Karvy

INVESTMENT
STRATEGY REPORT
2019
INVESTMENT
STRATEGY REPORT
2019
Vivek Ranjan Misra

040 - 3321 6296
vivekr.misra@karvy.com
Karvy Stock Broking Research is available on Thomson Reuters & Bloomberg (Code: KRVY<GO>)
INDEX
Wealth Maximizer Table...................................................................... 1
Value Invest Table................................................................................ 1
Dividend Maximizer Table................................................................... 1
Market Outlook................................................................................2-3
An Interview with Our CEO, Rajiv Singh.........................................4-6
2019 – A Year of Economic Optimism in India.................................. 7
Equity Market - 2019 Outlook....................................................... 8-14
Sector Outlook..............................................................................15-18
Automobiles................................................................................................ 15
Capital Goods & Infrastructure.............................................................. 16
Metals and Mining................................................................................ 16-17
IT Sector....................................................................................................... 18
Indian Economic Outlook.............................................................19-21
The Global Economic Outlook..................................................... 22-26
Wealth Maximizer ..............................................................................27
Bharti Infratel Ltd................................................................................ 28-29
HCL Technologies Ltd....................................................................... 30-31
Hindustan Unilever Ltd...................................................................... 32-33
ICICI Bank..............................................................................................34-35
Larsen & Toubro Ltd........................................................................... 36-37
Oil & Natural Gas Corp Ltd............................................................... 38-39
State Bank of India Ltd......................................................................40-41
Tata Motors Ltd...................................................................................42-43
UPL Ltd.................................................................................................. 44-45
Yes Bank Ltd.........................................................................................46-47
Value Invest....................................................................................... 49
Bajaj Electricals Ltd............................................................................. 50-51
Finolex Cables Ltd..............................................................................52-53
Jain Irrigation Systems Ltd...............................................................54-55
K.P.R. Mill Ltd........................................................................................56-57
Menon Bearings Ltd...........................................................................58-59
Relaxo Footwears Ltd........................................................................ 60-61
Sunteck Realty Ltd.............................................................................. 62-63
Take Solutions Ltd..............................................................................64-65
The Phoenix Mills Ltd..........................................................................66-67
Visaka Industries Ltd..........................................................................68-69
Dividend Maximizer........................................................................... 71
Dividend Maximizer Outlook..................................................................72
Bajaj Corp Ltd.............................................................................................73
Bharat Heavy Electricals Ltd.................................................................. 74
Bharti Infratel Ltd...................................................................................... 75
Graphite India Ltd..................................................................................... 76
Hero Motocorp Ltd...................................................................................77
Indiabulls Housing Finance Ltd.............................................................. 78
Indian Oil Corp Ltd................................................................................... 79
JK Tyre & Industries Ltd.......................................................................... 88
Multi Commodity Exchange of India Ltd............................................ 89
Vedanta Ltd................................................................................................90
Disclaimer.......................................................................................... 92
WEALTH MAXIMIZER
Market Cap CMP* Target Price
Company Name NSE Symbol Sector Upside (%)
(Rs. Bn.) (Rs.) (Rs.)
Bharti Infratel Ltd INFRATEL Telecom 486 263 308 17
HCL Technologies Ltd HCLTECH IT 1335 958 1167 22
Hindustan Unilever Ltd HINDUNILVR FMCG 3944 1822 2138 17
ICICI Bank Ltd ICICIBANK Banking 2323 361 440 22
Larsen & Toubro Ltd LT Infrastructure 2018 1439 1700 18
Oil & Natural Gas Corp Ltd ONGC Oil & gas 1931 151 210 39
State Bank of India Ltd SBIN Banking 2631 295 347 18
Tata Motors Ltd TATAMOTORS Automotive 540 171 259 51
UPL Ltd UPL Chemicals 386 758 1004 32
Yes Bank Ltd YESBANK Banking 420 181 410 127
VALUE INVEST
Market Cap CMP* Target Price
Company Name NSE Symbol Sector Upside (%)
(Rs. Bn.) Rs.) (Rs.)
Bajaj Electricals Ltd BAJAJELEC Electrical Equipment 51 497 670 35
Finolex Cables Ltd FINCABLES Electrical Equipment 70 459 600 31
Jain Irrigation Systems Ltd JISLJALEQS Farm Machinery & Equipment 35 69 101 46
K.P.R. Mill Ltd KPRMILL Textiles 41 565 716 27
Menon Bearings Ltd MENONBE Auto Ancillary 4 79 120 52
Relaxo Footwears Ltd RELAXO Footwear 88 732 911 24
Sunteck Realty Ltd SUNTECK Real Estate 51 348 497 43
Take Solutions Ltd TAKE IT 22 148 226 53
The Phoenix Mills Ltd PHOENIXLTD Real Estate 85 557 735 32
Visaka Industries Ltd VISAKAIND Construction Materials 7 426 750 76
DIVIDEND MAXIMIZER
Market Cap CMP* D.P.S# D.P#
Company Name NSE Symbol Sector (Rs. Bn.) (Rs.) (Rs.) (%)
Bajaj Corp Ltd BAJAJCORP Consumer Staples 53 360 13.4 77.9
Bharat Heavy Electricals Ltd BHEL Industrial Electrical Equipment 265 72 2.3 54.0
Bharti Infratel Ltd INFRATEL Telecom 486 263 11.2 89.3
Graphite India Ltd GRAPHITE Electrical Equipment 151 770 56.7 31.8
Hero MotoCorp Ltd HEROMOTOCO Automotive 624 3123 109.9 58.0
Indiabulls Housing Finance Ltd IBULHSGFIN NBFC 362 849 48.8 41.2
Indian Oil Corp Ltd IOC Oil & Gas 1342 138 8.1 43.0
JK Tyre & Industries Ltd JKTYRE Auto Ancillary 24 104 3.8 17.7
Multi Commodity Exchange of India Ltd MCX Financial Services 37 733 29.4 90.6
Vedanta Ltd VEDL Metals & Mining 741 199 14.0 44.5
*As on Dec 28, 2018, M.Cap: Market Cap, DPS: Dividend Per Share, D.P: Dividend Payout, # Bloomberg Estimates
1 KARVY INVESTMENT STRATEGY REPORT 2019

