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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Indian mutual fund industry has assets of almost INR 7.93 trillion (US$106.3bn) 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.We are just past halfway through the review period for the second half of 2021. Using data to the close on 4 October, at the next recategorization in January 2022, we see 10 stocks moving from the mid cap segment to the large cap segment, 11 stocks moving from the large cap segment to the mid cap segment , 11 stocks are expected to move from the small cap segment to the mid cap segment, with16 stocks moving from the mid cap to the small cap segment. <a href="https://www.smartkarma.com/entities/zomato-media-pvt" target="_blank" data-smartkarma-citation="entities:28820:1" rel="noopener">Zomato (ZOMATO IN)</a> will be a part of the large cap universe, while 4 other newly listed stocks will be a part of the mid cap universe.Historically, stocks moving to a higher market cap category have outperformed stocks that migrate to a lower market cap category over the back half of the review period. In some cases, the outperformance continues past the announcement of the changes as well. 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 7.93 trillion (US$106.3bn) 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.We are just past halfway through the review period for the second half of 2021. Using data to the close on 4 October, at the next recategorization in January 2022, we see 10 stocks moving from the mid cap segment to the large cap segment, 11 stocks moving from the large cap segment to the mid cap segment , 11 stocks are expected to move from the small cap segment to the mid cap segment, with16 stocks moving from the mid cap to the small cap segment. Zomato (ZOMATO IN) will be a part of the large cap universe, while 4 other newly listed stocks will be a part of the mid cap universe.Historically, stocks moving to a higher market cap category have outperformed stocks that migrate to a lower market cap category over the back half of the review period. In some cases, the outperformance continues past the announcement of the changes as well. 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 (Dec 2021)

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Key $70 support on the MSCI ACWI (ACWI-US) held strong last week, and ACWI-US is now inflecting topside its bullish falling wedge pattern. This bullish price action combined with market dynamics which remain mostly healthy lead us to believe the lows of this recent correction are in. Consumer Discretionary and Manufacturing Sectors continue to be two attractive Sectors that are outperforming globally; we highlight numerous actionable names in today's report.

Key $70 support on the MSCI ACWI (ACWI-US) held strong last week, and ACWI-US is now inflecting topside its bullish falling wedge pattern. This bullish price action combined with market dynamics which remain mostly healthy lead us to believe the lows of this recent correction are in. Consumer Discretionary and Manufacturing Sectors continue to be two attractive Sectors that are outperforming globally; we highlight numerous actionable names in today's report.

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?

Independent Research Analyst

Mamta Verma

DC India Research

DC India Research LLP (DCIR) is based out of Mumbai, India.

We specialize in providing customized, independent research across listed and unlisted companies in India across equities and credit including sectoral research. Our customers include India focussed PE funds, special situation funds, domestic AMCs, Wealth Advisory& PMS firms, Rating Agencies & Investment Advisors. 

The DCIR board consists of prominent names from the industry as well as CIO’s of Hedge funds.

Equity Bottom-Up

In this note, we have reviewed the 9m-FY18 performance of the listed players in the Indian Tyre Sector.Note - This review will be followed on with the q4-FY18 results of the companies.Companies covered - <a href="https://www.smartkarma.com/entities/8423" target="_blank" data-smartkarma-citation="entities:8423:1">Apollo Tyres Ltd (APTY IN)</a>, <a href="https://www.smartkarma.com/entities/2930" target="_blank" data-smartkarma-citation="entities:2930:1">Mrf Ltd (MRF IN)</a>, <a href="https://www.smartkarma.com/entities/18722" target="_blank" data-smartkarma-citation="entities:18722:1">Ceat Ltd (CEAT IN)</a>, <a href="https://www.smartkarma.com/entities/8501" target="_blank" data-smartkarma-citation="entities:8501:1">Jk Tyre &amp; Industries Ltd (JKI IN)</a>, <a href="https://www.smartkarma.com/entities/16789" target="_blank" data-smartkarma-citation="entities:16789:1">Goodyear India Ltd (GDYR IN)</a>, <a href="https://www.smartkarma.com/entities/9603" target="_blank" data-smartkarma-citation="entities:9603:1">Tvs Srichakra Ltd (SRTY IN)</a>, <a href="https://www.smartkarma.com/entities/15331" target="_blank" data-smartkarma-citation="entities:15331:1">Balkrishna Industries Ltd (BIL IN)</a>1. Summary -<table class="table table-striped"><tbody>
<tr>
<td>Net Sales</td>
<td>Q3-FY18 YoY</td>
<td>Q3-FY18 QoQ</td>
<td>9M-FY18 YoY</td>
<td>9M-FY18 (Rs. Mn.)</td>
</tr>
<tr>
<td>Apollo Tyres Ltd.</td>
<td>17.13%</td>
<td>16.49%</td>
<td>9.</td>
</tr>
</tbody></table>…

