Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<div>The Indian mutual fund industry has assets of almost INR 6.6 trillion across Multi cap, Large Cap, Large and Mid Cap, Mid Cap, Small Cap and Flexi Cap equity schemes. Equity schemes classified as large cap need to have at least 80% of their assets invested in large cap stocks, large and mid cap schemes need to have at least 35% of their assets in large cap stocks and at least 35% in mid cap stocks, mid cap funds need to hold at least 65% of their assets in mid cap stocks, and small cap funds need to hold at least 65% of their assets in small cap stocks. Flexi cap funds can invest across market caps.</div><div>
The Association of Mutual Funds in India (AMFI) publishes the list of the stocks in each market cap segment in January and July each year and mutual funds have one month to rebalance their portfolios to adhere to the new categorization.
At the next recategorization in July 2021, we see 7 stocks moving from the mid cap segment to the large cap segment with an equal number of stocks moving the other way, and 13 stocks are expected to move from the small cap segment to the mid cap segment with the 16 stocks moving from the mid cap to the small cap segment. There are 3 recent listings that will enter the mid cap segment with over 18 joining the small cap segment.
Historically, the stocks migrating upward to a higher market cap segment have outperformed stocks that migrate to a lower market cap segment over the 1 month and 2 month period post the publishing of the AMFI list. This can be attributed to fund managers realigning their portfolios to meet the new categorization. This provides opportunities to pre-position for the move and unwind post the announcement of the reclassification.
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The Indian mutual fund industry has assets of almost INR 6.6 trillion across Multi cap, Large Cap, Large and Mid Cap, Mid Cap, Small Cap and Flexi Cap equity schemes. Equity schemes classified as large cap need to have at least 80% of their assets invested in large cap stocks, large and mid cap schemes need to have at least 35% of their assets in large cap stocks and at least 35% in mid cap stocks, mid cap funds need to hold at least 65% of their assets in mid cap stocks, and small cap funds need to hold at least 65% of their assets in small cap stocks. Flexi cap funds can invest across market caps.
The Association of Mutual Funds in India (AMFI) publishes the list of the stocks in each market cap segment in January and July each year and mutual funds have one month to rebalance their portfolios to adhere to the new categorization.
At the next recategorization in July 2021, we see 7 stocks moving from the mid cap segment to the large cap segment with an equal number of stocks moving the other way, and 13 stocks are expected to move from the small cap segment to the mid cap segment with the 16 stocks moving from the mid cap to the small cap segment. There are 3 recent listings that will enter the mid cap segment with over 18 joining the small cap segment.
Historically, the stocks migrating upward to a higher market cap segment have outperformed stocks that migrate to a lower market cap segment over the 1 month and 2 month period post the publishing of the AMFI list. This can be attributed to fund managers realigning their portfolios to meet the new categorization. This provides opportunities to pre-position for the move and unwind post the announcement of the reclassification.


India: Stock Reclassification & Active Portfolio Management

Forensic Analyst, Trudence Capital Advisors

Nitin Mangal

Forensic Analyst

Trudence Capital Advisors

Trudence Capital Advisors Private Limited is a SEBI-registered Research Analyst, holding SEBI registration number INH000015747. Our firm is dedicated to providing independent and unbiased research on Indian mid to large-cap companies. Trudence Capital is known for its counter-consensus views, with a focus on forensic research and on-ground primary investigations. Our research approach is thorough, involving detailed analysis of accounting practices and governance, alongside extensive channel checks.

Independent & Unbiased Research

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/apollo-tyres-ltd" target="_blank" data-smartkarma-citation="entities:8423:1" rel="noopener">Apollo Tyres (APTY IN)</a> may be one of the leading Indian origin tyre manufacturers, but it has been facing concerns of its own, predominantly capital allocation woes, that has created several potholes on its roadmap.
The company has successfully (as it proclaims) been able to buy revenues, this however did not bring free cash flow to the books. Poor capital allocation has always been a feature of Apollo Tyres, and this once again got depicted in the Q3F21 results where the management decided to provide for impairment in one of its trademark European arm, Vredestein.