MARKET
OUTLOOK
Heading into 2019, we are in the midst of a debate about the prospects of the world economy
and whether a global recession is looming. While data certainly points to a slowdown in
growth, the Indian economy is resilient and we find ourselves relatively optimistic.
The US yield curve has flattened and the spread between the 10 year yield and 2 year yield
is 19 bps, a negative spread (or an inverted yield curve) usually points to a recession ahead.
However, more than US, data from other parts of the global economy are weak. Caixin
Manufacturing PMI for China for December 2018 dropped below 50 (came in at 49.7) the
first contraction since May 2017. Similarly, the Eurozone flash PMI dipped to 51.4 in December
2018 from 51.8 in November, the slowest pace of expansion since February 2016. Exports
from Germany, the largest economy in the Eurozone were down 0.9% in the recent quarter,
while the imports have risen by 1.3%, Germany’s economy grew by 1.1% YoY for the third
quarter 2018, last quarter Japanese economy declined by 0.6%.
However, not all is bad, in the US, consumer confidence is near an 18 year high, whereas
unemployment rate at 3.7% is at a 40 year low. This indicates that consumption will be
resilient as wages are likely to rise on account of a tight labor market. While the Chinese
economy is facing a period of weakness, continuation of the trade wars is a risk. However,
China has eased both monetary and fiscal policy. China has plenty of policy tools at its
disposal to counteract a slowdown; its FX reserves are USD 3.1 trillion, which gives it flexibility
in managing a slowdown.
Indian economy remains resilient. IMF forecasts growth for FY2019-20 to be 7.4%, which is a
strong number. What makes us optimistic about equities is that growth drivers are changing
from private consumption to investment in Q2FY2018-19; Gross Fixed Capital Formation
(GFCF) increased by 12.5% YoY recording the third consecutive quarter of double digit
growth.
This has implications for the equity markets, as corporate earnings are more dependent on
growth in capex. Earnings growth has been the missing part of the story for Indian stocks
and good corporate earnings growth should boost stocks. While liquidity in money markets
is a risk, we believe RBI is in a position to manage this risk. The resignation of the Governor
of RBI was a negative development but quick appointment of a new Governor helped, going
forward the RBI may be less hawkish with regards to monetary policy.
Exhibit: Sensex
50000
40000
30000
20000
10000
0
2010
2000
2011
2001
2014
2004
2015
2016
2018
2005
2006
2009
2008
2013
2017
2012
2003
2007
2002
Source: Bloomberg, Karvy Research

