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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<p>Post market close on 23 August, the Index Maintenance Sub-Committee (IMSC) of NSE Indices announced the results of the September index review for the NIFTY family of indices. The rebalance will be effective after the close of trading on 29 September and passive funds will need to trade at the close (VWAP over the last 30 minutes of trading) on the day.</p><p>There are no changes to 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>, in line with what we expected.</p><p>There are 5 changes to the NIFTY Next 50 Index. <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/cholamandalam-investment-and-finance" target="_blank" data-smartkarma-citation="entities:17583:1" rel="noopener">Cholamandalam Investment and Finance (CIFC IN)</a>, <a href="https://www.smartkarma.com/entities/jindal-steel-power-ltd" target="_blank" data-smartkarma-citation="entities:6614:1" rel="noopener">Jindal Steel &amp; Power (JSP IN)</a>, <a href="https://www.smartkarma.com/entities/pi-industries-ltd" target="_blank" data-smartkarma-citation="entities:6040:1" rel="noopener">Pi Industries (PI IN)</a> and <a href="https://www.smartkarma.com/entities/steel-authority-of-india" target="_blank" data-smartkarma-citation="entities:14323:1" rel="noopener">Steel Authority of India (SAIL IN)</a> will be included in the index, while <a href="https://www.smartkarma.com/entities/abbott-india-ltd" target="_blank" data-smartkarma-citation="entities:9687:1" rel="noopener">Abbott India (BOOT IN)</a>, <a href="https://www.smartkarma.com/entities/alkem-laboratories-ltd" target="_blank" data-smartkarma-citation="entities:26928:1" rel="noopener">Alkem Laboratories Ltd (ALKEM 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/petronet-lng-ltd" target="_blank" data-smartkarma-citation="entities:15235:1" rel="noopener">Petronet LNG (PLNG IN)</a> and <a href="https://www.smartkarma.com/entities/united-breweries-ltd" target="_blank" data-smartkarma-citation="entities:18080:1" rel="noopener">United Breweries (UBBL IN)</a> will be deleted from the index.</p><p>While the headline impact in terms of ADV looks low, a look at the impact compared to the delivery volumes paints a different picture.</p><p>There are a whole bunch of changes to constituents of other indices too. However, the assets tracking these indices are small and there will be negligible impact on the stocks.</p><p>There is an expansion of the index universe for the NIFTY indices with REITs and Infrastructure Investment Trusts (InvITs) becoming eligible for inclusion in the indices.</p>

Post market close on 23 August, the Index Maintenance Sub-Committee (IMSC) of NSE Indices announced the results of the September index review for the NIFTY family of indices. The rebalance will be effective after the close of trading on 29 September and passive funds will need to trade at the close (VWAP over the last 30 minutes of trading) on the day.There are no changes to the NIFTY Index (NIFTY INDEX), in line with what we expected.There are 5 changes to the NIFTY Next 50 Index. Bank Of Baroda (BOB IN), Cholamandalam Investment and Finance (CIFC IN), Jindal Steel &amp; Power (JSP IN), Pi Industries (PI IN) and Steel Authority of India (SAIL IN) will be included in the index, while Abbott India (BOOT IN), Alkem Laboratories Ltd (ALKEM IN), Mrf Ltd (MRF IN), Petronet LNG (PLNG IN) and United Breweries (UBBL IN) will be deleted from the index.While the headline impact in terms of ADV looks low, a look at the impact compared to the delivery volumes paints a different picture.There are a whole bunch of changes to constituents of other indices too. However, the assets tracking these indices are small and there will be negligible impact on the stocks.There is an expansion of the index universe for the NIFTY indices with REITs and Infrastructure Investment Trusts (InvITs) becoming eligible for inclusion in the indices.