Apollo Tyres (APTY IN) may be one of the leading Indian origin tyre manufacturers, but it has been facing concerns of its own, predominantly capital allocation woes, that has created several potholes on its roadmap.
The company has successfully (as it proclaims) been able to buy revenues, this however did not bring free cash flow to the books. Poor capital allocation has always been a feature of Apollo Tyres, and this once again got depicted in the Q3F21 results where the management decided to provide for impairment in one of its trademark European arm, Vredestein.

The Indian mutual fund industry has assets of almost INR 5 trillion across Multi cap, Large Cap, Large and Mid Cap, Mid Cap and Small Cap equity schemes. Equity schemes classified as large cap need to have at least 80% of their assets invested in large cap stocks, large and mid cap schemes need to have at least 35% of their assets in large cap stocks and at least 35% in mid cap stocks, mid cap funds need to hold at least 65% of their assets in mid cap stocks, and small cap funds need to hold at least 65% of their assets in small cap stocks.The Association of Mutual Funds in India (AMFI) publishes the list of the stocks in each market cap segment in January and July each year and mutual funds have one month to rebalance their portfolios to adhere to the new categorization.In the upcoming recategorization in January 2021, we see 6 stocks moved from the mid cap segment to the large cap segment with an equal number of stocks moving the other way, and 12 stocks are expected to move from the small cap segment to the mid cap segment with the same number moving the other way. There are quite a few IPOs that will join the small cap list, with just 1 joining the large cap list and 1 joining the mid cap list.Historically, the stocks migrating upward to a higher market cap segment have outperformed stocks that migrate to a lower market cap segment over the 1 month and 2 month period post the publishing of the AMFI list. This can be attributed to fund managers realigning their portfolios to meet the new categorization. This provides opportunities to pre-position for the move and unwind post the announcement of the reclassification.

The Indian mutual fund industry has assets of almost INR 5 trillion across Multi cap, Large Cap, Large and Mid Cap, Mid Cap and Small Cap equity schemes. Equity schemes classified as large cap need to have at least 80% of their assets invested in large cap stocks, large and mid cap schemes need to have at least 35% of their assets in large cap stocks and at least 35% in mid cap stocks, mid cap funds need to hold at least 65% of their assets in mid cap stocks, and small cap funds need to hold at least 65% of their assets in small cap stocks.The Association of Mutual Funds in India (AMFI) publishes the list of the stocks in each market cap segment in January and July each year and mutual funds have one month to rebalance their portfolios to adhere to the new categorization.In the upcoming recategorization in January 2021, we see 6 stocks moved from the mid cap segment to the large cap segment with an equal number of stocks moving the other way, and 12 stocks are expected to move from the small cap segment to the mid cap segment with the same number moving the other way. There are quite a few IPOs that will join the small cap list, with just 1 joining the large cap list and 1 joining the mid cap list.Historically, the stocks migrating upward to a higher market cap segment have outperformed stocks that migrate to a lower market cap segment over the 1 month and 2 month period post the publishing of the AMFI list. This can be attributed to fund managers realigning their portfolios to meet the new categorization. This provides opportunities to pre-position for the move and unwind post the announcement of the reclassification.

India: AMFI Stock Categorization Changes to Drive Active Portfolio Churn

Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Forensic Accounting

As promised at <a href="https://www.smartkarma.com/insights/smartkarma-webinar-accounting-and-insider-diagnostics" target="_blank" data-smartkarma-citation="insights:40146" rel="noopener">Smartkarma Webinar | Accounting and Insider Diagnostics</a>, we have extended our forensic analysis model to India. To learn more about our detailed forensic analysis framework, please refer to our original note on forensic analysis model that caters to Developed Asia at <a href="https://www.smartkarma.com/insights/a-forensic-analysis-tool-for-detecting-accounting-red-flags-focus-on-developed-asia" target="_blank" data-smartkarma-citation="insights:36832" rel="noopener">A Forensic Analysis Tool for Detecting Accounting Red Flags: Focus on Developed Asia</a>.
In this insight, we run our forensic analysis model through our India focused universe that comprises of 141 listed Indian companies that have futures available for shorting on NSE. We score these Indian listed companies to identify high-risk accounting candidates.

