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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Last evening, the Index Maintenance Sub-Committee (IMSC) of NSE Indices announced the results of the March index review for the <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a>. The rebalance will be effective after the close of trading on 30 March and passive funds will need to trade at the close (VWAP over the last 30 minutes of trading) on the day.<a href="https://www.smartkarma.com/entities/tata-consumer-products" target="_blank" data-smartkarma-citation="entities:258:1" rel="noopener">Tata Consumer Products (TATACONS IN)</a> has been included in the index and replaces <a href="https://www.smartkarma.com/entities/gail-india-ltd" target="_blank" data-smartkarma-citation="entities:15263:1" rel="noopener">Gail India Ltd (GAIL IN)</a>. This is in line with what we expected and makes <a href="https://www.smartkarma.com/entities/tata-consumer-products" target="_blank" data-smartkarma-citation="entities:258:1" rel="noopener">Tata Consumer Products (TATACONS IN)</a> the fifth Tata group company to be included in the index.NSE indices have also announced a number of changes to other indices. There are 7 changes to the NIFTY Next 50 (which together with the NIFTY 50 makes up the NIFTY 100) with <a href="https://www.smartkarma.com/entities/adani-enterprises-ltd" target="_blank" data-smartkarma-citation="entities:245:1" rel="noopener">Adani Enterprises (ADE IN)</a>, <a href="https://www.smartkarma.com/entities/apollo-hospitals-enterprise" target="_blank" data-smartkarma-citation="entities:880:1" rel="noopener">Apollo Hospitals Enterprise (APHS IN)</a>, <a href="https://www.smartkarma.com/entities/gail-india-ltd" target="_blank" data-smartkarma-citation="entities:15263:1" rel="noopener">Gail India Ltd (GAIL IN)</a>, <a href="https://www.smartkarma.com/entities/jubilant-foodworks-ltd" target="_blank" data-smartkarma-citation="entities:986:1" rel="noopener">Jubilant Foodworks (JUBI IN)</a>, <a href="https://www.smartkarma.com/entities/mrf-ltd" target="_blank" data-smartkarma-citation="entities:2930:1" rel="noopener">Mrf Ltd (MRF IN)</a>, <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> and <a href="https://www.smartkarma.com/entities/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">Yes Bank (YES IN)</a> replacing <a href="https://www.smartkarma.com/entities/bank-of-baroda" target="_blank" data-smartkarma-citation="entities:545:1" rel="noopener">Bank Of Baroda (BOB IN)</a>, <a href="https://www.smartkarma.com/entities/container-corp-of-india-ltd" target="_blank" data-smartkarma-citation="entities:17912:1" rel="noopener">Container Corp of India (CCRI IN)</a>, <a href="https://www.smartkarma.com/entities/general-ins-corp-of-india" target="_blank" data-smartkarma-citation="entities:25944:1" rel="noopener">General Insurance Corp Of India (GICRE IN)</a>, <a href="https://www.smartkarma.com/entities/hindustan-zinc-ltd" target="_blank" data-smartkarma-citation="entities:8688:1" rel="noopener">Hindustan Zinc (HZ IN)</a>, <a href="https://www.smartkarma.com/entities/oracle-financial-services" target="_blank" data-smartkarma-citation="entities:7775:1" rel="noopener">Oracle Financial Services (OFSS IN)</a>, <a href="https://www.smartkarma.com/entities/power-finance-corporation" target="_blank" data-smartkarma-citation="entities:13579:1" rel="noopener">Power Finance (POWF IN)</a> and <a href="https://www.smartkarma.com/entities/tata-consumer-products" target="_blank" data-smartkarma-citation="entities:258:1" rel="noopener">Tata Consumer Products (TATACONS IN)</a>.Changes have also been made to the index methodology. The main change from the perspective of the <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a> is that the index reviews will be effective after the close on the second last working day of the review month. The existing methodology specifies that the index review will be effective after the close on the F&amp;O expiry day (last Thursday) of the review month.<div class="content-highlight">This Insight has been marked as Bullish since TATACONS could outperform its peers in the near term.</div>

Last evening, the Index Maintenance Sub-Committee (IMSC) of NSE Indices announced the results of the March index review for the NIFTY Index (NIFTY INDEX). The rebalance will be effective after the close of trading on 30 March and passive funds will need to trade at the close (VWAP over the last 30 minutes of trading) on the day.Tata Consumer Products (TATACONS IN) has been included in the index and replaces Gail India Ltd (GAIL IN). This is in line with what we expected and makes Tata Consumer Products (TATACONS IN) the fifth Tata group company to be included in the index.NSE indices have also announced a number of changes to other indices. There are 7 changes to the NIFTY Next 50 (which together with the NIFTY 50 makes up the NIFTY 100) with Adani Enterprises (ADE IN), Apollo Hospitals Enterprise (APHS IN), Gail India Ltd (GAIL IN), Jubilant Foodworks (JUBI IN), Mrf Ltd (MRF IN), Vedanta Ltd (VEDL IN) and Yes Bank (YES IN) replacing Bank Of Baroda (BOB IN), Container Corp of India (CCRI IN), General Insurance Corp Of India (GICRE IN), Hindustan Zinc (HZ IN), Oracle Financial Services (OFSS IN), Power Finance (POWF IN) and Tata Consumer Products (TATACONS IN).Changes have also been made to the index methodology. The main change from the perspective of the NIFTY Index (NIFTY INDEX) is that the index reviews will be effective after the close on the second last working day of the review month. The existing methodology specifies that the index review will be effective after the close on the F&amp;O expiry day (last Thursday) of the review month.This Insight has been marked as Bullish since TATACONS could outperform its peers in the near term.