Exhibit: Performance of Indian equities relative to peers
120
110
100
90
80
Jun-18
Jun-18
Feb-18
Feb-18
Sep-18
Sep-18
Oct-18
Oct-18
Mar-18
Mar-18
Jul-18
Jul-18
Jul-18
Dec-18
Dec-18
Dec-18
Nov-18
Nov-18
Aug-18
Aug-18
Jan-18
Jan-18
Jan-18
Apr-18
Apr-18
May-18
May-18
EM EM Asia AP x JP All country
The major event risk for Indian markets is on account of elections. Unlike 2014, the political
outcome appears unclear. Due to an uncertain political outlook, 2019 may shape up to a tale
of two halves, equities moving sideways ahead of the elections. If the elections lead to a
formation of a stable, business friendly government, Nifty may end the year 2019 at 14,000.
Given this, we favour cyclical sectors, we prefer Banks, Capital Goods. Also growth should
boost Consumption Discretionary and Autos. State owned banks could be a dark horse in
2019, on account of peak in NPL cycle, recovery of NPL’s via IBC and low valuations. A broad
based economic recovery will be supportive.
We believe that over the coming quarters, large caps are likely to do better. Mid and small
caps are likely to underperform until their valuations become attractive. We believe that after
mid 2019, with decent time correction, conditions may be favourable for mid and small caps
to perform well.
- Head of Fundamental Research

Vivek Ranjan Misra

AN INTERVIEW WITH OUR CEO,
RAJIV SINGH
Q) What are the lessons for investors from 2018?
Firstly, volatility in markets has increased; over the last few years, volatility has been low on
account of the low interest rates, especially in the US, as the interest rate cycle has turned,
volatility regime is now normalizing. CBOE VIX often called the fear gauge was unusually low;
11% at the start of 2018, this has increased significantly since then and stands at 25%. Similarly,
India VIX which bottomed at 12.7% at the start of 2018, is up 2.7x and is currently at 34%. Higher
volatility is not necessarily negative; we can witness sharper moves in either direction.
The second lesson is with regard to risk- geopolitical risk has risen; a couple of examples
come to mind, the first is the emergence of trade wars between the world’s two largest
economies, the US and China. A few days back, the market believed that there had been a
truce, but recent events like the arrest of Huawei’s CFO in Canada means this is still a risk.
Secondly, the threat of sanctions on Iran had led to a sharp escalation in oil price, threatening
to derail the global economy, thankfully the world stepped back from the brink of this event.
Thirdly, themes that worked last year may not work this year. In 2017, Small and Midcaps
were a big theme, and the BSE Mid and Small cap index returns were a handsome 54%
outperforming Sensex which gave a 27% return. This theme disappointed in 2018, BSE Mid
and Small cap index declined by 20%, whereas Sensex increased by 5.9%. The lesson is to
constantly reevaluate the investment themes and be ready to make changes to your portfolio.
Fourthly, watch out for changes in regulatory and tax regime, the (re)introduction of Long
Term Capital Gains tax in the budget for FY2018-19 is a negative for investors. While at the
time of introduction in February 2018, this was widely anticipated, investors who bought
equities at the beginning of the Bull Run certainly didn’t factor this in.
Fifthly, watch out for the global economy-during the 2008 global financial crisis, India was
impacted largely on account of the financial channel rather than the direct economic impact.
India has a current account deficit (2.9% of GDP in July-September 2008 quarter), this deficit
needs to be funded by capital inflows which make India vulnerable to direction of global
capital flows. Similarly, events outside India- rise in oil prices, strengthening of the US dollar
led to a 14% correction in Nifty between August and October 2018. Global capital flows have a
major impact on Indian asset markets. As we head into 2019, fears of a global recession have
risen, and while we believe a recession is unlikely in 2019, the global economy may be slowing
down. In the coming quarters, investors need to keep a keen eye for economic data from
China, Europe, Japan and US.
Q) What is your outlook for equity markets in 2019?
We believe that 2019 may be a year of two halves-the equity market is likely to move sideways
due to the overhang of the General Elections.
Election of a stable, business friendly government can provide the next trigger to equities.
As we enter 2019, there are a number of risks, as well as positive triggers. On the whole, we
believe the positives outweigh the negatives.

