 lh planted this time last year. The 32.54 lakh hectare of under pulses crops touched nearly 100 lh as compared to increase in area under coverage was contributed by states 79 lh in the same period last year. Oilseeds, on the other like Uttar Pradesh (6.50 lakh hectare), Jharkhand (6.10 lakh hand, covered 166 lh as against 123 lh in the corresponding hectare), Madhya Pradesh (5.98 lakh hectare), Bihar (5.66 week last year with Madhya Pradesh and Maharashtra lakh hectare), Chhattisgarh (3.57 lakh hectare) and West accounting for more than 100 lh. While these two States Bengal (2.80 lakh hectare). While area coverage of coarse accounted for nearly 85% of soyabean planted area in the cereals such as jowar, bajra, ragi and maize was increased country, Gujarat increased groundnut cultivation area by 16.83 lakh hectare over the period under review, that by nearly 50% to 20 lh as compared to same week last of oilseeds was up by 32.80 lakh hectare till now. Jute and year. Rice planting too witnessed a spurt this week with Mesta showed a marginal growth of 1.49% so far. Almost farmers covering more than 220 lh, nearly 17% more than three million farmers are engaged in jute cultivation, the about 188 lh planted in the same period in the previous data showed. Kharif crop acreage (lakh hactare) Crop Normal As on July 24, 2020 Increase / Decrease Change (%) area Normal 2020 2019 Vs YoY Vs YoY yr Normal Normal Rice 397.29 209.57 220.24 187.70 10.67 32.54 5.09 17.34 56.23 Pulses 128.88 94.99 99.71 79.30 4.72 20.41 4.97 25.74 5.37 Coarse cereals 184.89 134.97 137.13 120.30 2.16 16.83 1.60 13.99 -5.49 Oil seeds 178.08 144.03 166.36 133.56 22.33 32.80 15.50 24.56 89.54 Sugarcane 48.46 48.32 51.54 51.02 3.22 0.52 6.66 1.02 20.27 Jute & Mesta 7.87 8.92 6.94 6.84 -1.98 0.10 -22.20 1.46 13.72 Cotton 120.97 122.27 118.03 96.35 -4.24 21.68 -3.47 22.50 -24.21 Total 1,066.44 763.07 799.95 675.07 36.88 124.88 4.83 18.50 18.90 Source: Department of Agriculture Kharif crops MSP hiked likely to boost and Bajra by Rs 150. The MSP of Tur, Moong and Urad farmers’ income pulses has been raised by Rs 200, Rs 146 and Rs 300, In a major step to boost farmers’ income, the Government respectively. MSPs were hiked for 14 major crops of the approved an increase in the minimum support prices kharif or summer season, to ensure they remain at a (MSPs) for kharif crops in the 2020-21 season, including level that is 1.5 times the cost of production. The average Paddy by Rs 53 per quintal. The MSP of Jowar has been increase for all crops announced is ~4.7% YoY. The hikes increased by Rs 70 per quintal, Ragi by Rs 145 per quintal for last year were sharply higher at ~3.8% YoY average for all crops announced.

Kharif Crops MSP (Rs/ quintal) 2016-17 2017-18 2018-19 2019-20 2020-21 % YoY Paddy, common 1470 1550 1750 1815 1868 2.9% Paddy, Grade A 1510 1590 1770 1835 1888 2.9% Jowar, hybrid 1625 1700 2430 2550 2620 2.7% Jowar, Maldandi 1650 1725 2450 2570 2640 2.7% Bajra 1330 1425 1950 2000 2150 7.5% Ragi 1725 1900 2897 3150 3295 4.6% Maize 1365 1425 1700 1760 1850 5.1% Arhar(Tur) 5050 5450 5675 5800 6000 3.4% Moong 5225 5575 6975 7050 7196 2.1% Urad 5000 5400 5600 5700 6000 5.3% Groundnut 4220 4450 4890 5090 5275 3.6% Sunflower seed 3950 4100 5388 5650 5885 4.2% Soyabean, yellow 2775 3050 3399 3710 3880 4.6% Sesamum 5000 5300 6249 6485 6855 5.7% Niger Seed 3825 4050 5877 5940 6695 12.7% Cotton, Mediumstaple 3860 4020 5150 5255 5515 4.9% Cotton, Long staple 4160 4320 5450 5550 5825 5.0% Source: Agricoop

August 2020 INSIGHT 54 India Inc: Annual Report card Nifty 50 Company Performance for FY20 (Rs. Cr.)

Company Name Net Sales YoY EBITDA YoY Net Profit YoY EBITDA Change Change Change Change Margin (bps) Automobile 499815 -11.8% 49098 -21.4% 2561 LP 9.8% -120 Bajaj Auto 29919 -1.4% 5096 -1.8% 4890 6.8% 17.0% -6 Eicher Motors 9154 -6.6% 2180 -24.9% 1796 -8.5% 23.8% -581 Hero MotoCorp 28836 -14.3% 3958 -19.7% 3633 7.3% 13.7% -93 Mahindra & Mahindra 95179 -9.1% 12564 -17.4% -1364 PL 13.2% -132 Maruti Suzuki India 75660 -12.1% 7313 -32.8% 5676 -24.3% 9.7% -298 Tata Motors 261068 -13.5% 17987 -22.9% -12071 Loss 6.9% -84 Banks 602849 11.9% 71642 53.5% Axis Bank 63716 13.7% 1879 -62.8% HDFC Bank 122189 16.2% 27296 21.6% ICICI Bank 84836 17.9% 11225 97.3% IndusInd Bank 28783 29.3% 4458 35.0% Kotak Mahindra Bank 33474 12.2% 8607 20.9% State Bank Of India 269852 6.5% 18177 492.3% Cement 54043 10.1% 12955 37.8% 7385 118.4% 24.0% 482 Shree Cement 11918 1.7% 3671 38.4% 1570 65.1% 30.8% 817 Ultratech Cement 42125 12.7% 9284 37.6% 5815 139.2% 22.0% 398 Chemicals 56019 36.0% 10937 45.4% 4499 22.5% 19.5% 126 Asian Paints 20263 4.7% 4164 10.6% 2723 25.7% 20.5% 110 UPL 35756 63.7% 6773 80.2% 1776 18.0% 18.9% 173 Consumer Goods 136196 4.9% 36288 7.9% 26922 16.9% 26.6% 72 Britannia Industries 11600 4.9% 1843 6.3% 1393 20.5% 15.9% 21 Hindustan Unilever 39783 1.2% 9855 11.0% 6756 11.5% 24.8% 218 ITC 51393 6.3% 19260 4.5% 15306 19.4% 37.5% -63 Nestle India 12369 9.5% 2863 9.4% 1970 22.6% 23.1% -3 Titan Company 21052 6.4% 2466 24.0% 1497 7.6% 11.7% 166 Finance 190848 22.4% 86183 20.7% 27954 43.7% 45.2% -64 Bajaj Finance 23823 37.0% 15058 23.5% 4881 25.5% 63.2% -694 Bajaj Finserv 54833 28.7% 18253 21.4% 5993 11.5% 33.3% -200 HDFC 112192 17.0% 52872 19.7% 17080 67.6% 47.1% 108 IT 416421 8.6% 99032 8.2% 73815 4.7% 23.8% -10 HCL Tech 70676 17.0% 17316 24.3% 11057 9.3% 24.5% 145 Infosys 90791 9.8% 21756 7.9% 16639 8.0% 24.0% -43 TCS 156949 7.2% 42109 6.6% 32447 2.8% 26.8% -14 Tech Mahindra 36868 6.1% 5509 -13.1% 3903 -10.4% 14.9% -330 Wipro 61138 3.6% 12342 6.2% 9769 8.3% 20.2% 50 Metal &Mining 511814 -10.9% 86250 -22.6% 19383 -60.5% 16.9% -254 Coal India 96080 -3.8% 21921 -11.0% 16714 -4.3% 22.8% -183 Hindalco Industries 118144 -9.5% 14306 -5.7% 3767 -31.4% 12.1% 49 JSW Steel 73326 -13.5% 11873 -37.4% 4009 -46.9% 16.2% -617

55 INSIGHT August 2020 Company Name Net Sales YoY EBITDA YoY Net Profit YoY EBITDA Change Change Change Change Margin (bps) Tata Steel 139817 -16.4% 17463 -41.0% 1557 -82.5% 12.5% -521 Vedanta 84447 -8.3% 20687 -10.3% -6664 PL 24.5% -57 Oil & Gas 2000698 3.9% 174130 -13.2% 62264 -37.4% 8.7% -172 BPCL 329797 10.6% 8349 -44.8% 3055 -59.7% 2.5% -254 GAIL (India) 72568 -4.8% 9025 -6.6% 9422 63.1% 12.4% -25 Indian Oil Corp. 576589 9.2% 16405 -53.5% -893 PL 2.8% -383 ONGC 425001 -6.3% 52145 -7.5% 10907 -64.2% 12.3% -17 Reliance Industries 596743 4.8% 88206 4.8% 39773 0.1% 14.8% -1 Pharmaceuticals 67486 10.9% 12651 2.7% 7281 9.9% 18.7% -149 Cipla 17132 4.7% 3206 11.8% 1547 2.4% 18.7% 118 Dr. Reddy's Lab 17517 13.4% 2470 -22.3% 1970 3.3% 14.1% -647 Sun Pharma 32838 13.0% 6974 11.2% 3765 17.3% 21.2% -35 Power 147208 14.2% 64477 31.4% 22660 3.5% 43.8% 575 NTPC 109464 15.4% 31537 59.4% 11600 -3.0% 28.8% 795 Power Grid Corp. 37744 10.6% 32940 12.5% 11059 11.3% 87.3% 146 Telecom 94282 7.6% 40040 47.1% -30265 PL 42.5% 1140 Bharti Airtel 87539 8.4% 36482 50.7% -32183 PL 41.7% 1171 Bharti Infratel 6743 -1.2% 3558 17.9% 1918 29.9% 52.8% 854 Others 234516 4.2% 47343 6.1% 17763 4.3% 20.2% 35 Adani Ports 11439 4.7% 5505 -16.5% 3789 -6.3% 48.1% -1221 Grasim Industries 77625 6.3% 17467 8.6% 4425 61.1% 22.5% 48 Larsen & Toubro 145452 3.2% 24371 11.0% 9549 -6.7% 16.8% 119 Nifty 50 5012197 3.0% 719382 -0.3% 313865 -12.0% 14.4% -47