NIFTY NEXT50 Index Rebalance: More Beneath The Surface

External broker reports(aggregated public sources), Geojit BNP Paribas

Geojit

External broker reports(aggregated public sources)

Equity Bottom-Up

<p>LNG demand is expected to grow further in fertilizer, refining and transport sectors. Petronet's overall performance is recovering to preCOVID levels. We remain positive on the stock with strong momentum in demand/volumes and healthy pipeline. Hence, we reiterate our BUY rating with a revised TP of Rs. 272 based on 12.0x FY23E adj. EPS. Strong performance supported by demand recovery Consolidated revenues for Q1FY22 grew 13.5% QoQ (+76.1% YoY) to Rs. 8,598cr with volumes maintained at 209 TBTU levels (vs.</p><div class="content-highlight"><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></div>

LNG demand is expected to grow further in fertilizer, refining and transport sectors. Petronet's overall performance is recovering to preCOVID levels. We remain positive on the stock with strong momentum in demand/volumes and healthy pipeline. Hence, we reiterate our BUY rating with a revised TP of Rs. 272 based on 12.0x FY23E adj. EPS. Strong performance supported by demand recovery Consolidated revenues for Q1FY22 grew 13.5% QoQ (+76.1% YoY) to Rs. 8,598cr with volumes maintained at 209 TBTU levels (vs.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Petronet LNG: Strong Quarter; Outlook Intact

Event-Driven

<div><p>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.</p></div><div>
<p>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.</p>
<p>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.</p>
<p>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.</p>
</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.
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

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

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Quantitative Analysis

<p>We have devised a few screens to identify long opportunities in the Indian markets. While there are different investment strategies out there, we have focused on catering to three key portfolio strategies: 1) Quality &amp; Growth 2) Income/Dividend Generation and 3) Value. These strategies resonate with our own investment approach and we regularly refer to these screens for our own idea generation.</p>
<p>Below we provide an overview of methodology used and backtest results for each of the screens followed by companies flagged by our screener for each strategy.</p>
<h3><strong>What's Unique?</strong></h3>
<p>Most screens tend to use a plethora of parameters whereas we have relied on 2-3 key parameters determined based on our back testing analysis that uses 7 years of historical data as of 2010. We originally started with multiple variables to devise our screen but eliminated variables that provided limited value addition as guided by back tested results. To filter out noise and any cyclical impact in determining trends, we have used averages across long periods ranging from 3 to 7 years, as appropriate.</p>

We have devised a few screens to identify long opportunities in the Indian markets. While there are different investment strategies out there, we have focused on catering to three key portfolio strategies: 1) Quality &amp; Growth 2) Income/Dividend Generation and 3) Value. These strategies resonate with our own investment approach and we regularly refer to these screens for our own idea generation.
Below we provide an overview of methodology used and backtest results for each of the screens followed by companies flagged by our screener for each strategy.
What's Unique?
Most screens tend to use a plethora of parameters whereas we have relied on 2-3 key parameters determined based on our back testing analysis that uses 7 years of historical data as of 2010. We originally started with multiple variables to devise our screen but eliminated variables that provided limited value addition as guided by back tested results. To filter out noise and any cyclical impact in determining trends, we have used averages across long periods ranging from 3 to 7 years, as appropriate.

Attractive Fishing Areas | India - What's Screening Well?