While the macro outlook for India has deteriorated somewhat, but still remains strong;
growth for FY2019-20 is expected to be 7.4%. Importantly, we believe growth will be led by
Capex. Gross Fixed Capital Formation (GFCF) increased by 12.5% YoY during Q2FY19, the
third consecutive quarter of double digit growth. This is important for equity markets as it will
boost corporate earnings which can sustain the next rally in equities. In the past few years,
corporate earnings growth has been poor and a turnaround in the earnings cycle can sustain
the next rally in equities. According to the recently released RBI’s financial stability report,
gross non-performing assets (NPA) of banks decreased from 11.5% in March 2018 to 10.8% in
September 2018 and are expected to further decline to 10.3% by March 2019. This is positive
for the economy and markets. Our target for Nifty for December 2019 is 14,000.
Q) What are the risks for equities in 2019?
Domestically, the main risk is of an unfavourable election outcome. If an unstable coalition

were to come into power later this year, Nifty may decline to 9,000. The second risk is on
account of monetary conditions. Liquidity has tightened, and interest rate cycle has reversed,
not only in India but worldwide. Domestically this has impacted NBFCs and if this impacts
the flow of credit, it is a negative for markets. The US is tightening by two means, firstly by
raising interest rates, and secondly by reducing the size of its balance sheet by USD 50 bn
(quantitative tightening) a month. Tightening of monetary conditions is among the reasons
that have led IMF to downgrade world GDP growth forecast for 2019 to 3.7% from 3.9%
earlier.
Much of the risks for 2019 are global in nature, many investors are fearful of a recession in the
global economy. Many attribute the decline in equities (US equities were down 19% last week)
to an imminent recession.
The yield curve (difference between 10 year and 2 year government treasury yield) in the
US has flattened trading at a spread of 19 bps, this has also heightened fears. Inversion
(when the spread is negative) is an indicator of a recession, but the yield curve, is yet to turn
negative. More than the US, data from China is worrying; Caixin Manufacturing PMI dropped
to 49.7 (below 50 implies contraction) and China is taking steps to counter the slowdown by
loosening policy. Similarly, data from Europe and Japan also point to weakening. We believe
that the world economy is set to slow, but we are not on the cusp of a recession yet.
Downturn in equities is typically preceded by euphoria- right now caution abounds; it is said
that to make a bull market you need to climb a wall of worry. There are a lot of worries around
and the bull market may still have legs.
Q) Which sectors are the best bets for 2019?
We favour sectors that are geared to a recovery in capex cycle namely Banks, Capital Goods.
Banks should benefit from the increase in demand for credit as economic activity picks up and
Capital Goods should benefit from an increase in orders on account of capex. An increase in
economic activity should boost employment prospects and thus discretionary consumption.
We like Autos and Discretionary Consumption stocks. State owned banks could be a dark
horse in 2019 on account of peak in NPL cycle, recovery of NPL’s via IBC and low valuations. A
broad based economic recovery will be supportive.

Q) What about Crude- is it a risk for India as we head into 2019?
Global crude oil prices have been witnessing a roller coaster ride and have been quite volatile
for some time now. The price of crude oil plummeted from a high of ~$115/bbl in mid-2014 to
a low of ~$28/bbl in January 2016 and to $54-55/bbl now.
Prices of crude oil play a significant role in an economy and India’s growth story revolves
around the import of crude oil which amounts to nearly 30% of the total imports. India’s
macro-economic factors such as inflation, fiscal deficit and current account deficit have
improved many notches over the last couple of years, mainly due to falling crude oil prices.
A bit of background - The price of the Indian basket of crude oil crashed from US$ 113 per
barrel in May 2014 to US$ 50 in January 2015 and remained subdued. But oil prices surged to
$86 a barrel in November 2018, faster than expected as the Venezuelan economic crisis and
threats of sanctions on Iran led to a bigger production cut than intended and targeted by
OPEC and non-OPEC members.
However, in the last few weeks, oil prices have retreated on news that the US crude production
may rise and on expectations of weak demand growth. Despite the supply cuts agreed by
OPEC+, oil prices have remained subdued.
A $10 per barrel increase in the price of oil reduces growth by 0.2-0.3 percentage points,
increases WPI inflation by about 1.7 percentage points and worsens the current account
deficit by about $9-10 billion dollars according to Economic Survey 2018.
A fall in crude prices is thus positive for Indian economy as it will help boost economic growth.
Politically, this will also be helpful for the current government in the upcoming elections.
Q) What are your thoughts about the long term prospects for Indian economy?
According to IMF, India is likely to be the world’s fifth largest economy in 2019, with a size of
USD 2.95 trillion. Earlier in the year, the Indian government said that India is likely to double its
GDP by 2025 to cross $5 trillion.
The drivers of economic growth are well known, namely favourable demographics, a rising
middle class, as well as impact of economic reforms. There are a few hurdles though. Firstly,
India needs to carry out a number of difficult economic reforms, especially in the areas of
labor, agriculture, land. Secondly, it needs to cut red tape in order to boost ease of doing
business. Thirdly, privatization of PSUs is necessary and lastly, it needs to carry out further
fiscal consolidation. In addition to these, there are a number of long term issues that need
attention - the quality of workforce is not as high as it was in Asian “miracle economies”
due to lack of quality education in government schools. Healthcare needs attention; lack of
quality infrastructure in government hospitals is a big problem; The issue of malnourishment
needs to be tackled, 38% of the Indian children aged between 0-5 are malnourished, resulting
in a definite and irreversible damage to their physical and mental capabilities. The labor force
participation rate remains low, especially of women (27% according to estimates) needs to
improve and government needs to adopt policies to encourage their higher participation
rate.