Nifty 50 Annual Performance for last 10 years (Ex. Bank) Rs. Cr. 201103 201203 201303 201403 201503 201603 201703 201803 201903 202003 Net Sales 1862777 2371465 2637579 3007636 3024143 2760716 3143891 3540807 4278492 4350836 Growth 23% 27% 11% 14% 1% -9% 14% 13% 21% 2% Operating Expenses 1574804 2019327 2264377 2546727 2552700 2285988 2596508 2930537 3570435 3648430 Growth 24% 28% 12% 12% 0% -10% 14% 13% 22% 2% % of Sales 85% 85% 86% 85% 84% 83% 83% 83% 83% 84% Operating Profit 287973 352138 373202 460909 471442 474729 547383 610270 708056 702406 Growth 22% 22% 6% 24% 2% 1% 15% 11% 16% -1% OPM 15% 15% 14% 15% 16% 17% 17% 17% 17% 16% Other Income 56832 48355 54197 60478 65111 85639 92165 98209 96253 83607 Growth -24% -15% 12% 12% 8% 32% 8% 7% -2% -13% Depreciation 77028 87216 93417 116655 129259 132746 145649 164334 186002 213664 Growth 7% 13% 7% 25% 11% 3% 10% 13% 13% 15% Interest 36984 51937 61811 75869 83262 89856 97402 112791 144809 174182 Growth 24% 40% 19% 23% 10% 8% 8% 16% 28% 20% Tax 59820 67481 77635 87932 92653 78896 112656 132528 132950 69431 Growth 11% 13% 15% 13% 5% -15% 43% 18% 0% -48% Net Profit 175841 190811 188626 238339 205103 219285 281525 318884 307272 239350 Growth 14% 9% -1% 26% -14% 7% 28% 13% -4% -22% NPM 9% 8% 7% 8% 7% 8% 9% 9% 7% 6% Market Cap 2966465 2835940 3123063 3799151 4777349 4540174 5407222 6054031 6768131 5388113 Growth 23% -4% 10% 22% 26% -5% 19% 12% 12% -20% PE Ratio 16.9 14.9 16.6 15.9 23.3 20.7 19.2 19.0 22.0 22.5

August 2020 INSIGHT 56 Nifty 50 Sectoral Performance (Rs. Cr.) Segment No. of Sales EBITDA PAT Market Cap Compa- FY10 FY15 FY20 FY10 FY15 FY20 FY10 FY15 FY20 FY10 FY15 FY20 nies Automobile 6 183919 443346 499815 20931 63451 49098 11995 26342 2561 180365 490227 313080 Banks 6 165414 372343 602849 ------24046 53467 71642 406997 919750 1237085 Cement 2 10807 30964 54043 3488 5769 12955 1773 2528 7385 22604 116574 156963 Chemicals 2 12139 26273 56019 2235 4507 10937 1397 2594 4499 26115 96770 184795 Consumer Goods 5 50480 100434 136196 10413 23604 36288 7325 16831 26922 190439 577811 1013364 Finance 3 29280 60797 190848 12329 37173 86183 3412 10258 27954 84049 250295 489344 IT 5 96746 254241 416421 25329 61943 99032 19866 51107 73815 441362 1108602 1243862 Metal &Mining 5 242555 462735 511814 34069 69363 86250 16046 201 19383 369314 364717 199671 Oil & Gas 5 706470 1290026 2000698 74338 103932 174130 60162 54338 62264 728938 726691 972095 Others 3 65399 130995 234516 13953 24722 47343 9740 9716 17763 155654 256923 195880 Pharmaceuticals 3 16356 53761 67486 3861 13432 12651 2781 9079 7281 85809 328715 170478 Power 2 55439 97789 147208 19341 34093 64477 10879 14972 22660 215985 197073 166547 Telecom 2 48868 107769 94282 18888 38601 40040 9614 7046 -30265 154888 230128 270129 Nifty 50 49 1683872 3431473 5012197 239175 480589 719382 179037 258478 313865 3062520 5664275 6613293 Nifty Ex BFSI 40 1489178 2998333 4218500 226846 443417 633199 151579 194753 214268 2571473 4494231 4886864 Nifty Ex BFSI & Oil & Gas 35 782708 1708308 2217802 152508 339484 459069 91417 140415 152004 1842535 3767540 3914769

Segment Sales growth (%) EBITDA growth (%) PAT growth (%) FY20 5 yr CAGR 10 yr CAGR FY20 5 yr CAGR 10 yr CAGR FY20 5 yr CAGR 10 yr CAGR Automobile -11.8 2.4 10.5 -21.4 -5.0 8.9 -137.3 -37.3 -14.3 Banks 11.9 10.1 13.8 ------53.5 6.0 11.5 Cement 10.1 11.8 17.5 37.8 17.6 14.0 118.4 23.9 15.3 Chemicals 36.0 16.3 16.5 45.4 19.4 17.2 22.5 11.6 12.4 Consumer Goods 4.9 6.3 10.4 7.9 9.0 13.3 16.9 9.9 13.9 Finance 22.4 25.7 20.6 20.7 18.3 21.5 43.7 22.2 23.4 IT 8.6 10.4 15.7 8.2 9.8 14.6 4.7 7.6 14.0 Metal &Mining -10.9 2.0 7.8 -22.6 4.5 9.7 -60.5 149.3 1.9 Oil & Gas 3.9 9.2 11.0 -13.2 10.9 8.9 -37.4 2.8 0.3 Others 4.2 12.4 13.6 6.1 13.9 13.0 4.3 12.8 6.2 Pharmaceuticals 10.9 4.7 15.2 2.7 -1.2 12.6 9.9 -4.3 10.1 Power 14.2 8.5 10.3 31.4 13.6 12.8 3.5 8.6 7.6 Telecom 7.6 -2.6 6.8 47.1 0.7 7.8 PL PL PL Nifty 50 3.0 7.9 11.5 3.6 6.9 12.1 -12.0 4.0 5.8 Nifty Ex BFSI 1.1 7.1 11.0 -2.6 7.4 10.8 -26.3 1.9 3.5 Nifty Ex BFSI & Oil & Gas -1.3 5.4 11.0 2.2 6.2 11.6 -20.5 1.6 5.2

Segment EBITDA margin (%) PAT margin (%) Market Cap (%) P/E Ratio (x) FY20 5 yr Avg. 10 yr Avg. FY20 5 yr Avg. 10 yr Avg. 5 yr CAGR 10 yr CAGR FY10 FY15 FY20 Automobile 9.8 12.1 12.8 0.5 3.3 5.1 -8.6 5.7 15.0 18.6 NA Banks ------11.9 9.7 12.0 6.1 11.8 16.9 17.2 17.3 Cement 24.0 21.4 21.3 13.7 10.6 10.7 6.1 21.4 12.7 46.1 21.3 Chemicals 19.5 18.9 18.0 8.0 10.2 10.0 13.8 21.6 18.7 37.3 41.1 Consumer Goods 26.6 25.3 23.8 19.8 17.4 16.7 11.9 18.2 26.0 34.3 37.6 Finance 45.2 48.1 53.8 14.6 13.5 16.0 14.3 19.3 24.6 24.4 17.5 IT 23.8 24.0 24.7 17.7 18.8 19.4 2.3 10.9 22.2 21.7 16.9 Metal &Mining 16.9 16.1 15.5 3.8 5.2 5.5 -11.4 -6.0 23.0 NA 10.3 Oil & Gas 8.7 10.4 9.5 3.1 5.7 5.2 6.0 2.9 12.1 13.4 15.6 Others 20.2 19.4 19.3 7.6 8.4 8.8 -5.3 2.3 16.0 26.4 11.0 Pharmaceuticals 18.7 21.4 24.8 10.8 12.7 16.1 -12.3 7.1 30.9 36.2 23.4 Power 43.8 40.6 37.4 15.4 16.4 17.0 -3.3 -2.6 19.9 13.2 7.3 Telecom 42.5 36.7 35.1 -32.1 -3.0 1.5 3.3 5.7 16.1 32.7 NA Nifty 50 12.4 12.5 12.6 6.3 7.9 8.2 3.1 8.0 17.1 21.9 21.1 Nifty Ex BFSI 15.0 15.9 15.2 5.1 7.5 7.5 1.7 6.6 17.0 23.1 22.8 Nifty Ex BFSI & Oil & Gas 20.7 20.1 19.9 6.9 8.8 9.5 0.8 7.8 20.2 26.8 25.8 Note: Zee Entertainment Enterprises Ltd has not declared their FY20 result (till the time of our calculation), so it is excluded from our calculation.