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

<ul>
<li>The fallout from the Oil price wars has sent Energy allocations in GEM active portfolios towards their all-time lows. The average EM fund now holds a 4.33% weight in Energy stocks, close to the low of 4.06% in December 2015.</li>
<li>Sentiment in EM Energy stocks is by far the worst of any sector, with positioning at the very low end of the historical range, coupled with negative manager activity since the end of 2019.</li>
<li>Allocations are dominated by the BRIC nations of Russia, India, China and Brazil. Together, they account for 83% of all exposure in the Energy sector and are the mostly widely held countries by far.</li>
<li>On a company level, <a href="https://www.smartkarma.com/entities/lukoil-pjsc-2bfe0130-461e-4ff3-af12-93bec12e6325" target="_blank" data-smartkarma-citation="entities:27148:1" rel="noopener">LUKOIL (LKOH RM)</a> and <a href="https://www.smartkarma.com/entities/cnooc-ltd" target="_blank" data-smartkarma-citation="entities:175:1" rel="noopener">CNOOC Ltd (883 HK)</a> are the most widely owned stocks, held by 57% and 39% of funds respectively. <a href="https://www.smartkarma.com/entities/lukoil-pjsc-2bfe0130-461e-4ff3-af12-93bec12e6325" target="_blank" data-smartkarma-citation="entities:27148:1" rel="noopener">LUKOIL (LKOH RM)</a> is the only significant overweight holding (+0.32%) whilst GEM managers hold sizeable underweights in <a href="https://www.smartkarma.com/entities/gazprom-pjsc-6a7231a9-d5e4-4da4-bf21-aa1b9d50fbf8" target="_blank" data-smartkarma-citation="entities:27578:1" rel="noopener">Gazprom PJSC (GAZP RM)</a> (-0.33%) and <a href="https://www.smartkarma.com/entities/reliance-industries-ltd" target="_blank" data-smartkarma-citation="entities:198:1" rel="noopener">Reliance Industries (RIL IN)</a> (-0.38%).</li>
<li>On a style basis, holding levels are largely correlated to investor style, with Value funds the largest Energy holders followed by Yield, GARP and Growth investors. All style groups are holding close to their lowest allocations in Energy since 2007.  </li>
<li>
<a href="https://www.smartkarma.com/entities/lukoil-pjsc-2bfe0130-461e-4ff3-af12-93bec12e6325" target="_blank" data-smartkarma-citation="entities:27148:1" rel="noopener">LUKOIL (LKOH RM)</a> and <a href="https://www.smartkarma.com/entities/reliance-industries-ltd" target="_blank" data-smartkarma-citation="entities:198:1" rel="noopener">Reliance Industries (RIL IN)</a> are emerging as the favorite stocks among EM investors and have seen funds buying in to recent weakness.  They are both also notable holdings among Aggressive Growth and Growth investors. <a href="https://www.smartkarma.com/entities/cnooc-ltd" target="_blank" data-smartkarma-citation="entities:175:1" rel="noopener">CNOOC Ltd (883 HK)</a> is preferred by the more Value oriented funds</li>
</ul>


The fallout from the Oil price wars has sent Energy allocations in GEM active portfolios towards their all-time lows. The average EM fund now holds a 4.33% weight in Energy stocks, close to the low of 4.06% in December 2015.
Sentiment in EM Energy stocks is by far the worst of any sector, with positioning at the very low end of the historical range, coupled with negative manager activity since the end of 2019.
Allocations are dominated by the BRIC nations of Russia, India, China and Brazil. Together, they account for 83% of all exposure in the Energy sector and are the mostly widely held countries by far.
On a company level, LUKOIL (LKOH RM) and CNOOC Ltd (883 HK) are the most widely owned stocks, held by 57% and 39% of funds respectively. LUKOIL (LKOH RM) is the only significant overweight holding (+0.32%) whilst GEM managers hold sizeable underweights in Gazprom PJSC (GAZP RM) (-0.33%) and Reliance Industries (RIL IN) (-0.38%).
On a style basis, holding levels are largely correlated to investor style, with Value funds the largest Energy holders followed by Yield, GARP and Growth investors. All style groups are holding close to their lowest allocations in Energy since 2007.  

LUKOIL (LKOH RM) and Reliance Industries (RIL IN) are emerging as the favorite stocks among EM investors and have seen funds buying in to recent weakness.  They are both also notable holdings among Aggressive Growth and Growth investors. CNOOC Ltd (883 HK) is preferred by the more Value oriented funds


EM Energy:  Sentiment Depressed.  Reliance Industries/Lukoil Bucking the Trend

India

Petronet LNG Ltd. was formed by the Government of India to import liquefied natural gas (LNG) into the country. The Company is a joint venture between GAIL, ONGC, IOC and BPCL. Petronet LNG has also selected GAZ de France as a strategic partner. The Company has set up LNG receiving ports in Dahej (Gujarat) and Kochi (Kerala).

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Petronet LNG (PLNG IN)

NIFTY NEXT50 Index Rebalance: More Beneath The Surface

There are 5 changes to the NIFTY Next 50 Index that will be implemented at the close on 29 September. The impact is quite large compared to the...

Brian Freitas

Petronet LNG: Strong Quarter; Outlook Intact

LNG demand is expected to grow further in fertilizer, refining and transport sectors. Petronet's overall performance is recovering to preCOVID...

Geojit

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

Attractive Fishing Areas | India - What's Screening Well?

We have devised a few screens to identify long opportunities in the Indian markets. While there are different investment strategies out there, we...

Ankit Agrawal, CFA

EM Energy: Sentiment Depressed. Reliance Industries/Lukoil Bucking the Trend

The fallout from the Oil price wars has sent Energy allocations in GEM active portfolios towards their all-time lows. The average EM fund now...

Steven Holden

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