2019 – A YEAR OF ECONOMIC
OPTIMISM IN INDIA
With the start of the New Year 2019, the equity market may lay focus on some important
economic events like Bank recapitalisation, populist measure if any in the Interim Budget,
farm loan waiver effects, GST collection trends, progress under the insolvency code and
interest rate trajectory. Based on the outcome of the recent State Elections and the General
Elections due in the first half of calendar 2019, the government is likely to focus more on the
rural and agriculture sector. Creation of jobs at an accelerated pace could be one more focus
area.
The market participants will watch out for earnings upgrade for companies following
normalisation of economic conditions on account of GST modifications ahead of the
General Elections. While confidence about earnings growth is rising, the outcome of General
Elections will give a final direction to the Indian equity markets. The more stable and sound the
formation of the new government, the more stable and strong would be the Indian markets
performance and vice versa.
The PSU Bank recapitalisation along with the Bharatmala and Housing for All initiatives by
the government has multi-fold implications and can materially revive the capex cycle with
potential acceleration in housing, railways and defence, ultimately having a multiplier impact
on GDP. With the General Elections due in May 2019, government has refocused on growth
going by its recent actions of fuel tax cuts, changing import duty on agri commodities, GST
rate rationalisation, higher MSP hikes and bank recapitalisation plan. Though coupled with
near-term pain of higher fiscal deficit, these initiatives may put India on an accelerated
growth trajectory from FY19 onwards.
However, the biggest area of concerns would be the worsening of the macro factors like
delay in resumption of GDP growth, ongoing global trade wars, unexpected impulses of the
US government and sustained interest rate rise in developed economies. Liquidity in the
markets continues to be good especially from the domestic investors. FIIs could reevaluate
investing in India in a big way since the inflation is under control and the economic growth is
satisfactory.
The calendar year 2018 has been a marginal year for investors with the Nifty giving 3% return.
Investors would do well to moderate their expectations for index returns in calendar year
2019. We expect Nifty to face resistance around 11750 levels followed by 12000 levels for the
year ahead. On the lower side, we expect 10000 levels as support followed by 9000 levels
in extreme cases. Banking, Pharma, OMCs, Cement and Infra are some sectors to watch out
for in 2019.
- Head of Technical Research
Dr. Ravi Singh

EQUITY MARKET - 2019
OUTLOOK
In 2018, Nifty returns were 3.2%, disappointing investors after a 28.6% return in CY2017.
However, over the last 5 years, investors have earned 11.3% in price returns.
Exhibit: Nifty Returns

100%
80%
60%
75.8%
31.4%
71.9%
28.6%
27.7%
40%
17.9%
54.8%
10.7%
39.8%
3.0%
36.3%
6.8%
3.3%
3.2%
20%
0%
-4.1%
-51.8%
-20%
-16.2%
2011 -24.6%
2000 -20.6%
-40%
-60%
2010
2001
2014
2004
2015
2016
2018
2005
2006
2009
2008
2013
2017
2012
2003
2007
2002
We believe that despite some slowdown in economic momentum, investors should look
forward to decent returns from equities.
Caution sets the stage for returns

It is said that to make a bull market, you have to climb a wall of worry. Indian equities have
been in the midst of a bull market for a while. We still don’t see unfettered optimism that
would worry us. In fact entering 2019, we find investors getting cautious. This gives weight to
our theory that the bull market still has legs.
Cautions relating to the following, which we will examine in detail later in the text.
yy Fears of a global economic recession
yy Caution regarding evolution of Indian economy over the next two years
yy Political uncertainty
yy Concerns regarding interest rates and financial system
We believe these are valid concerns, and while data indicates a slowdown ahead, we believe
we are not on the cusp of a recession.
Significantly the euphoria (“this time it is different”) that precedes a major downturn in
equities is missing, in fact, caution abounds. We believe that caution going into 2019 is in
contrast to the optimism at the beginning of 2018.
Drivers for 2019

In terms of drivers of equities for 2019, we believe the following are important questions
which we will try to answer.