57 INSIGHT August 2020 Nifty 500 Sectoral Performance (Rs. Cr.) Segment No. of Sales EBITDA PAT Market Cap Com- FY10 FY15 FY20 FY10 FY15 FY20 FY10 FY15 FY20 FY10 FY15 FY20 panies Agri 8 23400 46944 53610 2846 3748 6141 1615 (200) 2918 17655 27234 43537 Automobile & Ancillaries 34 256932 613501 751789 29382 82264 78860 16281 36065 15394 256578 820736 552355 Aviation 2 14057 29555 57278 1404 3377 8987 2518 3692 2657 58423 Bank 26 329001 749555 1036205 45328 74217 43778 559483 1113774 1426446 Capital Goods 31 109304 132101 136212 11063 8817 12458 8537 (1991) 5760 242513 277468 232980 Cement 13 62637 111957 212056 17565 17769 43987 10518 8357 20051 100883 247418 273026 Chemicals 33 64315 136817 200497 8798 16004 31395 5274 7372 17963 73275 242740 485294 Construction 25 81997 162631 264179 15485 30230 45699 9808 9229 16159 193420 288718 239825 Consumer Durables 10 14758 22765 39798 1467 1626 3038 1088 1104 1940 14885 43103 73450 Consumer Goods 42 112434 240103 374205 16315 35853 61336 10557 22448 41238 284968 926821 1650132 Finance 44 88153 215653 481774 49976 145127 282796 15991 37897 65763 219322 555205 842391 Healthcare 43 65507 159630 249578 13851 33726 51753 8054 22892 23752 206278 747372 662656 Hospitality 5 4604 7916 11376 752 1196 2565 160 (70) 1100 16728 17867 32011 Insurance 6 108337 6321 290396 IT 22 117624 295911 488674 29693 69487 111848 23431 56745 82760 487994 1218007 1372819 Logistics 11 16684 36172 50942 3711 9226 11773 2494 5336 5512 64272 137384 95453 Media & Entertainment 9 7468 16295 29113 2436 4776 7593 1366 2256 3105 43041 76109 40676 Metal & Mining 21 347255 607146 718916 67262 102269 127663 38703 17249 35115 593920 563640 336611 Oil & Gas 16 899044 1667790 2463451 85884 113871 189458 67551 59266 64369 807482 840550 1111821 Plastic Products 8 10409 21564 27632 1740 2748 4182 797 1046 1929 9433 23331 38857 Power 13 107318 214914 280225 33724 64766 101051 20044 23351 25188 378769 314477 251839 Services 9 18029 41704 67137 1060 1961 3021 751 1221 1899 11478 38427 49603 Telecom 8 79840 165450 167693 22650 52644 60043 10190 10342 (102831) 153360 312755 297775 Textile 14 22428 45666 50925 3517 6490 7902 1397 2325 4334 16137 47005 60715 Nifty 500 453 2853198 5741740 8321605 384736 761944 1079473 305035 408048 386172 4751874 8880138 10519089 Nifty Ex BFSI 377 2436044 4776532 6695288 370605 662846 970754 241133 288034 270310 3973068 7211159 7959856

Segment Sales growth (%) EBITDA growth (%) PAT growth (%) FY20 5 yr CAGR 10 yr CAGR FY20 5 yr CAGR 10 yr CAGR FY20 5 yr CAGR 10 yr CAGR Agri 7.9 2.7 8.6 37.0 10.4 8.0 188.5 NA 6.1 Automobile & Ancillaries -9.9 4.1 11.3 -16.6 -0.8 10.4 62.7 -15.7 -0.6 Aviation 18.4 14.1 15.1 108.7 21.6 20.4 9.0 -6.4 0.5 Bank 11.9 6.7 12.2 NA -10.0 -0.3 Capital Goods -12.9 0.6 2.2 -45.8 7.2 1.2 -63.0 NA -3.9 Cement 4.0 13.6 13.0 17.6 19.9 9.6 63.3 19.1 6.7 Chemicals 8.7 7.9 12.0 17.0 14.4 13.6 25.5 19.5 13.0 Construction 4.4 10.2 12.4 5.0 8.6 11.4 -13.4 11.9 5.1 Consumer Durables 9.7 11.8 10.4 4.3 13.3 7.6 4.7 11.9 6.0 Consumer Goods 19.1 9.3 12.8 8.7 11.3 14.2 8.6 12.9 14.6 Finance 29.2 17.4 18.5 25.3 14.3 18.9 11.0 11.7 15.2 Healthcare 10.6 9.3 14.3 8.6 8.9 14.1 1.3 0.7 11.4 Hospitality 6.3 7.5 9.5 36.0 16.5 13.1 35.8 NA 21.3 Insurance IT 8.6 10.6 15.3 7.9 10.0 14.2 3.4 7.8 13.4 Logistics 4.9 7.1 11.8 -2.2 5.0 12.2 -9.9 0.7 8.3 Media & Entertainment 19.9 12.3 14.6 1.6 9.7 12.0 -18.8 6.6 8.6 Metal & Mining -10.3 3.4 7.5 -20.1 4.5 6.6 -47.9 15.3 -1.0 Oil & Gas 3.8 8.1 10.6 -17.1 10.7 8.2 -43.2 1.7 -0.5 Plastic Products -0.8 5.1 10.3 4.8 8.8 9.2 17.0 13.0 9.2 Power 7.0 5.5 10.1 24.9 9.3 11.6 -19.7 1.5 2.3 Services 10.1 10.0 14.1 -2.5 9.0 11.0 -7.5 9.2 9.7 Telecom 9.9 0.3 7.7 69.7 2.7 10.2 NA NA NA Textile -15.9 2.2 8.5 -25.1 4.0 8.4 -21.0 13.3 12.0 Nifty 500 5.6 7.7 11.3 10.9 7.2 10.9 -23.7 -1.1 2.4 Nifty Ex BFSI 1.8 7.0 10.6 -1.8 7.9 10.1 -38.3 -1.3 1.1

August 2020 INSIGHT 58 Segment EBITDA margin (%) PAT margin (%) Market Cap (%) P/E Ratio

FY20 5 yr Avg. 10 yr Avg. FY20 5 yr Avg. 10 yr Avg. 5 yr CAGR 10 yr CAGR FY10 FY15 FY20

Agri 11.5 9.0 9.5 5.4 2.3 2.3 9.8 9.4 10.9 -136.0 14.9

Automobile & Ancillaries 10.5 12.3 12.5 2.0 4.3 5.4 -7.6 8.0 15.8 22.8 35.9

Aviation 15.7 14.3 11.7 4.6 8.7 11.4 22.0

Bank -15.4 -22.4 -13.4 4.2 1.9 6.7 5.1 9.8 12.3 15.0 32.6

Capital Goods 9.1 9.6 9.8 4.2 7.5 6.1 -3.4 -0.4 28.4 -139.4 40.4

Cement 20.7 18.8 18.8 9.5 8.0 8.9 2.0 10.5 9.6 29.6 13.6

Chemicals 15.7 14.6 13.7 9.0 8.2 7.5 14.9 20.8 13.9 32.9 27.0

Construction 17.3 17.6 18.0 6.1 7.1 7.2 -3.6 2.2 19.7 31.3 14.8

Consumer Durables 7.6 8.2 7.5 4.9 5.3 4.8 11.2 17.3 13.7 39.0 37.9

Consumer Goods 16.4 17.0 15.9 11.0 11.0 10.2 12.2 19.2 27.0 41.3 40.0

Finance 58.7 60.6 63.4 13.7 15.0 16.9 8.7 14.4 13.7 14.7 12.8

Healthcare 20.7 21.5 21.5 9.5 11.8 14.8 -2.4 12.4 25.6 32.6 27.9

Hospitality 22.6 18.0 17.1 9.7 6.0 2.9 12.4 6.7 104.8 -255.7 29.1

Insurance -13.8 5.8 45.9

IT 22.9 23.1 23.7 16.9 18.0 18.6 2.4 10.9 20.8 21.5 16.6

Logistics 23.1 26.4 24.1 10.8 14.2 13.4 -7.0 4.0 25.8 25.7 17.3

Media & Entertainment 26.1 28.7 29.6 10.7 15.5 15.7 -11.8 -0.6 31.5 33.7 13.1

Metal & Mining 17.8 16.7 17.3 4.9 4.5 6.6 -9.8 -5.5 15.3 32.7 9.6

Oil & Gas 7.7 9.6 8.7 2.6 5.2 4.7 5.8 3.3 12.0 14.2 17.3

Plastic Products 15.1 14.9 14.9 7.0 6.6 6.5 10.7 15.2 11.8 22.3 20.1

Power 36.1 33.3 31.6 9.0 10.7 11.9 -4.3 -4.0 18.9 13.5 10.0

Services 4.5 4.9 5.1 2.8 3.2 3.3 5.2 15.8 15.3 31.5 26.1

Telecom 35.8 30.3 29.6 -61.3 -12.0 -3.7 -1.0 6.9 15.1 30.2 -2.9

Textile 15.5 16.1 15.3 8.5 7.4 6.0 5.3 14.2 11.5 20.2 14.0

Nifty 500 13.0 12.6 13.0 4.6 6.6 7.4 3.4 8.3 15.6 21.8 27.2

Nifty Ex BFSI 14.5 15.3 14.6 4.0 6.7 7.0 2.0 7.2 16.5 25.0 29.4 Note: In our calculation we have excluded companies which haven’t gave its FY20 result (18 companies) and companies which don’t have 10 years of financial data (29 companies).

