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

Consumer Analyst / Channel Surveillance Specialist, Trudence Capital Advisors

Pranav Bhavsar

Consumer Analyst / Channel Surveillance Specialist

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

Across time horizons short positions or an underweight holding of <a href="https://www.smartkarma.com/entities/britannia-industries-ltd" target="_blank" data-smartkarma-citation="entities:16495:1" rel="noopener">Britannia Industries (BRIT IN)</a> has continued to pay off. BRIT's core issues have been highlighted in our earlier insights <a href="https://www.smartkarma.com/insights/the-biscuit-economy-key-takeaways-from-britannia-parle-distributor-interactions" target="_blank" data-smartkarma-citation="insights:31997" rel="noopener">The Biscuit Economy - Key Takeaways from Britannia &amp; Parle Distributor Interactions</a> and <a href="https://www.smartkarma.com/insights/britannia-brit-in-risk-of-underperformance-looms" target="_blank" data-smartkarma-citation="insights:32662" rel="noopener">Britannia (BRIT IN) | Risk of Underperformance Looms</a>.
Our recent channel interactions with distributors suggest that <a href="https://www.smartkarma.com/entities/britannia-industries-ltd" target="_blank" data-smartkarma-citation="entities:16495:1" rel="noopener">Britannia Industries (BRIT IN)</a> continues to remain a story of EPS rather than one of revenue.  As structural pain points in the industry continue to persist, revenue growth is likely to remain challenging in the near future. A short/underweight position on <a href="https://www.smartkarma.com/entities/britannia-industries-ltd" target="_blank" data-smartkarma-citation="entities:16495:1" rel="noopener">Britannia Industries (BRIT IN) </a>is expected to continue paying off.

Across time horizons short positions or an underweight holding of Britannia Industries (BRIT IN) has continued to pay off. BRIT's core issues have been highlighted in our earlier insights The Biscuit Economy - Key Takeaways from Britannia &amp; Parle Distributor Interactions and Britannia (BRIT IN) | Risk of Underperformance Looms.
Our recent channel interactions with distributors suggest that Britannia Industries (BRIT IN) continues to remain a story of EPS rather than one of revenue.  As structural pain points in the industry continue to persist, revenue growth is likely to remain challenging in the near future. A short/underweight position on Britannia Industries (BRIT IN) is expected to continue paying off.

Britannia (BRIT IN) | Short / Underweight Position Is Likely to Continue Paying Off

Value investor- India mid & small caps

Bhaskar Chakraborty

Motilal Oswal Financial Services / Equity Bottom-Up

Motilal Oswal Financial Services (MOFS IN)

<ul><li><a href="https://www.smartkarma.com/entities/2023" target="_blank" data-smartkarma-citation="entities:2023:1">Motilal Oswal Financial Services Limited (MOFS IN)</a>’s affordable housing finance business- Aspire Home Finance- reports further deterioration in asset quality in 4QFY18. Overall slippages reach 6% of loan book in only its third year of operation.</li><li>The home loan book is unseasoned with more than 50% of the loans less than 2 years old. Company said asset quality will continue to deteriorate over 1HFY19 before stabilizing in 2HFY19.</li><li>Loan book declined QoQ for the first time, disbursements declined 40% YoY in FY18, costs are increasing and company reported losses for the first time in 4QFY18.</li><li>RBI’s recent report on Affordable Housing finance market noted that the segment is growing much faster than the overall home loan market and the segment has many-fold higher NPAs than the higher ticket segments. Aspire’s NNPA’s are the highest in the affordable housing category.</li></ul>

Motilal Oswal Financial Services Limited (MOFS IN)’s affordable housing finance business- Aspire Home Finance- reports further deterioration in asset quality in 4QFY18. Overall slippages reach 6% of loan book in only its third year of operation.The home loan book is unseasoned with more than 50% of the loans less than 2 years old. Company said asset quality will continue to deteriorate over 1HFY19 before stabilizing in 2HFY19.Loan book declined QoQ for the first time, disbursements declined 40% YoY in FY18, costs are increasing and company reported losses for the first time in 4QFY18.RBI’s recent report on Affordable Housing finance market noted that the segment is growing much faster than the overall home loan market and the segment has many-fold higher NPAs than the higher ticket segments. Aspire’s NNPA’s are the highest in the affordable housing category.

