Monthly Market Outlook August 2021 The views expressed in this presentation are through the period ending 05-August-21 and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale1 of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Content Page Numbers Global Economy 5 Indian Economy 17 Equity Markets 32 Valuation 37 Neutral Weight To Equities 43 Equity Investment Opportunity 46 Should We Invest In Gold 50 Interesting Facts About Crypto 53 Active V/S Passive Funds in Alpha Generation 57 SIP Has Performed Well And Generated Alpha 60 Debt Market Outlook 63 Debt Investment Opportunity 73 Distributor Engagement 77 Annexure 82 Disclaimers & Disclosures 85 2 Thank you We extend our heartfelt gratitude for your support Kotak Global Innovation Fund of Fund ^Kotak Global Innovation Fund Of Fund will invest in units of Wellington Global Innovation Fund or any other similar overseas mutual fund schemes/ETFs. The Wellington Global Innovation Fund managed by Wellington Management, and the companies mentioned here are forming part of its portfolio as of 31st May 2021. The portfolio construction is the purview of the fund manager and may change from time to time. Past 3 Performance may or may not sustain in future. 4 ^Investor folios as of 1st Aug 2021 #AUM (Assets Under Management) as of 2nd Aug 2021. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Global Economy 5 Central Banks Running Printing Presses 24*7 Source: CrossBorder Capital 6 Global Debt Hitting A Record High As of Q1’21 global debt equaled $289tn, equivalent to 3.6x world GDP. Source: BofA Global Investment Strategy, Bloomberg 7 Liquidity Going Into Financial Assets Equity & debt securities (as % global GDP) Source: BofA Global Investment Strategy, BIS, IMF 8 US Inflation Expectation Rising Source: BofA Global Investment Strategy, Bloomberg 9 Global M-cap Soars To A Record High Source: Bloomberg, CEIC, MOFSL 10 No Sharp Pullback In S&P 500 Since Sep 2020 Three 5% pullbacks on an average per year, but none since Sept’20 Source: LPL Research, Ned Davis Research 11 Tech Giants Report Record-breaking Profits Net income of selected tech companies in the second calendar quarter of 2021 vs. 2020 Source: Statista, Company Filings 12 Role Reversal: Healthcare & Tech vs. Financials & Energy Source: BofA Global Investment Strategy, MSCI, Refinitiv 13 Will Global Inflation Peak Out In 2nd Half FY22 ? Historically, headline inflation lags currency in circulation (CIC) by 3-5 months; relationship very weak in recent years Global CPI inflation is used with a four-month lead Source: CEIC, various national sources, MOFSL 14 Will Fed Raise Interest Rates Around End Of 2022 ? Source: Citi Research 15 Will This Sustain ? 1. Stocks: All-time high 2. Home Prices: All-time high 3. Core Inflation: Highest since 1992 4. Job Openings: All-time high 5. Junk Bond Yields: All-time low 6. Fed: We need 0% rates for a few more years & trillions more in bond buying to boost asset prices and increase inflation 16 lndian Economy 17 Headlines In July 21 Unemployment rate falls to 4-month low of 6.95% in July India PMI manufacturing up at three-month high in July as lockdowns ease India exports hit a record $35.2 billion in July Mumbai property registrations set a new 10-year high record in July 2021 18 Source: business-standard.com, economictimes.indiatimes.com, livemint.com, financialexpress.com, Headlines In July 21 Economic recovery pushes hiring intent to 15 month high in Q2 RBI begins publishing Digital Payment Index data; March sees index rising by 30% over last year India's power consumption reaches pre-Covid level in July Indian Railways registers highest ever freight loading in July 2021 19 Source: economictimes.indiatimes.com, business-standard.com, livemint.com, aninews.in, telegraphindia.com Manufacturing PMI Returns To Expansion Zone 53.1 48.1 Source: IHS Markit, Bloomberg Quint 20 GST Collections Recover To ₹1.16 Lakh Crore In July Source: Bloomberg 21 Broad Based Economic Recovery Visible Daily passenger vehicle registrations rose 25.7% State wise change in retail and recreational activity in Jul 2021 Source: CLSA 22 BRI Is Now Only ~5% Below Its Pre-pandemic Level Source: Google, Apple, CMIE, Bloomberg and Nomura Global Economics 23 Monsoon Expected To Be Normal Source: IMD, Jefferies 