59 INSIGHT August 2020 Mutual Fund Overview ADITYA BIRLA SUN LIFE FOCUSED EQUITY FUND

Investment Objective would be an important criterion for selection and those The Scheme seeks to achieve long term capital appreci- companies with cheaper valuations adjusted to earnings ation by investing in upto 30 companies with long term growth may be considered. sustainable competitive advantage and growth potential. Liquidity: to ensure liquidity of the portfolio stocks are selected within the top 100 universe. Investment Strategy Exposure norms: Prescribe internal norms on The Scheme is designed for those investors who seek maximum exposure to particular sectors and industries. exposure to a broader large market capitalization stocks Concentration: Within the top 100 universe, the fund and Growth cum value style of investing. The Scheme manager will follow ‘controlled diversification’. would adopt top-down and bottom-up approach of Asset Allocation: The scheme will follow a strategy of investing and will aim at being diversified across various bottom up stock picking industries and / or sectors and/ or market capitalization. The investment emphasis of the scheme would be on Important Information investing in a maximum of 30 companies with sound NAV (G) (Rs.) 58.83 corporate managements and prospects of good future NAV (D) (Rs.) 14.79 growth. The Fund’s focus shall be biased towards large Inception Date Oct 24, 2005 cap companies driven by long term fundamentals though Fund size(Rs.Cr.) 3811 not limited to it. The scheme may also invest in ADR/GDR and equities of listed overseas companies. Fund Manager Mr. Mahesh Patil Entry load Nil Stock Selection Strategy Exit Load 1% for redemption within 365 days The Fund will select stocks from within the investment Benchmark Nifty 50 TRI universe based on its internal analysis based on the Min Investment (Rs.) 1000 following criteria: Min SIP Investment (Rs.) 1000 Visionary & Trustworthy management with established track record Key Ratios Nature and Stability of businesses Beta (x) 0.96 Prospects for future growth and scalability Standard deviation (%) 20.33 Sharpe Ratio -0.11 Financial discipline and returns as measured by ratios like Return on Investment (ROI) and Return on Equity Alpha (%) -2.30 (ROE): Target companies with above average financial R Squared 97.90 performance and demonstrated efficiency in use of Expense ratio (%) 2.10 capital. Portfolio Turnover ratio (%) 116.0 Valuations in relations to broad market and expected Avg Market cap (Rs. Cr.) 16762.8 growth in earnings: future earnings growth expectations

August 2020 INSIGHT 60 Portfolio as on June 30, 2020 % SECTOR ALLOCATION Stocks % of Net assets Power 2.9 HDFC Bank 7.6 Reliance Industries 7.6 Cement 2.9 ICICI Bank 7.3 Auto 3.6 Bharti Airtel 6.8 Pharma 6.3 Infosys 6.6 Hindustan Unilever 5.1 Telecom 6.8 Kotak Mahindra Bank 4.4 Petroleum Prod. 7.6 Cipla 4.0 Software 9.5 Housing Development Finance Corporation 3.1 HCL Technologies 3.0 Cons Non Durables 10.6 Finance 11.4 Asset Allocation Equity Cash Banks 22.4 92.91% 7.09% Note: All data are as on June 30, 2020; NAV are as on July 28, 2020 Source: Factsheet, Value Research

Performance of the Fund alongwith Benchmark (as on July 28, 2020) 1 month 3 months 6 months 1 year 3 Years 5 Years Since Inception Fund (%) 7.5% 17.8% -7.2% 0.7% 1.9% 6.1% 12.7 Benchmark (%) 8.8% 20.5% -6.3% 0.1% 4.1% 6.3%

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61 INSIGHT August 2020 Ashika Mutual Fund Recommendation Alpha Generation Month of Fund Name Benchmark NAV as on 1 Year 3 Year 5 Year Recom 28.7.2020 Return Return Return (%) (%) (%) Jul-19 ICICI Pru - Asset Allocator Fund (FOF) (G) CRISIL Hybrid 50+50 Moder- 58.5 4.5 6.0 8.9 ate Index Aug-19 Nippon India - Multi Cap Fund (G) S&P BSE 500 TRI 76.1 -18.9 -4.2 0.4 Sep-19 Can Robeco - Emerging equities Reg (G) NSE - NIFTY Large Midcap 93.9 6.0 2.4 8.6 250 TRI Oct-19 LIC - Large & Mid Cap Fund - Reg (G) NSE - NIFTY Large Midcap 14.4 0.6 1.3 7.1 250 TRI Nov-19 ITI - Multi Cap Fund (G) NSE - Nifty 500 TRI 9.6 -5.3 0.0 0.0 Dec-19 Parag Parikh - Long Term Equity Fund NSE - Nifty 500 TRI 29.2 18.2 11.4 11.7 Reg (G) Jan-20 DSP - Dynamic Asset Allocation Reg (G) CRISIL Hybrid 35+65 Aggres- 16.4 7.3 5.0 7.1 sive Index Feb-20 Invesco - India Growth Opportunities S&P BSE 250 Large Midcap 33.4 2.4 3.8 6.9 Fund (G) TRI Apr-20 DSP - Top 100 Equity Reg Fund (G) S&P BSE 100 TRI 197.7 -1.6 0.4 4.2 May-20 Axis - Focused 25 Fund Reg (G) NSE - Nifty 50 TRI 28.7 4.3 6.0 9.7 Jun-20 Nippon India - Tax Saver (G) S&P BSE 100 TRI 44.4 -13.7 -9.9 -0.5 Jul-20 SBI - Small Cap Fund Reg (G) S&P BSE Small Cap TRI 50.7 3.7 3.1 9.5

Note: All data are as on June 30, 2020; NAV are as on July 28, 2020 Source: Factsheet, Value Research

Large & Mid Cap Fund All Data Belongs To July 28, 2020 NAV AUM 3 M 6 M 1 Yr 3 Yr 5 Yr Since Sharpe Exp. (Rs Cr) Inception Ratio Ratio Return SBI - Large & Midcap Fund Reg (G) 205.2 2619 14.7 (13.8) (4.2) 1.1 5.1 13.0 (0.1) 2.3 Mirae - Asset Emerging Bluechip Fund 55.0 9834 16.2 (6.6) 5.9 5.2 12.1 18.2 0.1 1.9 Reg (G) ICICI Pru - Large & Mid Cap Fund Reg (G) 292.3 2682 16.1 (13.2) (7.1) (1.6) 4.7 16.5 (0.2) 2.2 LIC - Large & Mid Cap Fund - Reg (G) 14.4 662 12.1 (12.8) 0.6 1.3 7.1 7.0 (0.1) 2.5 Sundaram - Large and Mid Cap Fund (G) 32.2 1113 15.8 (14.8) (2.8) 2.2 6.8 9.1 (0.0) 2.4

Value Fund SBI - Contra Fund Reg (G) 98.3 1171 20.4 (8.0) (3.1) (3.7) 2.3 16.4 (0.3) 2.3 IDFC - Sterling Value Fund Reg (G) 39.6 2339 18.8 (20.8) (14.7) (7.9) 1.6 11.6 (0.3) 2.1 Nippon India - Value Fund (G) 68.6 2623 18.5 (9.4) (4.0) 0.6 4.5 13.5 (0.1) 2.1 Kotak - India EQ Contra Fund (G) 51.5 775 19.3 (8.6) 1.2 4.9 7.5 11.5 0.1 2.4 Invesco - India Contra Fund (G) 48.7 4662 20.7 (3.4) 7.0 5.9 8.9 12.6 0.1 1.9

Focus Fund Axis - Focused 25 Fund Reg (G) 28.7 10399 13.9 (7.9) 4.3 6.0 9.7 13.8 0.1 1.9 Mirae - Asset Focused Fund Reg (G) 11.4 2921 22.9 (4.8) 10.3 0.0 0.0 11.2 - 2.0 SBI - Focused Equity Fund Reg (G) 141.2 8962 11.4 (10.1) 0.9 6.1 9.4 18.1 0.2 2.0 DSP - Focus Fund Reg Fund (G) 22.8 1607 18.7 (12.1) 1.0 1.3 5.0 8.4 (0.2) 2.2 Sundaram - Select Focus Reg (G) 178.7 977 13.9 (8.0) (0.1) 4.4 6.9 17.3 0.0 2.4

August 2020 INSIGHT 62 ELSS Fund All Data Belongs To July 28, 2020 NAV AUM 3 M 6 M 1 Yr 3 Yr 5 Yr Since Sharpe Exp. (Rs Inception Ratio Ratio Cr) Return Mirae - Asset Tax Saver Fund Reg (G) 18.0 3538 17.9 (6.7) 2.9 5.7 0.0 13.6 0.1 1.9 Kotak - Tax Saver Scheme (G) 43.4 1133 15.1 (11.0) 0.2 2.4 6.5 10.5 (0.1) 2.3 Invesco - India Tax Plan (G) 51.6 997 16.3 (5.8) 6.2 4.9 7.3 12.8 0.0 2.2 Axis - Long Term Equity Fund (G) 44.9 20292 9.3 (10.2) 1.7 5.3 7.7 15.2 0.1 1.7 SBI - Long Term Equity Fund Reg (G) 138.5 6683 19.6 (6.6) 0.6 0.0 3.9 14.8 (0.2) 2.0

Multi Cap Fund Parag Parikh - Long Term Equity Fund Reg (G) 29.2 3514 24.9 7.4 18.2 11.4 11.7 16.0 0.3 2.0 SBI - M Multicap Fund Reg (G) 45.7 8290 13.9 (12.5) (4.9) 1.2 6.5 10.8 (0.1) 2.0 Kotak - Standard Multicap Fund (G) 34.4 27976 17.3 (10.1) (0.5) 2.9 8.0 11.9 (0.0) 1.6 Motilal Oswal - Multicap 35 Reg (G) 25.4 10562 20.8 (6.9) 1.7 0.2 7.0 16.1 (0.2) 1.9 ITI - Multi Cap Fund (G) 9.6 122 9.5 (17.0) (5.3) 0.0 0.0 (3.5) - 2.6

