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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Index Rebalance

<ul>
<li>Today is the last day of the review period for the June review of the <a href="https://www.smartkarma.com/entities/s-p-bse-sensex-index" target="_blank" data-smartkarma-citation="entities:31494:1" rel="noopener">S&amp;P BSE SENSEX Index (SENSEX INDEX)</a>. Changes become effective at the close on 17 June. </li>
<li>We see <a href="https://www.smartkarma.com/entities/tata-motors-ltd" target="_blank" data-smartkarma-citation="entities:216:1" rel="noopener">Tata Motors Ltd (TTMT IN)</a> and <a href="https://www.smartkarma.com/entities/tata-motors-ltd-a-dvr" target="_blank" data-smartkarma-citation="entities:349:1" rel="noopener">Tata Motors DVR (TTMT/A IN)</a> replacing <a href="https://www.smartkarma.com/entities/dr-reddy-s-laboratories-ltd" target="_blank" data-smartkarma-citation="entities:16406:1" rel="noopener">Dr. Reddy's Laboratories (DRRD IN)</a>. <a href="https://www.smartkarma.com/entities/hindalco-industries-ltd" target="_blank" data-smartkarma-citation="entities:18490:1" rel="noopener">Hindalco Industries (HNDL IN)</a> is a close add on sector balance.</li>
<li>The impact on <a href="https://www.smartkarma.com/entities/dr-reddy-s-laboratories-ltd" target="_blank" data-smartkarma-citation="entities:16406:1" rel="noopener">DRRD IN</a> will be higher than on <a href="https://www.smartkarma.com/entities/tata-motors-ltd" target="_blank" data-smartkarma-citation="entities:216:1" rel="noopener">TTMT IN</a>, in terms of days of ADV to trade and days of delivery volume that needs to change hands.</li>
</ul>


Today is the last day of the review period for the June review of the S&amp;P BSE SENSEX Index (SENSEX INDEX). Changes become effective at the close on 17 June. 
We see Tata Motors Ltd (TTMT IN) and Tata Motors DVR (TTMT/A IN) replacing Dr. Reddy's Laboratories (DRRD IN). Hindalco Industries (HNDL IN) is a close add on sector balance.
The impact on DRRD IN will be higher than on TTMT IN, in terms of days of ADV to trade and days of delivery volume that needs to change hands.


SENSEX Index Rebalance Preview: Tata Motors Should Replace Dr. Reddy; Hindalco Is Close

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

<ul>
<li>The broad global indexes are decisively below our "lines in the sand" of $54 on MSCI ACWI ex-US (ACWX-US), $75.25 on MSCI EAFE (EFA-US), and $99 on MSCI ACWI (ACWI-US).</li>
<li>As noted in our Feb. 15 Int'l Macro Vision, we are bearish at the index level as long as we are below the aforementioned levels.</li>
<li>Global 10-year sovereign yields remain elevated, leading to outperformance from value Sectors (Energy/Materials/Financials) which remain our preferred area of the market. We also continue to like defensive areas, especially Staples.</li>
</ul>


The broad global indexes are decisively below our "lines in the sand" of $54 on MSCI ACWI ex-US (ACWX-US), $75.25 on MSCI EAFE (EFA-US), and $99 on MSCI ACWI (ACWI-US).
As noted in our Feb. 15 Int'l Macro Vision, we are bearish at the index level as long as we are below the aforementioned levels.
Global 10-year sovereign yields remain elevated, leading to outperformance from value Sectors (Energy/Materials/Financials) which remain our preferred area of the market. We also continue to like defensive areas, especially Staples.


Buying Metals/Mining and Consumer Staples

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)

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> has, for the last year, been subject to dramatic corporate actions which have roiled the share price, and expectations. The launch last May of a Delisting Proposal by the promoters when the shares were trading sub Rs. 90/share led to a rally in the shares which could not even track peer stock performance, and when the Delisting Proposal failed, shares dropped to a dramatically low level, despite the fact that Vedanta owned its shareholders a substantial dividend from the pay-through of dividends from <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>. As commodity prices continued to rally, and VEDL paid a big dividend in October 2020, it looked like the time to double-up. Everyone "knew" the promoters were willing to pay 40-50% than the post-Delisting Proposal failure to take the whole thing private. I expected a buyback. 10 days after the CEO said "we have no plans to buy more shares" we got an off-market block purchase of 5% by the promoters in December at Rs 160, followed a couple of weeks later by a proposed Open Offer to buy another 10%, which was later upsized and up-priced - by 47%, and still the Promoters could only get 10% of the 17.5% they sought to buy. A month on from that and the shares are nearly 10% higher than the Open Offer Price while a Peer Basket is largely unchanged from two months back. This means VEDL shares are again (as they were just before  at their high point against Peers since pre-pandemic. The current situation of covid-19 and variant spread in India is terrible and one could imagine that some drastic measures may still be taken to contain the spread, which could slow down the economy dramatically. The 70% catchup vs peers to reach the December 2019 level (as of post-Delisting Proposal failure) has now been caught up. The VEDL 2-3yr forward EV/EBIT ratio is now less than 1 turn from its long-term average spread to peers. More below the fold.