24 Unemployment Rate Falls To 4-month Low Of 6.95% In July CMIE Series of Unemployment: Unemployment Rate : 30 day Unemployment Rate unemployment rate (UER) (>=15) moving average (%) 05 Jul 2021* 25 Source: CMIE.com India Likely To Be The Fastest Growing Major Economy In The World IMF Growth Projections ( Year-on-Year, in %) 2021 2022 Country Earlier Now Earlier Now India 12.5 9.5 6.9 8.5 China 8.4 8.1 5.6 5.7 US 6.4 7 3.5 4.9 World 6 6 4.4 4.9 EU 4.4 4.6 3.8 4.3 For India, 2021 and 2022 stand for FY22 and FY23, respectively 26 Source: IMF Centre's Fiscal Condition Is Much Better Than Budgeted Q1 FY21 Net Tax Revenue 3x of Last Year Apr-Jun as % of FY 35% 100% 90% 30% 80% 25% 70% 60% 20% 50% 15% 40% 10% 30% Deficit at 18% of 20% 5% FY22 based on Budgeted Estimates full year target 10% Receipts Expenditure Deficit(RHS) 0% 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: Credit Suisse 27 Government Is Spending Money Government spending was up 100.5% in Jun 21 vs. Jun 19 YoY Source: CLSA, Controller General of Accounts 28 Active Cases Are Rising Again Average Growth rate in active cases ( in last 7 days) Source: Covid.19india.org 29 Will Vaccinations Reduce Hospitalization Need ? Source: JHU CSSE, ONS, Goldman Sachs Global Investment Research 30 How Will 3rd Wave Pan Out? Business Resumption Period PMI GST Index(NIBRI) Pre Covid ( Feb 20) 54.5 1,054 100 1st Wave (Apr 20) 27.4 322 44.9 2nd Wave (May-21) 50.8 1,027 60.3 3rd Wave ? Source: Bloomberg, Nomura India Business Resumption Index (NIBRI) 31 Equity Markets 32 Small & Midcaps Have Outperformed Largecap Performance as on 31st July 2021 Sectoral Performance CY21 YTD (%) 125 77% 110 100 80 75 48% 33% 50 42 27% 26% 25 13% 12% 12% 12% 14 11% 12 13 11 13 13 12 12 11 9% 9% 8% 8 5% 3 4% 0 0 Nifty-50 Nifty Midcap 100 NSE SmallCap 100 Auto Bank FMCG Realty Media Energy Metals Pharma Secvices NIFTY 50 1m returns 1y returns 3 yr CAGR 5 yr CAGR 10 yr CAGR Financials IT Services Midcap 100 Smallcap 100 Private Banks Source: Bloomberg, Axis Capital. As on 31st July, 2021. Past performance may or may not be sustained in the future. 33 EPS Estimates Have Been Revised Upwards 950 2019E 2020E 2021E 2022E 2023E 900 850 800 794 799 750 735 769 700 695 650 678 600 550 500 526 480 450 453 400 Feb-18 Feb-19 Feb-20 Feb-21 Nov-17 Nov-18 Nov-19 Nov-20 Aug-17 Aug-18 Aug-19 Aug-20 Aug-21 May-21 May-18 May-19 May-20 34 Source: Kotak Institutional Equities estimates Retail Investors Are Large Buyers Source : AMFI, Capitaline, Bloomberg, CMIE, UBS. Note that the data prior to Jun-19 is half yearly. 35 Sare Jahan Se Accha Hindustan Hamara 12 months FPI flow and (August’20 to July’21) (USD bn) India, 31.3 Brazil, 17.6 Indonesia, (0.7) Malaysia, (2.7) Thailand, (4.2) South Africa, (7.8) Philippines, (7.9) Taiwan, (14.7) South Korea, (20.4) Source: Axis Capital 36 Valuation Wise – Neutral Weight Momentum Wise – Neutral Weight Every Correction Is An Opportunity To Increase Allocation To Equity Neutral weight doesn't mean selling equity. It means profitbooking if any on excess/overweight position. 37 Market Cap-To-GDP Ratio –Above Long Term Average But Below Global Average World Market Cap to GDP Ratio is 138% Average of 77% for the period 104 104 88 81 83 79 80 71 66 69 64 56 FY13 FY11 FY12 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E Source: Motilal Oswal 38 ValuationsAreAtThe Higher EndFairValueOf Source: Source: 13 18 23 28 8 Motilal Oswal Motilal Jul-06 Jul-07 (x)P/ENIFTY Jul-08 Average:18.0x Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 - 1 Year ForwardYear1 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 20.5 Jul-21 1.5 2.3 3.0 3.8 4.5 Jul-06 Jul-07 NIFTY P/B (x)P/BNIFTY Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 - 1 Year1 Jul-13 Average:2.6x Jul-14 Jul-15 Forward Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 39 Jul-21 3.0 India Inc. Reporting Strong Profits Reported PAT for NSE 500 Street Expectations Quarter Annualised PAT Rs in Crore (FY22) Dec 19 1,22,235 Mar 20 53,406 June 20 32,400 Sept 20 1,76,786 7,07,144 Dec 20 2,09,795 8,39,180 Mar 21 2,10,202* 8,40,808 9,20,000 Jun 21(233 Companies) 1,16,071 TTM ( As on Mar 21) 6,29,183 Market Cap (30/07/21) 2,16,68,801 PE Ratio ( PAT TTM Mar 34.4 25.7 23.5 21) * Highest Ever Quarterly Profit by India Inc.