Small Cap Fund Invesco - India Smallcap Fund Reg (G) 10.3 542 14.3 (12.1) 6.6 0.0 0.0 1.4 - 2.5 SBI - Small Cap Fund Reg (G) 50.7 3917 13.7 (11.6) 3.7 3.1 9.5 16.1 0.1 2.2 Axis - Small Cap Fund Reg (G) 29.3 2310 10.4 (15.3) 4.3 4.3 8.1 17.5 0.0 2.1 HDFC - Small Cap Fund (G) 33.4 7511 17.7 (17.9) (14.4) (4.2) 4.9 10.3 (0.2) 2.0 ICICI Pru - Smallcap Fund Reg (G) 22.6 1111 20.5 (18.1) (7.6) (5.1) 1.7 6.6 (0.3) 2.3

Thematic/Sectoral Fund Franklin - Build India Fund (G) 33.9 901 15.1 (20.1) (16.5) (4.4) 2.9 11.7 (0.3) 2.4 ICICI Pru - Banking & Financial Services 50.3 2538 14.5 (28.2) (21.9) (6.0) 5.8 14.5 (0.2) 2.3 Fund Reg (G) Nippon India - Pharma Fund (G) 197.0 3093 9.7 24.2 38.6 14.8 7.5 20.3 0.5 2.7 Sundaram - Rural and Consumption Fund 39.0 1485 12.8 (12.4) 0.4 (1.5) 8.0 10.1 (0.2) 2.2 Reg (G) Aditya Birla SL - Digital India Fund Reg (G) 63.1 413 34.9 8.6 20.1 19.2 12.8 7.2 0.6 2.6

Balance/BAF Fund SBI - Equity Hybrid Fund Reg (G) 138.9 30192 11.4 (5.9) 2.7 5.5 7.7 14.4 0.1 1.7 Sundaram - Equity Hybrid Fund Reg (G) 91.0 1561 10.8 (7.1) 1.6 4.3 7.3 11.9 0.0 2.2 ICICI Pru - Balanced Advantage Fund Reg 37.2 25409 14.8 (2.8) 4.8 5.5 7.4 10.1 (0.0) 1.7 (G) Kotak - Balanced Advantage Fund Reg (G) 11.5 3812 16.4 1.2 9.3 0.0 0.0 7.0 - 2.0 Aditya Birla SL - Balanced Advantage 55.0 2374 13.3 (2.2) 4.8 3.6 7.8 8.8 (0.2) 2.1 Fund (G)

63 INSIGHT August 2020 Equity Savings Fund All Data Belongs To July 28, 2020 NAV AUM 3 M 6 M 1 Yr 3 Yr 5 Yr Since Sharpe Exp. (Rs Cr) Inception Ratio Ratio Return Aditya Birla SL - Equity Savings Fund Reg (G) 13.7 535 6.8 (3.7) 3.6 1.9 5.5 5.7 (0.3) 2.5 DSP - Equity Saving Fund Reg (G) 12.7 436 8.1 (4.2) 2.0 2.0 0.0 5.6 (0.2) 2.4 Kotak - Equity Savings Fund Reg (G) 15.2 1395 8.3 1.1 6.6 6.0 7.0 7.3 0.0 2.2 Nippon India - Equity Savings Fund Reg (G) 10.1 450 5.9 (14.1) (18.3) (6.1) (0.3) 0.2 (0.8) 2.6 SBI - Equity Savings Fund Reg (G) 13.6 1344 9.6 (1.6) 5.0 3.8 5.9 6.0 (0.2) 1.7

Arbitrage Fund Aditya Birla SL - Arbitrage Fund Reg (G) 20.3 4387 0.8 2.2 5.0 5.8 5.9 6.7 0.8 0.9 ICICI Pru - Equity Arbitrage Fund Reg (G) 26.2 11213 0.8 2.3 5.0 5.8 6.0 7.4 0.7 0.9 Kotak - Equity Arbitrage Fund (G) 28.3 15853 0.8 2.3 5.0 5.9 6.1 7.3 0.9 1.0 Nippon India - Arbitrage Fund (G) 20.4 7847 0.9 2.3 5.0 6.0 6.1 7.5 1.0 1.0 SBI - Arbitrage Opp Fund Reg (G) 25.7 5046 0.4 1.7 4.5 5.7 5.7 7.1 0.5 0.9

Index Fund HDFC - Index Fund-NIFTY 50 Plan - (G) 103.2 1621 20.6 (6.3) 0.3 4.8 7.0 13.6 0.0 0.3 ICICI Pru - Nifty Next 50 Index Fund Reg 23.2 729 12.5 (9.1) (1.2) (1.8) 5.6 8.7 (0.2) 0.7 (G) HDFC - Index Fund - Sensex Plan 343.1 1349 20.3 (5.8) 1.9 6.6 7.8 14.0 0.1 0.3 Motilal Oswal - Nasdaq 100 FOF (G) 16.9 657 17.5 24.7 46.0 0.0 0.0 35.7 - 0.5 Motilal Oswal - S&P 500 Index Fund Reg (G) 11.0 265 9.8 0.0 0.0 0.0 0.0 38.6 - 1.2

Solutions NAV AUM Mod AMP (IN 3 M 6 M 1 Yr 2 Yr Sharpe Exp. Dura- Yrs ) Ratio Ratio tion (in Yrs) ICICI Pru - Retirement Fund Pure 11.7 404 - 10.5468 5.5 6.6 11.2 0.0 - 2.1 Debt Plan (G) (29/07/2019) Aditya Birla SL - Retirement Fund 30s 9.8 137 - 7.07 11.5 (6.8) 3.5 0.0 - 2.7 Plan (G) (23/03/2020) HDFC - Retirement Savings Fund 16.6 395 (0.1) 12.743 13.4 (5.4) 1.1 1.6 (0.1) 2.4 Hybrid Equity Reg (G) (23/03/2020) Aditya Birla SL - Bal Bhavishya Yojna 10.2 250 - 7.38 11.3 (6.9) 3.3 0.0 - 2.6 Wealth Plan (G) (23/03/2020) ICICI Pru - Child Care Gift Plan Reg 134.6 583 (0.2) 103.1 13.6 (8.2) (3.4) (0.9) (0.2) 2.5 (23/03/2020)

Dynamic/Multi Assets Invesco - India Dynamic Equity Fund 29.6 741 (0.1) 22.68 11.7 (1.9) 2.7 0.5 (0.1) 2.3 (G) (23/03/2020) ICICI Pru - Asset Allocator Fund (FOF) 58.5 7327 0.1 43.7926 14.6 (1.1) 4.5 6.2 0.1 1.2 (G) (23/03/2020) ICICI Pru - Multi Asset Fund (G) 260.8 10484 (0.1) 196.1272 14.2 (5.6) (1.8) 1.5 (0.1) 1.7 (23/03/2020) SBI - Dynamic Asset Allocation Fund 13.4 576 (0.3) 11.0136 11.5 (3.0) 0.9 0.5 (0.3) 2.2 (G) (23/03/2020) DSP - Dynamic Asset Allocation Reg 16.4 1337 0.0 13.409 9.0 0.2 7.3 6.4 0.0 2.2 (G) (23/03/2020)

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

August 2020 INSIGHT 64 Technical view

Key takeaways from July 2020 5.8% and 3.7% respectively while NASDAQ gained by 6.2%. India’s retail inflation, which is measured by the The European peers like FTSE 100 declined by 0.6% per Consumer Price Index (CPI) grew 6.09 per cent in the cent during the month. Other European indices such as month of June. DAX and CAC 40 gained by 6.2% and 1.0% respectively. Amongst the Asian indices, Shanghai index gained by 7.3% WPI stood at -1.81% for the month while Hong Kong’s Hang Seng index of June, 2020, as compared to 2.02% remained flat 0.6% while Japan’s during the corresponding month of Nikkei index witnessed minor gain of the previous year. In the midst of the 0.9%. On the domestic front Sensex India’s forex reserves reach a new ongoing economic rose by 8.4% while Nifty gained by peak at $518 billion. and health gloom, 7.8%. During the month the Small- IHS Markit India Manufacturing Cap index jumped by 4.43 per cent Purchasing Manager’s Index, stood Nifty has delivered while Mid-Cap soared by 4.48 per. at 47.2 in June, compared with 30.8 in 20.6% return in the On the sectoral front, Energy index May. very first quarter of gained by 17.7% per cent followed IHS Markit India Services Business by indices such as IT, Auto, and Activity Index was at 33.7 in June, up this financial year. Consumer Durables increasing by from 12.6 recorded in May. During the month, 14.9%, 7.0% and 6.4%, respectively. The Finance index gained by 5.4% In the midst of the ongoing economic Sensex rose by 8.4% while the Bankex and Healthcare and health gloom, Nifty has delivered indices witnessed a growth of 5.0% 20.6% return in the very first quarter while Nifty gained and 3.6%, respectively. Realty and of this financial year. During the by 7.8%. Infra sector ended in red with a month, US indices provided decent decline of 4.0% and 3.5% respectively. return DJIA and S&P 500 gained by

65 INSIGHT August 2020 FIIs and DIIs investment patterns time frame. As long as the daily RSI sustains above 50, the 80000 strength in the upside momentum could be intact. On the 60000 weekly time frame RSI has exited the neutral territory. 40000 Its sustainable move above this area could mean a further 20000 0 strengthening of upside momentum in the market. ADX -20000 on the daily timeframe is 35 suggests that the trend has -40000 developed. Directional indicators continue in the ‘buy’ -60000 mode as +DI continues above –DI. Thus, a majority -80000 are signaling a bullish bias. Overall, in the near-term, Jul-19 Jul-20 consolidation could be seen in the range of 10800-11500 Oct-19 Apr-20 Jan-20 Jun-20 Mar-20 Feb-20 Nov-19 Dec-19 Aug-19 Sep-19 May-20 and the broader structure could lead the Index on FII (Rs. Cr.) DII (Rs. Cr.) Source: Ashika Research the path to witness its next leg of upmove i.e. around 11500/12000. Sectoral index price performance 20