Will FII inflows resume into Indian equities: 2018 witnessed net FII outflows of Rs. 335 bn (or
USD 6.4 bn), this was the first year of outflows since 2008. The graph below shows that FII
flows have a strong correlation with returns.
Exhibit: FII Inflows and Nifty Returns

1500 90%
1000 60%
500 30%
0 0%
-500 -30%
-1000 -60%
2010
2000
2011
2001
2014
2004
2015
2016
2018
2005
2006
2009
2008
2013
2017
2012
2003
2007
2002
FII Inflow (Rs. bn)- (LHS) Nifty returns %- (RHS)
Source: Bloomberg, SEBI, Karvy Research
Besides global risk aversion, a number of elements can be the deciding factors for global
assets allocation - firstly, last year the attraction of US assets was high, we believe this factor
will wane going into 2019. In Q3 2018, S&P 500 earnings grew by 28%, for CY2018, the EPS
growth estimate is 20%, this largely reflects the boost to earnings growth on account of
tax cuts as well as better than expected financial performance. For CY2019, expected EPS
growth estimate is 8%, for emerging markets, consensus EPS growth estimate is 7.4%. Indian
earnings are expected to perform better, with EPS for Nifty expected to grow by 22% for
FY2019-20.
In the past 5 years, earnings growth has been disappointing, but we believe that factors are
in place for a recovery in corporate earnings, which we will detail in a later section. This factor
should make Indian equities more attractive.
Currency is also an important factor; strengthening of the US dollar, largely as US assets were
more attractive caused emerging market equities to decline. US Dollar is expected to weaken
as we head into CY2019, with Futures indicating US Dollar Index to decline by 2%.
This should be supportive of Indian equities. Rupee has a positive correlation with the equity
market and the relationship is statistically significant. This implies that equities benefit when
the Rupee appreciates and equity market outlook gets clouded when the Rupee depreciates.
Currency is not the only factor that impacts markets but other factors too can outweigh the
impact of the Rupee wherein during periods of turmoil in currency markets, the relationship
can be more significant.
Exhibit: Sensex returns vs Rupee

20.00%
15.00%
10.00%
5.00%
USD INR YoY %
0.00%
-5.00%
-10.00%
-15.00%
-20.00%
-25.00%
-100.0% -50.0% 0.0% 50.0% 100.0% 150.0%
Sensex YoY %

We believe that while INR is still overvalued considering the Real Effective Exchange Rate
despite having depreciated against the USD, this is largely as over the last five years where
other currencies have depreciated more against the USD. We believe that excluding a
significant rally in oil prices, there are few reasons for the INR to perform poorly against the
USD.
Exhibit: India Real Effective Exchange Rate

110
105
100
95
90
85
80
Jan-10
Jan-96
Jan-99
Jan-00
Jan-11
Jan-98
Jan-01
Jan-97
Jan-14
Jan-04
Jan-15
Jan-16
Jan-05
Jan-18
Jan-06
Jan-09
Jan-08
Jan-13
Jan-17
Jan-12
Jan-03
Jan-07
Jan-02
Jan-94
Jan-95 INR REER Average
Source: BIS, Karvy Research
The one drag may be valuations which do reduce the attraction of Indian equities while
growth and likely direction of currency movement makes Indian equities attractive. In our
assessment, FII flows are likely to return to India. Also, India remains one of the few markets
where growth is likely to hold up in 2019, making it more attractive.
Can Domestic institutions counterweigh FIIs: FIIs have had a significantly higher impact on the
direction of the market than domestic institutions, however, incrementally their influence on
the markets has increased.
Exhibit: FII vs DII inflows

1370
1,331
1060
1,293
1,113
1,094
750
974
908
843
278
262
717
440
676
184
188
529
371
130
-180
-37
-569
-568
-214
-735
-303
-490
-342
-800
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
FII Inflow (Rs. bn) DII Inflow (Rs. bn)
Source: Bloomberg, SEBI, Karvy Research
Exhibit: Cumulative FII vs DII flows since 2007

8000
7000 FII flows Domestic flows
6000
5000
4000
3000
2000
1000
0
Sep-17
Sep-12
Sep-07
Jul-18
Nov-16
Dec-18
Jul-08
Jul-13
Jun-11
Dec-08
Dec-13
Jan-16
Jun-16
Apr-17
May-09
Apr-12
Apr-07
Mar-10
Oct-14
Feb-18
Feb-08
Feb-13
Aug-10
Nov-11
Oct-09
Mar-15
Jan-11
Aug-15
May-14
-1000

