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Market Overview Stock Picks Economy Review Technical View Prominent Headlines Monthly Insight Performance Startup Corner Book Review Q&A with Fund Manager Sector Outlook - Real Estate Annual Financial Performance World Economic Event Calendar Mutual Fund Overview Management Commentary INSIGHT July 2021 Q&A WITH Mr. Bhavesh Jain, Fund Manager, Edelweiss Asset Management Ltd. TECH MAHINDRA LTD. | HERO MOTOCORP LTD. ZEE ENTERTAINMENT ENTERPRISES LTD. INSIDE THIS ISSUE Market Manage- overview ment 1 Commentary 33 Prominent Economy headlines Review PROMINENT June 2021 HEADLINES 6 44 Q&A Startup with Fund Manager corner Mr. Bhavesh Jain, Fund Manager, Edelweiss Asset 8 Management Ltd. 51 Mutual Annual fund overview Financial 10 52 Performance Stock Picks Technical • Tech Mahindra Ltd. view • Hero Motocorp Ltd. • Zee Entertainment 15 Enterprises Ltd. 58 Monthly Book review insight HDFC BANK 2.0: Recommendation From Dawn to performance Digital by Tamal 24 61 Bandyopadhyay Sector - World Real estate economic 28 calendar 63 MarketOVERVIEW We are at an interesting crossroad for the Indian equity markets where there is cautious optimism for some while people may be sitting at the sidelines waiting for correction as there are a few imponderables ahead. Headlines in leading financial of June and even on derivatives Central Bank. Rise in inflation is dailies highlight that over 90% of market. However, others are still developed economies is more of a the stocks in the NSE 500 universe positive on the market outlook and concern for the emerging economies are currently trading above their expect the bullish trend to continue as funds flows back to the developed 200-day moving average (DMA). citing fundamental factors like strong countries led by USD appreciation. Experts could be cueing in for signs Q4FY21 results and reopening of So far, the US Fed Chair calmed of overheating equity markets thus economy and ramp up in vaccination. markets by reiterating that inflation leading to intermittent correction Besides, the global economy is in pressures will be transitory in nature or sideways movement for a long its best shape which is reflected and stressed that the Fed will do period. Retail investors who have in surge in commodity prices and everything to support the economy been upbeat about the markets might crude oil prices. However, one of for as long as it takes to complete the be in cautious mode taking cues from the key global factors to look out recovery. Although, US Fed would foreign institutional investors who for would be tapering by US Federal continue to pump in $120 bn for the have trimmed positions in the month Reserve followed by European time being, however developments 1 INSIGHT July 2021 Nevertheless, price to earnings (PE) wave unlike first wave. However, the multiple rerating for the Indian vaccination pace has picked up and Revenue for Nifty markets is over and there are recent media articles suggest that 50 companies higher chances of de-rating unless rural areas which account for 65% of grew 16% yoy while earnings pick up substantially. population got 51% of vaccine doses EBITDA/PBT/ The prime reason here again is the between May 1 and June 23. While PAT growth stood slow unwinding of excess liquidity few may take the data with a pinch at 32%/85%/76% globally and also in India. This of salt, others could be optimistic YoY. Even when warrants higher risk premium of improving vaccinations across for equity as an asset class as well the nation. However, media articles comparing against for India. The only silver lining have also highlighted that there is a Q4FY19, earnings has been strong set of corporate stark divergence in covid-19 vaccine have recorded earnings in Q4FY21 thus continuing coverage between state capitals and strong CAGR its momentum from preceding two other districts in their respective growth driven quarters, although aided by low base states. Kolkata, the capital of West by upliftment in yoy but also supported by healthy Bengal, has given 68.5 vaccine doses metals, consumer demand recovery. Revenue for Nifty per 100 people, the highest among 50 companies grew 16% yoy while all districts in India and more than durables, cement EBITDA/PBT/PAT growth stood five times the coverage in the state’s and oil & gas. at 32%/85%/76% YoY. Even when remaining districts. Similarly, comparing against Q4FY19, earnings Chennai district has administered in the labour market would be the have recorded strong CAGR growth 44.2 vaccine doses per 100 people, key to watch out for indication of driven by upliftment in metals, while the figure for the rest of Tamil tapering which eventually is expected consumer durables, cement and oil Nadu languishes at 9.5. However, to be announced sooner rather & gas. Unfortunately, since March the vaccination pace after dipping than later. U.S. President Joe Biden 2021, lockdown across several states in May have picked up and Govt. has recently embraced a USD 1.2 trillion in April and May 2021 have jolted been vaccinating 4mn