Market Overview Monthly Insight Performance Startup Corner Book Review Prominent Headlines Sector Outlook: Cement Government Measures/Reforms World Economic Event Calendar Q&A with Vice Chairman Management Commentary Mutual Fund Overview Stock Picks Economy Review Technical View INSIGHT November 2020 Q&A with Vice Chairman Mr. Shankar Sharma, First Global MRF LTD. | DIXON TECHNOLOGIES (INDIA) LTD. | PRIVI SPECIALITY CHEMICALS LTD. Market Economy 1 Overview 44 Review Prominent Startup Headlines Corner PROMINENT October 2020 HEADLINES 4 53 Q&A Government with Vice Measures/Reforms Chairman Mr. Shankar Sharma, 6 First Global 54 Stock Mutual Picks Fund Overview • MRF Ltd. • Dixon Technologies (India) Ltd. • Privi Speciality Chemicals Ltd. 12 60 Monthly Technical Insight View Recommendation 21 Performance 65 Sector Book Cement Review - The Checklist Manifesto: How to Get Things Right 25 By Atul Gawande 69 Management World Commentary Economic 31 72 Calendar MarketOVERVIEW fter having recovered 56% revival process, hence volatility in from the lows, markets markets. The US elections are also are now looking out for expected to add volatility for the affirmation of demand time being and while betting odds revivalA and more importantly are against Donald Trump at the sustenance of demand. While the moment, polls could be misleading markets have depicted V - shaped like that happened in 2016. However, recovery, the economy is probably the important thing to notice is that Paras Bothra going through a K - shaped one, whoever wins, barring the policies where recovery across varied sectors towards visa approval process, it are heterogeneous. The arguments would be positive towards India are true especially for sectors like since both contestants have agendas auto & consumer durables which against China. Besides, once election fear that there could be a lull after is over, the whole attention will the festival season is over. Besides, shift towards policies by US Fed to markets are already factoring in pullback economic growth. Majority demand revival in FY21 and earnings expect Fed to target inflation rate of growth in FY22, hence it is prone 2% while keeping rates ultra-low and to volatility in case of risks towards needless to say G-7 central banks that vulnerability of growth in FY22 would likely follow US Central bank. or postponement towards FY23. The The Reserve Bank of India (RBI) in risks of a second wave across Europe its monetary policy minutes have and potential surge in cases post highlighted that the members like festival season in India, could have Michael Patra expressed that it may serious ramifications to the demand take years for India’s GDP to regain 1 INSIGHT November 2020 lost output due to the coronavirus have generally blamed on low fiscal pandemic. According to him, “In In the absence of stimulus for India to be the major the absence of intrinsic drivers, the reason for divergence of growth rates recovery may last only until pent- intrinsic drivers, between India and developed world, up demand has been satiated and the recovery may the same theory doesn’t hold ground replenishment of inventories has last only until when comparing with emerging been completed. Empirical evidence pentup demand nations. China’s economy has revived suggests that consumption-led has been satiated strongly and IMF now expects 2020 recoveries are shallow and short- GDP growth to be at 1.9%, the fact that lived. Exports could be a driver, but and replenishment Bangladesh & Vietnam are expected with the WTO’s latest projection of inventories has to grow at 3.8% & 1.6% in 2020 has of a decline in world trade volume been completed. raised eyebrows. That highlights by 9.2 per cent in 2020, the role of Empirical evidence that India was hit by Covid when its exports in powering a durable revival suggests that economic growth was already low is likely to be circumscribed”. Other and hence the recovery is painful. MPC members like Mr. Jayanth consumption- However, these three countries are R. Varma also batted for keeping led recoveries competing to fill up the space vacated policies accommodative and the are shallow and by China as well as the opportunities narrow linkage between inflation shortlived. created as an alternative global & policy rates. According to him, supply chain. The Govt. has come up high long-term rates are inflicting with the production linked incentive damage to the economy in two (PLI) scheme and electronics & ways. “First, a significant part of the of World Economic Outlook (WEO) APIs are expected to be major easing of policy rates is not being has advocated for heightened public beneficiaries, with real orders and transmitted to longer term rates that investment as the private sector enquiries coming in for mobile form the benchmark for corporate shies away. It has also cautioned manufacturers (as suggested by borrowing