We believe this represents a long term structural change, as capital market instruments
represent a small part of savings for Indian households, but has increased in the last couple of
years. Also, overall investment in equities by households is still low by international standards.
Exhibit: Household financial savings invested in capital markets

12%
10%
8%
6%
4%
2%
0%
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
-2%
Source: RBI, Karvy Research
Exhibit: Investment of savings of households in Equities

50%
48%
40% 44%
37%
30%
20%
20%
10% 15%
10%
6%
0%
India UK Japan Korea Singapore US Hong Kong
India is witnessing a significant demographic shift, where the dependency ratio (proportion
of working age population to total population) has not only become favourable, but the trend
is expected to continue for more than a couple of decades. Thus, we believe that domestic
institutions as well as direct investment in equities are rising representing a structural change.
Exhibit: Working age population (%)

55%
53%
51%
49%
47%
45%
2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
India World
Source: World Bank, Karvy Research

In the short term, high volatility in equities may be a dampener, and inflows to equities
from domestic investors may suffer. Nevertheless, this makes Indian equities less reliant
on FII. In fact we believe this is the reason why Indian equities have been resilient in 2018,
outperforming peers.
Exhibit: Performance of Indian equities vs peers (in USD)

180
160
140
120
100
Relative to EM Relative to AP x JP
Relative to EM Asia Relative to AC World
80
Feb-16
Feb-18
Feb-17
Nov-14
Aug-14
Nov-15
Nov-16
Aug-15
Aug-16
Nov-18
Aug-18
Nov-13
Aug-13
Nov-17
Aug-17
May-14
May-15
Feb-14
May-16
May-18
Feb-15
May-17
Will high valuations be a drag: Indian equities are trading at high valuation levels by historical
standards, currently at 19.4x 12 month forward PE ratio. This is high and is the one factor that
worries us.
Exhibit: 12 month forward PER of Sensex

24
20
16
12
Jun-16
Jun-18
Jun-06
Jun-09
Jun-08
Jun-13
Jun-17
Jun-12
Jun-07
Dec-10
Dec-11
Dec-14
Dec-15
Jun-10
Dec-16
Dec-18
Dec-05
Dec-06
Dec-09
Jun-11
Dec-08
Dec-13
Dec-17
Dec-12
Dec-07
Jun-14
Jun-15
Jun-05
12 Month forward PER Average -1 SD +1 SD
India has traded at a premium to peers, and continues to do so. Valuations have a significant
impact on returns as can be seen by this graph.
Exhibit: 12 month forward PER of Sensex vs subsequent performance

24 -100%
20
-50%
16
12 0%
8
50%
4
0 100%
Nov-16
Nov-06
Nov-09
Nov-08
Nov-13
Nov-17
Nov-12
Nov-07
May-16
May-06
May-09
May-08
May-13
May-17
May-12
May-07
Nov-10
Nov-11
Nov-14
Nov-15
Nov-05
May-10
May-11
May-14
May-15
May-05
12 month forward PER (LHS) One year subsequent return % (RHS) (Inverted scale)

However, there are a few mitigating factors which may help overcome the negative forces
on account of valuation:
yy Low bond yields in India implies higher valuation multiples. These may persist on account
of increased financial savings of Indian households, fiscal consolidation, lower inflation
than historical trend and increased FII flows to debt market on account of high real
interest rates in India
yy Earnings cycle - we believe that after a number of years of disappointing growth,

corporate earnings are in the early stages of a recovery
Also, the premium to emerging markets is a bit higher than the past but Indian markets are at
a significant premium to Asia Pacific excl Japan.
Exhibit: 12 month forward PER of MSCI India vs Emerging markets

2.2
2.0
1.8
1.6
1.4
1.2
1.0
0.8
Jun-17
Jun-12
Jun-07
Feb-09
Sep-18
Sep-08
Sep-13
Aug-11
Jul-14
Mar-16
Dec-14
Jul-09
Dec-09
May-10
Aug-16
Nov-17
Nov-12
Nov-07
Oct-10
Jan-17
Apr-18
Jan-12
May-15
Feb-14
Jan-07
Apr-08
Apr-13
Mar-11
Oct-15
India relative to EM Average
Exhibit: 12 month forward PER of MSCI India vs Asia Pacific ex Japan