people a day. bipartisan Senate deal to improve brakes on demand recovery and Besides, the Govt. has also given infrastructure from roads, bridges there are apprehensions on the FY22/ orders for procurement of vaccine and highways. This added optimism FY23 EPS estimates. Management not only with Serum Institute, Bharat for an even higher economic growth commentaries from consumer facing Biotech and Dr. Reddy’s (for Sputnik) in US in the coming days after the industries suggest strong recovery but also expects Zydus Cadila and economy grew by a strong 6.4% in H2FY22 space and normalcy from Biological E’s vaccine to be available annualized rate in first quarter 2021 Q2FY22 onwards while cement, by December. steel and real estate remains in a higher than 4.3% rate clocked in last One of the other factors which have quarter. Thus, prima facie, the rise comfortable zone and have been able in interest rates is a reality, however to pass on the input cost pressure. there are few who believe that the Raw material inflation is expected to Majority of the continue in FY22 too and plans would withdrawal of stimulus would be consumer facing be chalked out for price hikes without a pleasant one. They believe that industries like Auto, companies in US are witnessing severely affecting demand. Majority rising wages and higher tax outgo of the consumer facing industries FMCG, Consumer and have piled on debt. Thus, the like Auto, FMCG, Consumer Durables would US Fed has limited capacity to raise Durables would be boosted by a be boosted by a rates vigorously without shattering normal monsoon as the prediction normal monsoon confidence and series of downgrades by IMD and Skymet suggests. So far, as the prediction by the monsoon has been 20% above for leveraged companies. This higher IMD and Skymet normal. Thus, bumper harvest this debt burden together with increased suggests. So far, the government borrowing could be the season on the back of two harvest reason why longer dated yields have seasons for last two years have monsoon has been not risen in US. resulted in strong income. Although, 20% above normal. rural India have been hit in second July 2021 INSIGHT 2 supported corporate earnings in compared to pre-pandemic levels FY21 (other than cost reduction) has and there’s not much optimism Bond Yield- been the massive deleveraging of with regards to June quarter as well. the corporate. An analysis of the top Earnings Yield for Media articles suggest that majority 15 sectors, representing more than the Indian markets of the private capex has been led 1,000 publicly traded firms, by the are however close to by steel and cement companies, research arm of State Bank of India historical averages which were relatively unscathed by (SBI), showed companies reduced and not much of second wave. While a recovery in debt of more than Rs 1.7 trillion in concern there Govt. capex will boost capital goods FY21. For perspective, this amounted from a valuation sector and infrastructure players. to a fifth of their debt at the end of perspective. However, the easy liquidity window FY20, states a Live Mint article. Thus, Besides, corporate would be coming to an end and in the excess liquidity has worked as earnings revival India as well, the excess liquidity in a double boon for corporate as PE is a function of the reverse repo market and RBI’s valuations were rerated and thus demand which is management of bond yields might corporate was able to raise funds again a function ease in second half of calendar year from equity market and retire debt. 2021. Bond Yield-Earnings Yield for of vaccination Besides, some also raise funds the Indian markets are however close through primary issuance of bonds drive, income and to historical averages and not much and repaid their high-cost bank unemployment of concern there from a valuation loans. Some are of the opinion that levels and Govt. perspective. Besides, corporate since there was no point in doing policies, among earnings revival is a function of capital expenditure, funds were others. demand which is again a function used to retire debt as well. Besides, of vaccination drive, income and given uncertainty with demand unemployment levels and Govt. CMIE suggests that new investments environment, inventory levels were policies, among others. Thankfully, witnessed some recovery in March also low for many corporate thus majority of the things are looking up 2021 but have been low when saving on working capital. Data from in the right direction. Value of new investment announcements (Rs. trillion) 8 7 6 4.3 5 4 3 1 2.3 2 3.1 2.4 1.3 1 0.9 1.7 0.5 1 0.5 0.6 0.7 0 0.2 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Government Private Source: LiveMint, CMIE Research Desk Email - [email protected] Phone: +91 33 4010 2500 3 INSIGHT July 2021 July 2021 INSIGHT 4 5 INSIGHT July 2021 PROMINENT HEADLINES JUNE 2021 BI can (print he government f the hybrid model money) but it is open to has to work, let’s should avoid all possible not think of it as R T I doing so unless responses that may only office and home.