and investment decisions. governments and central banks companies like Micromax & Lava). Excessive long-term rates exacerbate against premature withdrawals of Besides, the Govt. has also amended the collapse of investments in the support measures. While this would archaic labour laws and would be economy. Second, high long-term imply that Govt.’s fiscal deficit taken note in ease of doing business rates cause an appreciation of the real will scale disproportionately and rankings for sure. However, India is effective exchange rate by stimulating sovereign debts will rise, the same not the only one and Bangladesh & foreign capital inflows into our bond would be taken in positive note given Indonesia have also been bringing markets at a time when the collapse benefits of job creation. The Govt. reforms to attract FDI, although of investment has caused the current has communicated that another Vietnam leads by a fair margin. The account to swing into surplus,” Given stimulus package is in the making ministry of commerce however the steep nature of sovereign yield and it is expected to be addressed recently stated that for FY21 (April to curve, it hurts investments and thus towards creating infrastructure, August) total FDI inflow of US$ 35.73 it is essential for RBI to guide for which indeed is the right approach. billion is received against US$ 31.60 accommodative stance beyond six Besides, media articles also state that billion in FY20 and it is the highest months and keep even long-term the Govt. might tap external markets ever for first 5 months of a financial interest rates lower, so that India’s given strong forex reserves as well as year. An article in Mint highlights that private sector can get comfortable lower sovereign external debt (less Vietnam & India are the most cited enough to invest. A growth led by than 5% of GDP) for India. Besides countries when it comes to moving investments is sustainable while led it would also be competitive as out manufacturing from China, it’s by consumption is shallow, this has domestic interest rates are high (thus infrastructure & regulations are been shown by empirical data. resulting in higher interest payments major shortcomings albeit it still has labour cost advantage. Thus, the focus While interest rate is one of the for Govt.) and would also result in of the Govt. to now on infrastructure factors which corporate considers crowding in private debt & as well and ease regulations with these while committing for capex, the as investment. IMF however revised reforms are the most crucial steps. primary criteria is of demand and India’s GDP downwards by 5.8% (from capacity utilization in the economy Jun’20 WEO estimates) and expects Thankfully, the timing is right as which has been running low even to decline by 10.3% in 2020. This is the economy is recovering strongly before pre-Covid and thus demand against the background of a revision as suggested by the manufacturing pick-up and sustenance are also in world GDP growth estimates for as well as services PMI and people keenly watched by India Inc. 2020 from -5.2% to -4.4% led by have been spending less time at However, IMF in it’s October edition developed economies. While experts home and recreation & footfalls have November 2020 INSIGHT 2 Source: Mint steadily improved. India’s external five-quarter high of 4.91% in Q2FY21 muted numbers however demand sector is strong and September after 14.31% yoy decline in Q1FY21. Net remains strong from rural segment exports have grown 6% (in USD profit, adjusted for one-time profit and the same is depicted in tractor terms) and import cover is robust. or loss, in Q2FY21 grew at the fastest sales too. Two wheelers, cement, Various consumption indicators pace in four quarters at 6.23% from metals & paints also reported strong suggest demand revival, although a year ago, against 18.9% decline in numbers, although demand falling bank credit growth remains low and Q1FY21. Besides, growth in Q2FY21 short & inventory buildup in next so are employment opportunities came on the back of 10.74% growth quarter is a matter of concern and (compared to pre-covid), the in Q2FY20. Among sectors, cement this could affect production numbers recovery is not uniform across all & IT companies reported better than ahead. Clearly, the whole focus is on sectors. The swift recovery in the expected numbers. Management how far the demand sustains, the Indian economy is also reflected in commentaries remained upbeat fact that household savings have also September quarter earnings of India for IT sector amid increasing deals been hit severely amid low interest Inc., based on an analysis of 170 listed as clients have increased spend on rates and high inflation and abundant companies by Mint (excluding banks, cloud/digital transformation amid liquidity which is expected to financial services firms and oil and pandemic.