15 17.7 14.9 7.0 10 6.4 5.4 5.0 4.6 3.6 3.3 3.0 2.7 5 2.4 0.3 0 -5 -1.6 -2.6 -3.5 -10 -4.0

IT Auto Infra

PSU Metal lecom Realty FMCG Energy Midcap Bankex Te Finance

Smallcap Oil & Gas Healthcare

*As on July 24, 2020 Capital Goods Source: Ashika Research

The month of July witnessed an exuberant rally of 7.8% in Nifty and hence the same is again expected by the traders in the forthcoming month as well. But the technical patterns and parameters are currently poised towards a Despite witnessing a steady rally in the previous month, mild correction. The market breadth stayed in favour of one thing worth noting is that the Index has been staging advances with A/D ratio of 1.3:1. It managed to close above recovery at lower levels ending to form lower hairline 11000 zones and formed bullish candle for four consecutive formation for consecutive number of days. The bulls last weeks in a row indicating robust price structure. It month have been able to defend the rising 20dma which has been respecting to its rising support trend line by is positive. Hence going by the present structure only a connecting all the recent swing low of 7511, 9004, 9544, closing below the 20dma would possibly give strength to 9845, 10250, 10300 and holding above its 200 DEMA. Now it the bears. Key point to highlight is that the Nifty midcap needs to hold above 10900 zones to extend its momentum index also closed above its 200dma for the first time towards 11500 then higher zones of 12000 while on the since March 2020, indicating rejuvenation of upward downside supports are seen at 10500 then 10200 levels. momentum. Hence it can be expected that the broader market to continue with its relative outperformance as constant improvement has been observed in market breadth. Currently, ~90% constituents of the Nifty midcap and small cap indices are sustaining above their 100 days

On the oscillator front the major indicator, RSI has broken above from the narrow channel and is forming a base around 55-60 or within the bullish zone in daily

August 2020 INSIGHT 66 SMA compared to last month’s reading of ~60%, which In Elliott wave analysis currently, Nifty is in wave B of signifies inherent strength and augurs well for durability ‘Flat’ with an upward unfolding. The upside target for of the ongoing up move. wave ‘B’ of the flat as theoretically projects 78.6-80% of wave ’A’ comes around 11450-11500. On the downside the Since the beginning of CY20 the domestic market level of 10500 identified by the rising trendline in weekly has seen positive correlation with emerging markets. chart and the 61.8% of the entire decline since Jan’20 Currently US market has been hovering around its would be crucial and would confirm the existence of Flat 78.6% retracement of CY20 decline. Domestic market to wave ‘B’. Wave C following Wave B would virtually be very maintain the same positive correlation and might face sharp and would likely last for an average 12 months and immediate resistance around 11358. Hence one might may result in a fall between 40% and 60% from the level conclude that Nifty in order to register fresh high need where the wave began. to be supported by its global peers and Dow Jones should provide a decisive close above 27200.

Other correlated markets Other correlated markets like in Bullion counter, Gold has Nifty since March20 onward has retraced by 61.8% and been steadying at its 9-year high, benefitting from a weak now heading towards 78.6%. Faster pace of retracement dollar and inflation expectations, fuelled by the stimulus signifies robust price structure, however such sharp for virus-battered economies from the central banks as rally instigates some amount of fear in traders mind it is perceived as a hedge against inflation and currency as one believes that correction too might be sharper. debasement. Expectations of further stimulus and heightening geopolitical tensions will continue to bolster Though with the formation of higher peak and trough on safe-haven demand. Oil prices stuck in a wide range the weekly chart installs confidence with a revised and as tensions between the United States and China rose elevated support base upward at 10900, as it is confluence against a backdrop of rising coronavirus cases. Hence Oil of (i) 38.2%retracement of ongoing up move (10195 –11240), prices could see a near-term correction if a recovery in at 10840 (ii) 200dma placed at 10863 and lastly (iii) rising fuel demand slows further. Indian rupee has recorded the trendline adjoining lows of 7511, 9544 & 10577. Inability to best performing emerging currency amongst Asian peers sustain above 10900 might drag the Index further lower backed by record FDI flows as well as global dollar sell-off towards 23.6% retracement at 10350 of the entire rally mode. However, India’s failure to contain the virus may since March’20 (High:11240; Low:7511). drag rupee lower in weeks to come. Moreover, after recovering in May & June, there has been a net outflow of capital so far in July which suggest worst is yet to hit in rupee.

Crystal gazing the derivative data August series started on a positive note with buying seen across the board. Fresh long position was seen in banking and NBFC stocks while Banks & NBFC stocks have rallied substantially in the June series. Following this, the Nifty surpassed its hurdle of 11000 and made a high of 11341. FII flows improved in July. During the month, FIIs bought Rs.22000 crore in equity. Their stance has been cautionary as flows have still not improved in the debt market. From derivative front short covering was witnessed by call writers at 11100 strike while put writers seen shifting to higher bands which points towards

67 INSIGHT August 2020 more upside in coming sessions. PCR OI closed at 1.63 about fatigue in the market after an uninterrupted rally indicating more put writing than call. Hence present since March’20. Provisionally Nifty futures witnessed a setup seems to be still positive for Nifty and we believe rollover of 77%, marginally lower than the previous month that Bullish momentum likely to continue in coming rollover of 78% and the three-month average of 75%. While sessions as well. market wide rollover stands at 88% v/s 3-month avg. rollover of 90%. Overall it can be expected that some sort On the expiry of the July Future contract expiry it has been of consolidation or profit booking decline can be expected observed that traders seems reluctant to carry forward before starting the next leg of rally. its bullish bets to the August expiry on growing worries

Call -Put Options Open Interests Distributions for August20 Contract 3500000 Call

3000000 Put

2500000 3104775

2000000 1844475 1565250 1455900 1500000 1798575 1009050 993600 1018575 787350 1000000 782250 735375 933825 692475 651750 600525 581625 581475 543900 486300 443400 1019550 383625 336075 500000 302850 266250 209475 178725 150075 136050 752100 108300 73125 71925 44400 41850 19875 16425 3000 1275 0 583800 1000 1200 1300 1400 1500 1600 1700 1800 1900 11 100 1 1 1 1 1 1 1 1 1 10200 10300 10400 10500 10600 10700 10800 10900 12000 12100

Summing it up: and is in a firm intermediate uptrend. While the index Nifty is in continuation of an uptrend and we maintain corrected in the early part of the week, it has rebounded our positive stance with a target of 11450-11500. Whereas taking support at the 20-day SMA and 200-day EMA and mid cap and small cap space is expected to catch up and bounced back during the month. Momentum indicators outperform the benchmark in coming sessions. Close like the 14-day RSI too have bounced back and show signs above 11500 could take the Nifty towards 12000 and 12200. of strength. With the uptrend intact, it can be expected Any level below 10900 could drag the Nifty towards 10600 that more upsides is awaited in the coming weeks as well. and 10400 level. Trend traders can focus on mid cap Nifty IT and small cap space and is likely to catch up the broader The index currently has been moving in upward sloping Indices as constant improvement has been observed in channel with its sequential higher high and higher low market breadth. formation. NSE IT has crossed above its 100% retracement level. Momentum is likely to continue if it sustains above Other indices to watch for: 16900. Index is also trading above 21 days EMA than could Nifty Auto act as a good support level for all long positions. Index is Auto Index has risen for the sixth consecutive week likely to head higher towards 18000 in near term.

August 2020 INSIGHT 68 BOOK REVIEW

Subscribed by Tien Tzuo

This book is about the Subscription business model which and mass media advertising was a key success factor. is emerging and challenging the whole landscape of doing In the tech sector, this led to “needlessly complicated business in the traditional way. The book “Subscribed” products, mercenary sales forces, and a parasitic systems talks about the changing business model from the earlier integration industry,” according to the authors. “There is conventional way of conducting business in a product nothing more dangerous than pro table mediocrity,” they centric orientation to a customer centric organizational caution. mindset and is a defining characteristic of the The subscription model turns customers into subscribers Subscription Economy. Digital consumer subscriptions for recurring revenue. Digital consumers are much more are exploding because of massive new improvements in informed, and are increasingly favouring access over digital user experiences, particularly with mobile phones. ownership. The business focus is on gathering insights Today the whole world runs “as a service”: transportation, based on usage data, finding out what customers want, education, media, healthcare connected devices, retail, and then delivering it as an intuitive service. industry. Such companies go beyond customer The old linear model of product- segments to individual customers. channel-customer is being replaced The book highlights Assumptions and persuasion are by the circular model of subscriber- replaced by accurate insights into experience- service-channel. the shift happening actual behaviour. Cash ow becomes “Companies that survive over a long in the economy less “bumpy” or dependent on make- period of time follow their customers, with examples of or-break holiday sales. and they do not expect customers to follow them,” the authors explain. companies adopting The book highlights the shift happening in the economy with Old business models were “product the subscription examples of companies adopting first, customer second” – they were model with digital. the subscription model with digital. based on mass-based production Ecommerce a case Ecommerce a case in point, where it and marketing of individual units. represents more than 13% of the total Success depended on finding magical in point, where it retail market and is growing at 15% hits and then pushing them out to represents more a year, versus just 3% for brick and customers via channels. Business than 13% of the total mortar retail. logic was based on inventory, shelving, and cost-plus pricing, and retail market and This ecommerce business now the focus was on efficiency through is growing at 15% a stands at around USD500 billion standardisation. year, versus just 3% where Amazon itself has more than 90million Prime members, Business structure was full of silos, for brick and mortar paying around USD 9 billion in with little coordinated vision. The retail. membership fees alone and spend consumer base was relatively passive, an average of USD117 billion a year.