Motilal Oswal's Affordable Housing Finance Business Continues to Struggle

IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

ICICI Securities / Equity Capital Markets

Summary: <a href="https://www.smartkarma.com/entities/26737" target="_blank" data-smartkarma-citation="entities:26737:1">ICICI Securities Ltd (1191Z IN)</a> plans to IPO at the end of February. ICICI is the largest retail and institutional securities brokerage in India, based on turnover (Source: IPO prospectus). ICICI securities are a subsidiary of ICICI Bank, the largest private lender in India (Source: Global Capital). We note four points ahead of its IPO:<ol><li>Key stats – a major retail brokerage</li><li>ICICI slightly underperforming peers while customer reviews are average</li><li>The secular move towards stocks from gold/real-estate provides structural support</li><li>Rising earnings and returns not translating into cash generation</li></ol>Global Equity Research view: We believe the fundamentals for ICICI securities are mixed. On the positive side, earnings and ROE development have been robust while ICICI benefits from a secular tailwind of incrementally more consumers investing in the stock market. This is offset by sluggish trade vs. competitors, average customer reviews and weak free cash flow generation. We intend to take a more definitive view on the deal once we receive terms of the deal sheet.

Summary: ICICI Securities Ltd (1191Z IN) plans to IPO at the end of February. ICICI is the largest retail and institutional securities brokerage in India, based on turnover (Source: IPO prospectus). ICICI securities are a subsidiary of ICICI Bank, the largest private lender in India (Source: Global Capital). We note four points ahead of its IPO:Key stats – a major retail brokerageICICI slightly underperforming peers while customer reviews are averageThe secular move towards stocks from gold/real-estate provides structural supportRising earnings and returns not translating into cash generationGlobal Equity Research view: We believe the fundamentals for ICICI securities are mixed. On the positive side, earnings and ROE development have been robust while ICICI benefits from a secular tailwind of incrementally more consumers investing in the stock market. This is offset by sluggish trade vs. competitors, average customer reviews and weak free cash flow generation. We intend to take a more definitive view on the deal once we receive terms of the deal sheet.

ICICI Securities IPO Preview – from Gold to Stocks? A Trade on the Modern Indian Investor

Small & Mid Cap focused Value Investor

Gokul Raj. P

Elevator Pitch:I believe that IIFL Holdings is one of the major beneficiaries of the structural shift from physical savings to financial savings in India. Unlike most other well run private financials, IIFL Holdings continues to trade at reasonable valuations (14X trailing Earnings and 2X trailing Book value). There are enough reasons to believe that markets have still not priced in the ongoing quality transformation of IIFL's book and the potential opportunity size for its non-lending business…

Elevator Pitch:I believe that IIFL Holdings is one of the major beneficiaries of the structural shift from physical savings to financial savings in India. Unlike most other well run private financials, IIFL Holdings continues to trade at reasonable valuations (14X trailing Earnings and 2X trailing Book value). There are enough reasons to believe that markets have still not priced in the ongoing quality transformation of IIFL's book and the potential opportunity size for its non-lending business…

IIFL Holdings - Quality & Growth at Reasonable Valuations !!

India

Motilal Oswal Financial Services Limited is an Indian financial services company offering a diversified range of financial products and services, including wealth management, institutional and retail broking, asset management, investment banking, private equity, and home finance. The company provides services related to equity trading, commodity trading, investment advisory, and mutual funds. It is headquartered in Mumbai, India, and was founded in 1987.

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Motilal Oswal Financial Services (MOFS 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

Britannia (BRIT IN) | Short / Underweight Position Is Likely to Continue Paying Off

Our recent channel interactions with distributors suggest that Britannia remains a story of EPS rather than one of revenue. The short/underweight...

Pranav Bhavsar

Motilal Oswal's Affordable Housing Finance Business Continues to Struggle

Motilal Oswal Financial Services Limited (MOFS IN)’s affordable housing finance business- Aspire Home Finance- reports further deterioration in...

Bhaskar Chakraborty

ICICI Securities IPO Preview – from Gold to Stocks? A Trade on the Modern Indian Investor

Summary: ICICI Securities Ltd (1191Z IN) plans to IPO at the end of February. ICICI is the largest retail and institutional securities brokerage in...

Rickin Thakrar

IIFL Holdings - Quality & Growth at Reasonable Valuations !!

Elevator Pitch:I believe that IIFL Holdings is one of the major beneficiaries of the structural shift from physical savings to financial savings in...

Gokul Raj. P

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