Vedanta Ltd (VEDL IN) has, for the last year, been subject to dramatic corporate actions which have roiled the share price, and expectations. The launch last May of a Delisting Proposal by the promoters when the shares were trading sub Rs. 90/share led to a rally in the shares which could not even track peer stock performance, and when the Delisting Proposal failed, shares dropped to a dramatically low level, despite the fact that Vedanta owned its shareholders a substantial dividend from the pay-through of dividends from Hindustan Zinc (HZ IN). As commodity prices continued to rally, and VEDL paid a big dividend in October 2020, it looked like the time to double-up. Everyone "knew" the promoters were willing to pay 40-50% than the post-Delisting Proposal failure to take the whole thing private. I expected a buyback. 10 days after the CEO said "we have no plans to buy more shares" we got an off-market block purchase of 5% by the promoters in December at Rs 160, followed a couple of weeks later by a proposed Open Offer to buy another 10%, which was later upsized and up-priced - by 47%, and still the Promoters could only get 10% of the 17.5% they sought to buy. A month on from that and the shares are nearly 10% higher than the Open Offer Price while a Peer Basket is largely unchanged from two months back. This means VEDL shares are again (as they were just before  at their high point against Peers since pre-pandemic. The current situation of covid-19 and variant spread in India is terrible and one could imagine that some drastic measures may still be taken to contain the spread, which could slow down the economy dramatically. The 70% catchup vs peers to reach the December 2019 level (as of post-Delisting Proposal failure) has now been caught up. The VEDL 2-3yr forward EV/EBIT ratio is now less than 1 turn from its long-term average spread to peers. More below the fold.  

Vedanta Now Caught Up With Peers - A Different Skew Ahead

David Blennerhassett

Thematic (Sector/Industry)

Asia is the focal region globally where nuclear power is growing significantly to meet its increasing demand for clean electricity. There are approximately 135 operable nuclear power reactors, with 35 under construction - around two-thirds of the reactors under construction worldwide. China is the clear leader in nuclear generation growth.
There were divergent responses to the Fukushima accident, leading some countries to reassess their long-term domestic energy policy, while others experienced a short-term pause, before continuing with long-term strategies, with few to no changes. 
The debate is ongoing whether nuclear power is a safe energy source for mitigating global climate change, or presents an unnecessary risk, given past disasters, coupled with the unavoidable by-product of radioactive waste. Additionally, renewable energy such as solar and wind has become increasingly competitive and sustainable.
For countries such as China, India, and South Korea, there remain solid economic reasons for the expansion of global nuclear power, and its role in lowering emissions from energy production.
The vast majority of nuclear power plants in Asia are operated by unlisted government entities; or in Japan, the bulk of reactors remain in shutdown mode after Fukushima.
<a href="https://www.smartkarma.com/entities/cgn-power-co-ltd-h" target="_blank" data-smartkarma-citation="entities:58:1" rel="noopener">CGN Power Co Ltd H (1816 HK)</a> is one of the few listed nuclear pure-plays in Asia, and trades at undemanding multiples, together with an attractive ROE and yield.
<div class="content-highlight">
What's Original?
This insight presents a comprehensive view of the Asian nuclear energy industry, and its value chain
</div>

Asia is the focal region globally where nuclear power is growing significantly to meet its increasing demand for clean electricity. There are approximately 135 operable nuclear power reactors, with 35 under construction - around two-thirds of the reactors under construction worldwide. China is the clear leader in nuclear generation growth.
There were divergent responses to the Fukushima accident, leading some countries to reassess their long-term domestic energy policy, while others experienced a short-term pause, before continuing with long-term strategies, with few to no changes. 
The debate is ongoing whether nuclear power is a safe energy source for mitigating global climate change, or presents an unnecessary risk, given past disasters, coupled with the unavoidable by-product of radioactive waste. Additionally, renewable energy such as solar and wind has become increasingly competitive and sustainable.
For countries such as China, India, and South Korea, there remain solid economic reasons for the expansion of global nuclear power, and its role in lowering emissions from energy production.
The vast majority of nuclear power plants in Asia are operated by unlisted government entities; or in Japan, the bulk of reactors remain in shutdown mode after Fukushima.
CGN Power Co Ltd H (1816 HK) is one of the few listed nuclear pure-plays in Asia, and trades at undemanding multiples, together with an attractive ROE and yield.

What's Original?
This insight presents a comprehensive view of the Asian nuclear energy industry, and its value chain


Asian Nuclear Energy Industry: The Value Chain

India

National Aluminium Co. Ltd. is an integrated aluminum manufacturer. The Company mines for bauxite, refines bauxite into aluminum and manufactures and sells aluminum and aluminum products. National Aluminium Company's products include bauxite, aluminum hydrate, calcined aluminum, aluminum ingots and aluminum wire rods, as well as electricity which is generated for captive consumption.

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National Aluminium (NACL IN)

SENSEX Index Rebalance Preview: Tata Motors Should Replace Dr. Reddy; Hindalco Is Close

Tata Motors should replace Dr Reddy at the June rebalance. Hindalco is an alternate add on sector balance. Passives will need to trade 4-7 days of...

Brian Freitas

Buying Metals/Mining and Consumer Staples

Commodity prices remain in a secular bull market, and now even gold is joining the rally. This is bullish for global metals/mining stocks (precious...

Vermilion Research

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

Vedanta Now Caught Up With Peers - A Different Skew Ahead

VEDL has been a rocket the last several months. And it still "owes" dividends of ~Rs 24/share to its shareholders. HZL results were salutary, but...

Travis Lundy

Asian Nuclear Energy Industry: The Value Chain

China leads the world in nuclear generation growth. CGN Power appears undemanding at 7.8x PER and 1.4x PB, with a 10.6% ROE (vs. 9% for peers). A...

David Blennerhassett

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