69 INSIGHT August 2020 Online subscription programs for household staples everything from network provider charges, automatic and routine purchases are exploding in popularity, and hardware upgrades, add-on option for extra devices, in few years online grocery delivery seems poised to music, video content, specialty content, games etc., Apple become the next new normal. The writer goes on to as a Service in nutshell. write that the brick & mortar business is here to stay and Another example of shifting gears from selling products the interesting evolution is that companies like Trunk to subscription model based on services is Fender the Club(clothes), Warby Parker(glasses), UNTUCKit(shirts), largest guitar selling company in the world. With falling Casper(mattresses), Birchbox(cosmetics), Allbirds(shoes), sells every year, it reinvented itself by launching a new Boll & Branch(sheets), Away(luggage), ModCloth(clothes), subscription- based online video teaching service called and Rent the Runway(clothes) are in the midst of opening Fender Play. So, business from a static product with hundreds of new physical locations. Square footage of re-sellers and unit sale focus, it shifted to subscriber base physical stores occupied by retailers that started online and engagement rates. It is not about owing guitar but has increased tenfold over the last five years. More than about being a guitar player and a music lover for life. anything else, they have taken customer first approach to retail by starting directly with customer and creating fun, The New Golden Age of Media: compelling subscription experiences. The paid subscription is the predominant format in the market which customers are gravitating towards. The The New Business Model media industry is managing three transitions at the same time: from physical to digital, PC to mobile, and download to streaming. Net ix, which started streaming movies in 2007, went from zero to 100 million streaming subscribers in ten years, Spotify, founded almost ten years later, went from zero to more than 50 million paying subscribers in less than nine years, and today is responsible for more than 20% of global music industry revenues. Net ix now spends USD 8 billion a year on original content. SVOD, streaming video on demand is USD 14 billion industry which was zero ten years ago. In future “Ne ix of Sports” will be another theme to emerge. Remember, those customers aren’t going anywhere-they Amazon versus Walmart battle has been framed as are just demanding different digital services. So, a shift ecommerce versus retail, but that’s always been a in cable subscribers (watch only 9% of what is available false dichotomy. It’s about starting with the customer anyway), SVOD, content on demand, subscription- pay instead of the product. It’s about establishing ongoing and watch etc. are changing the business model in relationships. It’s about flipping the script- starting media space with the emergence of broadband, digital, with the digital experience, and then building the store. smartphones etc. Amazon says “put the customer first. Invent. And be patient. Whereas Walmart uptill this time was busy Planes, Trains, and Automobiles: dispensing inventory. You don’t buy Hyundai’s new hybrid car the Ioniq- you subscribe to it, for USD 275 a month. It is like picking Other examples where businesses are evolving and a cell phone plan: pick your model online, choose reinventing as a service and subscription business with between a twenty-four or thirty-six-month plan, select everything evolving around the your upgrades, then walk into a customers and his ID. Apple also is dealership to pick up your vehicle. transitioning from its smartphone Unlike lease, which binds you to a battleground from selling unit volume The paid specific vehicle, it is an emergence as product to user monetization and subscription is the of a subscription model which we will see the full force in years potentially offer you access to to come. Apple’s service revenue predominant format a range of vehicles, simply flip is growing at a scorching pace and in the market which between vehicles via the app is neutralizing its ebb & ow of the customers are as your needs change. You are hardware business. It looks that signing up with the company, not with each passing year Apple would gravitating towards. the car. Registration, insurance, care less and less about how many SVOD, streaming maintenance simply goes away. IPhones it ships, and more about its video on demand Subscription on a month on month revenue per Apple ID, lifetime value basis is also in the offering. Volvo per Apple ID, and efficiency metrics is USD 14 billion expect that one out of every five toward growing the base and value industry which was of the company’s vehicle will be of those Apple IDs. Case in point, zero ten years ago. delivered via subscription by 2023, Apple subscription plan that covered and the company is working on its

August 2020 INSIGHT 70 own ridesharing network that will allow users to loan All you can Fly: or rent its cars for pro t. Millennials think that the car Flying is an awful experience, and more so for frequent ownership is expensive and hence the emergence of a business fliers, boarding a plane is never a pleasant massive disruptive trend i.e., the Uber, Ola, Lyft of the experience. To this a company called Surf Air has world. 60 million rider use Uber & Lyft of the world. emerged, which is often called the “Net ix of Aviation” They have ushered in a completely new set of consumer or the “Uber of the Skies”. Its members get access to priorities. Transportation seems to be toeing the path limitless flights for a at monthly fee. This has emerged, of electricity and internet access. Rideshare though starting with the customer’s wants and needs, attacking doesn’t look like a subscriber model, but in reality, it is a pain points and thereby acquiring loyal subscriber base digital subscription model, as it has your ID and all your in the process and that too app based. Airline industry payment particulars, and it employ usage-based pricing is ripe for disruption. There are more than 200 million so that you pay for only what you use. It knows your usage frequent fliers worldwide, and as customer preferences history and uses that information to customize its service shift, every one of them is up for grabs. The product for you. Though the monthly usage plan also seems to mindset of airline industry which prioritizes add-ons and be around the corner. Uber literally is going after your revenue extraction and devalue customers is going to commute as the Amazon Prime hooked you with free collapse under its own weight. The new model with flying shipping and now you have got music, movies and all experience and synchronizing your flights arrival time other sorts of services. with your car and also a service like Clear can speed you through security lines. All these services wrapped up in a Cell Phones on Wheels: at annual frequent-flier membership plan. Today the accepted Silicon Valley wisdom is that as cars turn into cell phones on wheels, software will inevitably Transportation is seamlessly going to be embedded daily trump hardware just as Microsoft trumped IBM. As lives intuitively and seemingly. lithium batteries replace combustion engines, automobile hardware will become commodified and the new growth Companies formerly known as market will be in information services. Digital diagnostics, Newspapers: infotainment channels, and enhanced navigation systems Digital subscriptions are transforming the broader are expected to constitute a USD 270 billion industry. publishing industry in profound ways. It also has a At some point the data and services associated with a realization about the fact that customer subscribe to vehicle may be worth more than the vehicle itself (much the services because of good (content) journalism at the like a cell phone). A lot of legacy car companies look a core and not paying for advertisement unnecessarily lot like IBM did in 1985. Without control over platform, imposed with the news. Hence thousands of readers use PC hardware is nothing more than a commodity, with add blocking software as majority of advertisement have negligible margins, intense competition and an inability no relevance whatsoever. Readers & Publishers alike to control destiny. IBM lost the war by giving the user are starting to appreciate the dividends of direct reader experience over to Microsoft, and relationships. Earlier advertisement the same thing is going to happen and classified income business to legacy car companies when they Digital subscriptions models were very much driven by inevitably hand over their dashboard myopic product mindset which took intelligence to Apple, Google and are transforming the a real toll on readers. Today there is a Facebook. Car manufacturer need broader publishing whole new generation of consumers to come out of their manufacturing industry in profound who are comfortable subscribing for mindset to transportation solutions. services- Spotify, Net ix, food boxes, They are sensing that automation ways. It also has a productivity apps- as long as they is coming. They get that in the realization about the stay timely, relevant, and focused. future they will probably be doing fact that customer Though advertisement is never going more fleet management and fewer to go away but making advertising individual vehicle sales, i.e., mobility subscribe to the a secondary- though still vital as a service and they are also services because revenue source is the most important sensing the threat from all these of good (content) strategic goal for most news new ridesharing services who will publishers. Digital will give edge take the massive income out of them journalism at the on knowing customer preferences, by just reinventing the business core and not paying legitimate reader engagements and as a service. Ford’s & GM’s of the for advertisement thereby dynamic pricing strategy world and others are observant to rather than any kind of reverse it, and winners of tomorrow will unnecessarily engineering an editorial product be a difficult guess to make at this imposed with the for the benefit of advertisers. The moment, but seismic shift is for sure news. New York Times, FT, The Economist and this throws a whole new plethora & Motor Trend are successfully of opportunities. transition their business model

71 INSIGHT August 2020 to digital subscription and reader relegating their ERP systems to a engagement and better content and commodity general ledger in the journalism at the core. The internet of process. The old cumbersome things IOT is going “one size ts all” ERP model is Swallowing the Big Fish: incrementally becoming redundant. Lessons from the rebirth of to be massive in THE plug and play SaaS providers the Tech: increasing the global which performs a specific core In 2011, Adobe is a classic case of function really well is more effective taking a pragmatic step to move to a productivity, output than a massive product-based subscription driven business model. and growth. The installation. The transition was a successful case history which though had financial digitalization of IOT and the fall and rise of pain in the immediate future but the physical world manufacturing: eventually led to significant growth through sensors and With the sweeping shift from in business and its stock price. They products to services in realized that subscription is the connectivity. The retail, transportation, media dominant business model for the physical device is just and technology, as well the technology industry. They stopped transformation in manufacturing is selling (though it went parallelly for and enabler. inevitable. The internet of things IOT some time so as the customers get is going to be massive in increasing reasonable time to switch over and the global productivity, output properly communicating the change) and growth. According to various their enormously pro table Creative Suite software in predictions, by 2020 we are expected to have more than boxes and move to a digital subscription model. It led a billion smart meters, 100 million connected lightbulbs, to the revenue curve temporarily dipping below the more than 150 million 4G connected cards, 200 million operating expense curve before climbing back upward smart home units, several billion smart clothing units, and is called the “swallowing the sh” for the transition more than 90 million wearables. And what do these period. The business model simply pushed the revenue sensors allow these products to do? Collect and transmit into the future as recurring in nature i.e., per unit sale- data-lots of it. All these products will be beaming based model shifted gears to Annual recurring revenue information back into centralized servers, so companies (ARR) metrics. Today the company has completely can start using analytic platforms to look for patterns transitioned itself to a 100% subscription based business and ways to improve things. This entire eco-system is model with better growth prospect year over year. the Internet of Things. The digitalization of the physical world through sensors and connectivity. The physical So, a fish device is just and enabler. Your value lies in your IP, the usage data from your customer base, and your ability to trade information across multiple markets. When raw data generated by all these millions of digital devices and interpret that data with analytic software, then you can sell that new intelligence as a service that can become as valuable as having electricity, Wi-Fi or running water in your house. Another word of these kind of analytic service is artificial intelligence AI. Everything we formally electrified we will now cognitize. Schnedier Electric tracks and monitors elevator usage patterns so that elevators can default to busier floors, saving people waiting time. Tracking wear and tear, so that maintenance can be scheduled. Also working with farms where waste usage can be tracked down to liter, Same was the case with CISCO which successfully moved as well weather patterns and favorable spot electricity from its relatively at hardware business to a software pricing. Symmons Industries builds smart shower and services business, thereby selling boxes to selling systems for hotels that let management teams monitor outcomes in its new subscription model. Cisco’s latest usage data like temperature, duration, and water volume set of Catalyst hardware comes embedded with machine in order to optimize their utility bills. Honeywell is learning and an analytics software platform that helps working with Intel to let logistics package be tracked and companies solve huge inefficiencies by reducing network also with sensitive electronic equipment, their health provisioning times, preventing security breaches and can also be measured with location, shock and tilt, light, minimizing operating expenses. humidity, temperature and potential tampering. Apple Today’s innovative companies are increasingly pursuing watch gets approval for EKG sensor which will help push recurring revenue- based business models and re health care towards remote monitoring rather than