As promised at Smartkarma Webinar | Accounting and Insider Diagnostics, we have extended our forensic analysis model to India. To learn more about our detailed forensic analysis framework, please refer to our original note on forensic analysis model that caters to Developed Asia at A Forensic Analysis Tool for Detecting Accounting Red Flags: Focus on Developed Asia.
In this insight, we run our forensic analysis model through our India focused universe that comprises of 141 listed Indian companies that have futures available for shorting on NSE. We score these Indian listed companies to identify high-risk accounting candidates.

Forensic Accounting | High Risk Companies in India

India - Politics, Industrials, IT and Large Caps, EMAlpha

Pankaj Sharma

India - Politics, Industrials, IT and Large Caps

Thematic (Sector/Industry)

The news flow for Indian Auto Industry is turning from bad to worse over previous few weeks as there have been multiple reports highlighting poor festival season sales, decline in numbers for vehicle registrations, sharp increase in inventory at dealers and liquidity crunch potentially impacting sales of CVs. However, November has not been that bad for several auto stocks and BSE Auto Index has also outperformed BSE SENSEX, albeit only marginally. <a href="https://www.smartkarma.com/entities/733" target="_blank" data-smartkarma-citation="entities:733:1">Maruti Suzuki India (MSIL IN)</a> , <a href="https://www.smartkarma.com/entities/2391" target="_blank" data-smartkarma-citation="entities:2391:1">Hero Motocorp (HMCL IN)</a> and <a href="https://www.smartkarma.com/entities/18316" target="_blank" data-smartkarma-citation="entities:18316:1">Eicher Motors (EIM IN)</a> have all been up approximately 10% or even more. This has led to a discussion on investment rationale in several stocks that bad news is fully in their price now and after the huge correction in the months of September and October, the market expectations have become more reasonable on how their business and financial performance will be. While this is somewhat true, we think that November sales numbers for the industry will be the real test because these figures will actually tell you how inventory has moved to end customers from dealers during the festive season. That will be a key factor in determining the near-term direction for these stocks in Indian Auto space.

The news flow for Indian Auto Industry is turning from bad to worse over previous few weeks as there have been multiple reports highlighting poor festival season sales, decline in numbers for vehicle registrations, sharp increase in inventory at dealers and liquidity crunch potentially impacting sales of CVs. However, November has not been that bad for several auto stocks and BSE Auto Index has also outperformed BSE SENSEX, albeit only marginally. Maruti Suzuki India (MSIL IN) , Hero Motocorp (HMCL IN) and Eicher Motors (EIM IN) have all been up approximately 10% or even more. This has led to a discussion on investment rationale in several stocks that bad news is fully in their price now and after the huge correction in the months of September and October, the market expectations have become more reasonable on how their business and financial performance will be. While this is somewhat true, we think that November sales numbers for the industry will be the real test because these figures will actually tell you how inventory has moved to end customers from dealers during the festive season. That will be a key factor in determining the near-term direction for these stocks in Indian Auto space.

India: News Flow Is Turning Even More Negative for Autos but Stocks Doing Well, What's Going On?

India

Apollo Tyres Limited manufactures tires and tubes for cars, trucks, farm equipment and light commercial vehicles. The Company also manufactures automobile flaps and retreading materials.

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Apollo Tyres (APTY IN)

India: Stock Reclassification & Active Portfolio Management

There are a lot of segment changes expected in July when AMFI recategorizes stocks and mutual funds start to rebalance their portfolios. We...

Brian Freitas

Apollo Tyres Limited: Drifting Apart

Apollo has been plagued with capital allocation woes since ages. The recent Vredestein impairment adds to the bitterness. One must wait for a long...

Nitin Mangal

India: AMFI Stock Categorization Changes to Drive Active Portfolio Churn

The reclassification of stocks to large, mid and small cap will set off a churn in mutual fund portfolios where historically stocks migrating...

Brian Freitas

Forensic Accounting | High Risk Companies in India

As promised at Smartkarma Webinar | Accounting and Insider Diagnostics, we have extended our forensic analysis model to India. To learn more about...

Ankit Agrawal, CFA

India: News Flow Is Turning Even More Negative for Autos but Stocks Doing Well, What's Going On?

The news flow for Indian Auto Industry is turning from bad to worse over previous few weeks as there have been multiple reports highlighting poor...

Pankaj Sharma

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