In this note, we have reviewed the 9m-FY18 performance of the listed players in the Indian Tyre Sector.Note - This review will be followed on with the q4-FY18 results of the companies.Companies covered - Apollo Tyres Ltd (APTY IN), Mrf Ltd (MRF IN), Ceat Ltd (CEAT IN), Jk Tyre &amp; Industries Ltd (JKI IN), Goodyear India Ltd (GDYR IN), Tvs Srichakra Ltd (SRTY IN), Balkrishna Industries Ltd (BIL IN)1. Summary -

Net Sales
Q3-FY18 YoY
Q3-FY18 QoQ
9M-FY18 YoY
9M-FY18 (Rs. Mn.)


Apollo Tyres Ltd.
17.13%
16.49%
9.

…

Equity Analyst, LightStream Research

Chacko Jacob

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<a href="https://www.smartkarma.com/entities/15331" target="_blank" data-smartkarma-citation="entities:15331:1">Balkrishna Industries Ltd (BIL IN)</a> is India's leading off-highway-tyre (OHT) player in the global market. The company has developed a wide-reaching network that spans the Americas, Europe and Asia. The company's four plants (all in India) have a total capacity to produce 300,000MT per annum. With only 65-70% of this capacity being utilised, BIL finds itself at a sweet spot - the company can avoid heavy CapEx while utilising the remaining capacity to consolidate its global market share. While we remain positive about the company’s growth in FY2018, we think the next fiscal period might throw some surprises despite the decent economic growth forecasted in its key markets. In the time between our last report and this, the company has undertaken a stock split (1:2) and seen its shares hit a 52-week high before paring most of its gains. The stock currently trades at 27x and 21x 1-Year forward and 2-year forward PE respectively, which are also still near historical highs. Given the considerable downside risk in the next fiscal period, we think the stock might decline further, leading us to consider it overvalued. Some of the underlying risks for the next fiscal period include:<ul class=""><li class="">Higher raw material costs as rains caused by the La Nina phenomenon could hamper supply of natural rubber.</li><li class="">Domestic shortage of carbon black due to the shutdown of a key manufacturer and because of steep duty on imports. </li></ul>

Balkrishna Industries Ltd (BIL IN) is India's leading off-highway-tyre (OHT) player in the global market. The company has developed a wide-reaching network that spans the Americas, Europe and Asia. The company's four plants (all in India) have a total capacity to produce 300,000MT per annum. With only 65-70% of this capacity being utilised, BIL finds itself at a sweet spot - the company can avoid heavy CapEx while utilising the remaining capacity to consolidate its global market share. While we remain positive about the company’s growth in FY2018, we think the next fiscal period might throw some surprises despite the decent economic growth forecasted in its key markets. In the time between our last report and this, the company has undertaken a stock split (1:2) and seen its shares hit a 52-week high before paring most of its gains. The stock currently trades at 27x and 21x 1-Year forward and 2-year forward PE respectively, which are also still near historical highs. Given the considerable downside risk in the next fiscal period, we think the stock might decline further, leading us to consider it overvalued. Some of the underlying risks for the next fiscal period include:Higher raw material costs as rains caused by the La Nina phenomenon could hamper supply of natural rubber.Domestic shortage of carbon black due to the shutdown of a key manufacturer and because of steep duty on imports. 

Balkrishna Ind: Higher RM Costs Could Cast a Shadow on Earnings Growth in FY2019

India

Balkrishna Industries Ltd. manufactures automobile tires and tubes. The Company also manufactures different varieties of paper & paper boards and processes synthetic textiles.

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Balkrishna Industries (BIL IN)

India: Stock Reclassification & Active Portfolio Management (Dec 2021)

Halfway through the review period, we take a look at stocks that could migrate across the large, mid and small cap segments. With over US$100bn of...

Brian Freitas

Global Equity Strategy:

Key $70 support on the MSCI ACWI (ACWI-US) held strong last week, and ACWI-US is now inflecting topside its bullish falling wedge pattern. This...

Vermilion Research

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

Sector Capcule: India Tyre Sector

In this note, we have reviewed the 9m-FY18 performance of the listed players in the Indian Tyre Sector.Note - This review will be followed on with...

DC India Research

Balkrishna Ind: Higher RM Costs Could Cast a Shadow on Earnings Growth in FY2019

Balkrishna Industries Ltd (BIL IN) is India's leading off-highway-tyre (OHT) player in the global market. The company has developed a...

Chacko Jacob

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