NIFTY50 Index Rebalance: TATACONS In, GAIL Out; Methodology Changes Too

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

The Government of India has been divesting its stake in Central Public Sector Enterprises (CPSE) and other public companies held by the Specified Undertaking of the Unit Trust of India (SUUTI) through the ETF route via the <a href="https://www.smartkarma.com/entities/cpse-etf" target="_blank" rel="noopener" data-smartkarma-citation="entities:28191:1">R* Shares CPSE ETF (CPSEBE IN)</a> and <a href="https://www.smartkarma.com/entities/bharat-22-etf" target="_blank" rel="noopener" data-smartkarma-citation="entities:28307:1">BHARAT 22 ETF (ICICIB22 IN)</a> ETFs.Since launch, the <a href="https://www.smartkarma.com/entities/cpse-etf" target="_blank" rel="noopener" data-smartkarma-citation="entities:28191:1">R* Shares CPSE ETF (CPSEBE IN)</a> ETF has raised INR 665bn while the <a href="https://www.smartkarma.com/entities/bharat-22-etf" target="_blank" rel="noopener" data-smartkarma-citation="entities:28307:1">BHARAT 22 ETF (ICICIB22 IN)</a> ETF has raised INR 416bn. The AUM for the two ETFs as of the end of January 2020 is INR 90.75bn and INR 67.53bn respectively.With the Government looking to raise funds from divestments to bridge the fiscal deficit, we look at the relevance of the ETFs in meeting this objective and identify stocks that would need to be excluded from the indices for the Government to continue with further fund offerings.

The Government of India has been divesting its stake in Central Public Sector Enterprises (CPSE) and other public companies held by the Specified Undertaking of the Unit Trust of India (SUUTI) through the ETF route via the R* Shares CPSE ETF (CPSEBE IN) and BHARAT 22 ETF (ICICIB22 IN) ETFs.Since launch, the R* Shares CPSE ETF (CPSEBE IN) ETF has raised INR 665bn while the BHARAT 22 ETF (ICICIB22 IN) ETF has raised INR 416bn. The AUM for the two ETFs as of the end of January 2020 is INR 90.75bn and INR 67.53bn respectively.With the Government looking to raise funds from divestments to bridge the fiscal deficit, we look at the relevance of the ETFs in meeting this objective and identify stocks that would need to be excluded from the indices for the Government to continue with further fund offerings.

India - The Future of CPSE and BHARAT22 ETFs & Potential Rebalance Candidates

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

Chang Chun Eurasia Group Co. / Equity Bottom-Up

Market Insights with Eurasia Group - US-China Phase 1 deal a limited truce rather than peace

The Government of India has already blown through the estimated full year fiscal deficit in the first seven months of the financial year due to lower than expected revenues and higher expenditure. To bridge the fiscal deficit and keep it within 3.4% of GDP, the Government is looking to sell its stakes in various PSUs to raise cash.From announcements made so far, the Government is looking to sell stakes in <a href="https://www.smartkarma.com/entities/bharat-petroleum-corp-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:10222:1">Bharat Petroleum Corp (BPCL IN)</a>, <a href="https://www.smartkarma.com/entities/container-corp-of-india-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:17912:1">Container Corp Of India (CCRI IN)</a> and <a href="https://www.smartkarma.com/entities/shipping-corp-of-india-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:2396:1">Shipping Corp Of India (SCI IN)</a>. <a href="https://www.smartkarma.com/entities/bharat-petroleum-corp-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:10222:1">Bharat Petroleum Corp (BPCL IN)</a> and <a href="https://www.smartkarma.com/entities/shipping-corp-of-india-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:2396:1">Shipping Corp Of India (SCI IN)</a> have rallied on news of privatisation and removal of the overhang of piecemeal divestment.In this Insight, we look at other stocks that the Government of India holds majority stakes in that they could sell. This should cause some of the stocks to re-rate and could provide decent returns to investors.

The Government of India has already blown through the estimated full year fiscal deficit in the first seven months of the financial year due to lower than expected revenues and higher expenditure. To bridge the fiscal deficit and keep it within 3.4% of GDP, the Government is looking to sell its stakes in various PSUs to raise cash.From announcements made so far, the Government is looking to sell stakes in Bharat Petroleum Corp (BPCL IN), Container Corp Of India (CCRI IN) and Shipping Corp Of India (SCI IN). Bharat Petroleum Corp (BPCL IN) and Shipping Corp Of India (SCI IN) have rallied on news of privatisation and removal of the overhang of piecemeal divestment.In this Insight, we look at other stocks that the Government of India holds majority stakes in that they could sell. This should cause some of the stocks to re-rate and could provide decent returns to investors.

India

Container Corporation of India Limited supplies railway cargo services, via its fleet of container trains.  The Company also provides bonded warehousing services.

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Container Corp of India (CCRI IN)

NIFTY50 Index Rebalance: TATACONS In, GAIL Out; Methodology Changes Too

TATACONS has been added to the NIFTY50 replacing GAIL. There are changes to a bunch of other indices too and methodology changes which shift the...

Brian Freitas

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

India - The Future of CPSE and BHARAT22 ETFs & Potential Rebalance Candidates

The Government of India has been divesting its stake in Central Public Sector Enterprises (CPSE) and other public companies held by the Specified...

Brian Freitas

Market Insights with Eurasia Group - US-China Phase 1 deal a limited truce rather than peace

The recent conclusion of a US-China “Phase 1” trade deal signals a limited truce that will likely last through the US...

Singapore Exchange Ltd (SGX)

India - Stake Sale Candidate Shortlist

The Government of India has already blown through the estimated full year fiscal deficit in the first seven months of the financial year due to...

Brian Freitas

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