Brief Growth Ideas: Active Vs Passive Investing in the Indian Context and more

In this briefing:

  1. Active Vs Passive Investing in the Indian Context
  2. Trade/Investment Ideas from 2019/20 IPOs
  3. Micron: Great Quarter, but Outlook Is Confusing
  4. Celgene’s Abraxane Banned in China By NMPA; Buy CSPC on Additional Volume Upsides
  5. Panasonic Suspends Production at Its Gigafactory: The Tesla-Effect on Panasonic Again?

1. Active Vs Passive Investing in the Indian Context

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With the market rallying at the beginning of the year and then falling faster, we decided to take a look at how large cap Indian mutual fund schemes have performed against their benchmark in the move up and then in the fall.

We have looked at the ten biggest large cap schemes from 3 October 2019 to 24 March 2020 to see how they perform against their benchmarks. On average, performance has been in line with the benchmark with some ETFs performing much better than the benchmark and some much worse.

As investor preferences shift from active to passive, fund houses that manage a larger proportion of passive funds should benefit at the expense of mutual funds that mainly run active schemes.

2. Trade/Investment Ideas from 2019/20 IPOs

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Since the start of 2019 till date, we have covered 96 IPOs. Despite the market turmoil over the past two months, over a third, or 40 IPOs remain above their listing price. 

In this insight, we’ll take a quick look at the universe overall and how some of the IPOs in Hong Kong have been fairing. 

3. Micron: Great Quarter, but Outlook Is Confusing

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In Micron’s earnings call today the company revealed that its second fiscal quarter hit the top of the company’s guidance, and would have exceed that guidance had COVID-19 not occurred.  The company then gave a very cautious outlook for the current quarter.

Overall, though, Micron appears to be doing a laudable job of preparing for any challenges that the market may experience.

4. Celgene’s Abraxane Banned in China By NMPA; Buy CSPC on Additional Volume Upsides

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Last night, the NMPA banned the importation, sales and use of Albumin-bound paclitaxel (Abraxane) from Celgene Celgene Corp (CELG US) and BeiGene BeiGene (BGNE US)BeiGene Ltd (6160 HK), due to some key production facilities do not meet the basic standards.  With such suspension, CSPC CSPC Pharmaceutical Group (1093 HK) and Hengrui Medicines Jiangsu Hengrui Medicine Co., (600276 CH) are likely to benefit from the additional market share. While we think the valuation of Hengrui is undesirable now, we believe there are more upsides on CSPC, trading at 18x forward P/E, 10% discount to 10 years average of 20x with a bottom line CAGR of 20-25% in the next few years.  

5. Panasonic Suspends Production at Its Gigafactory: The Tesla-Effect on Panasonic Again?

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Last week it was reported that Panasonic Corp (6752 JP) and Tesla Motors (TSLA US)’s Gigafactory 1 in Nevada, will close for 14 days after March 23. Tesla also announced that it will suspend its assembly plant for finished cars in California. Panasonic did not comment on the effect the production stoppage will have on its battery production levels.

During the 3Q earnings release, Panasonic reported that its Gigafactory with Tesla generated profits. It was expected that as Tesla’s production volume increases Panasonic should be able to stabilise profits from its battery business. While this is true to an extent, we have always considered Tesla’s volatility to be a risk for Panasonic (this time the volatility seems to have come from the virus outbreak).

Our key points:

  • Panasonic stops production at Gigafactory. This is likely to have short term impact on the company’s earnings.
  • However, Toyota, on the other hand, continues its investment plans in China for EVs.
  • Panasonic’s and Toyota’s factories in China are not affected by the COVID pandemic.
  • We believe that given Toyota’s partnership with Panasonic, the latter’s battery business in China is less likely to take a significant hit due to the ongoing virus outbreak.
  • Short term risks do exist, but we like the company for their strengthening ties with Toyota

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