August 2020 INSIGHT 72 periodic testing, potentially saving billions of dollars The new subscription economy Average recurring in health care cost. Whirlpool’s new ovens know how revenue: to scan recipes and cook meals accordingly. Sensor in ARR-Chrun+ACV= Net ARR Johnnie Walker Blue Label whisky bottles let people know if the bottle has been tampered with and where ACV: Annual contract value it sits in the supply chain. Chrono Therapeutics helps patients administer medication through skin patches that automatically handle dosage and timing issues. Thync is a subscription-based wearable that uses safe, low-level electrical stimulation to help you relax, improve your mood, sleep better without chemicals. FloorIn Motion from France delivers connected floors that monitor human traffic patterns in order to manage building energy usage. The physical world is starting to “wake up”. What happened to the technology sector is going to happen to the manufacturing sector. Because IoT allows you to rediscover your customers. The only competitive advantage is your relationship with and knowledge of your customers. Earlier the competitor comes up with a product in the market. The other one buys it in the open market and sends it to the R&D lab, which than dismantles it, benchmark it, and reverse-engineer it in a thousand different ways. But in the new ear the competitors can’t do that with the collective intelligence of your customer base. This is an incredibly powerful advantage. The Twentieth-Century organization resembled a sequence of stovepipes. Siloed functions. Marketing did the research and passed it o to the product group, which took the specs and made it happen. They passed it Subscription + Legacy it Architecture = Chaos o to the sales team, which pitched it like crazy. Finance counted the beans. IT got called when someone forgot their password. This made sense when everything was about scale, consistency and any color as long as it is black. This is the product-based approach. The focus has been on efficiency through standardization: How do I lower my inventory? How do I shorten my supply chains? How do I get a product from point A to point B faster and cheaper, thereby lowering my per unit cost, in order to give my company a competitive advantage? How do I maintain a consistent system of record? Everyone New CRM: installed fancy ERP systems to help manage their supply chains. The goal was standardization across systems of record. But what happens when your IT infrastructure is based around customer, not units of sale? The golden era of postwar corporate dominance, when this original product-based management structure was created, was enabled by a relatively passive consumer base. This is clearly is not the case anymore. In this new world with the customer at the center, the silos must come down. How can you create a new subscriber experience that delivers outcomes if everyone has their heads down? How can you deliver business model innovation, make the right choices across how you innovate, how you go to the market, how you approach your fundamental business model i.e., the new subscription model?

73 INSIGHT August 2020 7 21 14 28 Friday Trade Balance GDP SA QoQ SA GDP Wholesale Inventories MoM Inventories Wholesale U. of Mich. Sentiment U. MoM Advance Retail Sales MoM Industrial Production Change in Nonfarm Payrolls in Nonfarm Change Rate Unemployment Wholesale Inventories MoM Inventories Wholesale Wholesale Prices YoY Prices Wholesale Tokyo CPI Ex-Fresh Food YoY Food CPI Ex-Fresh Tokyo Leading Index CI Index Leading U. of Mich. Sentiment US: U. JN: MoM PX House UK: Nationwide Income US: Personal US: Existing Home Sales Home US: Existing JN: Natl CPI YoY Fuel MoM Auto Inc UK: Retail Sales Confidence EC: Consumer Borrowing Net Sector UK: Public IN: US: EC: US: US: US: US: CH: US: JN: 6 13 27 20 Thursday All Industry Activity Index MoM Index Activity All Industry Initial Jobless Claims US: Initial Jobless Annualized US: GDP QoQ JN: MoM Sales Home US: Pending YoY Orders JN: Machine Tool Initial Jobless Claims US: Initial Jobless Index US: Leading Business Outlook Fed US: Philadelphia Comfort Consumer US: Bloomberg CPI YoY IN: CPI Claims US: Initial Jobless JN: PPI YoY MoM Price Index US: Import Comfort Consumer US: Bloomberg RBI Repurchase Rate Repurchase IN: RBI Rate Bank of England UK: Bank Claims US: Initial Jobless UK Construction PMI UK: Markit/CIPS Comfort Consumer US: Bloomberg 5 12 19 26 Wednesday Trade Balance ADP Employment Change Employment ADP Trade Balance Trade Balance Durable Goods Orders US: Durable Applications US: MBA Mortgage Air Ex Nondef US: Cap Goods Orders JN: PPI Services YoY UK: CPI YoY EC: CPI YoY MoM Orders Machine JN: Core MoM NSA UK: PPI Output JN: IN: QoQ UK: GDP US: CPI MoM UK: Industrial YoY Production YoY Orders JN: Machine Tool Markit India PMI Services PMI India IN: Markit US: US: Index US: ISM Non-Manufacturing PMI Services CH: Caixin China 4 11 25 18 Tuesday Trade Balance BoP Basis Trade Balance BoP Tokyo CPI YoY Tokyo Conf. Board Consumer Confidence Consumer US: Conf. Board Sales Home US: New Index Manufact. US: Richmond Fed MoM Price Index House US: FHFA Housing Starts US: Housing Flows TIC Long-term US: Net Permits US: Building Industrial Production YoY IN: Industrial Production Balance Account Current JN: BoP Claims Change UK: Jobless US: PPI Final Demand MoM JN: Durable Goods Orders US: Durable Orders US: Factory JN: Air Ex Nondef US: Cap Goods Orders EC: PPI YoY 3 17 31 24 10 Monday , US: United States, EC: European Union, UK: United Kingdom, CH: China, JN: Japan Kingdom, UK: United Union, States, EC: European , US: United Total Business Investment QoQ Business Investment Total IN: GDP YoY Industries Infrastructure IN: Eight MoM JN: Industrial Production JN: Retail YoY Sales Activity Manf. Fed US: Dallas Chicago Fed Nat Activity Index Activity Nat Fed US: Chicago Industrial Production MoM JN: Industrial Production QoQ SA JN: GDP Manufacturing US: Empire Prices MoM House UK: Rightmove MoM EC: Construction Output Private Consumption QoQ UK: Private CH: CPI YoY MoM UK: Industrial Production CH: PPI YoY UK: Markit India PMI Mfg PMI India IN: Markit QoQ SA JN: GDP US: ISM Manufacturing PMI Mfg CH: Caixin China PMI Mfg Japan Bank JN: Jibun IN: India World economic calendar economic calendar World 2020 August

August 2020 INSIGHT 74 Services at Ashika Stock Broking Limited Products Products Contact

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August 2020 INSIGHT 78 Gyanada e-learning initiative launching soon! Ashika Group supports charitable foundation to fuel the aspirations of young girls in India. With our vision to develop essential 21st century capacities, computational thinking and working with computer-based systems, we will be launching our e-learning module by September,2020. It has been designed as two sub-initiatives: Every Child Can Code (ECCC) and Makers in the making (MIM).

ECCC focuses on training the child through our online program on basic concepts of computational thinking and physical computing using Scratch and Aurdino. MIM ensures success of the online initiative by training young engineers and professionals for the advanced level program. For 3 year after school program, they will be trained in advanced concepts of computational thinking and physical computing using Scratch, Raspberry Pi Initialization, Python, Aurdino, Robotics, MIT App Inventor. We’ll be hosting interesting online programming workshops on Python, Scratch and Thunkable. They have been specially designed for students between the age group of 12 to 15 years where they will learn to make mobile application, games, video stories and much more. It’s our initiative to help provide access to the wider community of tech mentors, affordably. Not C-O-V-I-D but WE-CODE The #quarantinechallenge gained momentum over the past months, with interesting bi-weekly activities for our kids. It has kept our kids busy creatively and widened their horizons. Shared below are some of our interesting activity responses. Activity: Let’s track our power usage! The activity was to list down the daily power consumption of electronics used in their house. This was our way to arouse realization among kids as to how much electricity is consumed daily and how much of it can be conserved. It served to be an eye opener for them.

Activity: Awareness about Corona With the multiple symptoms of Covid19 that are still being discovered with each day, our kids have attempted to list ones that have been medically declared till now. Kids also had creative representation of the pandemic situation and it was a call to all viewers to stay aware and follow advices of authorities.

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

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