2.0
1.8
1.6
1.4
1.2
1.0
0.8
Sep-18
Sep-08
Sep-13
Jul-09
Dec-09
Aug-16
Nov-17
Nov-12
Nov-07
Oct-10
Jan-17
Apr-18
Jan-12
Feb-14
Jan-07
Apr-08
Apr-13
Jun-17
Jun-12
Jun-07
Mar-11
Feb-09
Oct-15
Aug-11
Jul-14
Mar-16
Dec-14
May-10
May-15
India relative to AP x JP Average
Exhibit: 12 month forward PER

2018 performance (%) Now Beginning of 2018 Recent peak
EM (16.6) 11.3 12.7 13.6
USA (6.2) 15.4 18.3 18.7
India 3.2 19.6 21 22


Elections- the next trigger for equities: In our report “Elections: the next trigger for equities” we
have highlighted that for Indian asset markets, the major trigger will be the upcoming General
Elections. We expect some nervousness in markets ahead of the elections. We wouldn’t
extrapolate the results to General Elections as the Indian electorate can vote differently in
State Elections and General Elections. We believe markets will welcome continuity in the form
of a NDA (led by BJP) regaining power at the centre.
Though it is still early, opinion polls (which also indicated a loss for BJP in State Elections)
indicate that NDA (led by BJP) is likely to regain power with a reduced number of seats. This
scenario would be welcomed by markets.
If this were to be the outcome of the elections, we would expect an acceleration in economic
reforms. Also infra spending by the government is likely to pick up.
Exhibit: Sensex - General Elections

Elections Year (%) 6 M before Zero Day + 1 Week 6 M after 6 M Prior to 6 M later
1996 20.8 0.7 (3.6) (17.3) (0.1)
1998 (8.0) 2.7 (0.6) (19.6) (24.3)
1999 31.9 (0.2) 7.1 (1.9) 36.3
2004 8.3 0.8 (8.7) 17.6 20.5
2009 29.7 17.3 (2.6) 19.1 81.5
2014 17.2 0.9 2.4 15.1 37.5
Exhibit: MSCI India relative to EM - General Elections

Elections Year 6 M before Zero Day + 1 Week 6 M after 6 M Prior to 6 M later
1996 4.2 1.1 (3.9) (15.7) (12.9)
1998 5.9 2.7 (3.9) 24.2 33.5
1999 18.5 (1.0) 6.1 (1.7) 20.1
2004 4.7 2.1 (7.6) (0.8) 0.6
2009 (1.6) 18.1 (3.4) (3.4) 8.9
2014 19.0 0.6 2.8 13.2 37.6
Earnings pickup: Earnings have grown at 4% from FY2013-14 to FY2017-18, and have been
the missing puzzle for Indian equities. The reason we believe is quite simple - it is on account
of lack of capex. This may be about to change, as we describe later in the Indian economic
update.
This should help in the recovery of corporate earnings, especially in sectors that are geared
for capex - namely capital goods and banks.

SECTOR
OUTLOOK
AUTOMOBILES
The auto industry is nearing the next down cycle. However, as the industry is shifting towards
improvisation in technology and comfort, we think that there is more scope for expansion.
The major push is expected to come from higher infra spending both in rural and urban areas.
With major OEMs investing in capacity addition, product development via new launches
among various automotive segments indicate that demand is still around. We expect
buying to increase after elections and just before BS VI norms are implemented. Also, better
execution of Minimum Support Prices will act as a catalyst for rural demand pick up. Among
all categories of vehicles, Commercial Vehicles (CV) reported 31% YoY growth during YTD
FY19 owing to higher industrial activity and 3-wheeler sales grew by 25% YoY followed by 10%
growth in 2-wheeler due to higher personal consumption. On the flip side, passenger vehicles
reported 5% growth lower than the average 2-year growth of 8.5%. This is due to delayed
festive demand and increase in car prices.
Implementation of BS VI: Post 2020, only BS VI complaint vehicles can be sold in the market.
Many OEMs have already introduced such models. With this, the price difference between
petrol and diesel variants will increase. Currently, the price difference between petrol and
diesel vehicles could be between Rs. 1 Lakh and Rs. 1.5 Lakh. Post BS VI, diesel vehicles may
cost Rs. 2 to 2.5 Lakh more than that of petrol vehicles. MSIL (Maruti Suzuki India ltd) is
manufacturing both Euro-V and Euro-VI (BS V & BS VI) variants and to be BS VI compliant,
certain components like Diesel Particular Filter, Selective Catalytic Reduction need to be
added because of which the overall cost of the vehicle is expected to go up. With this, we
think that the demand for diesel cars may slow down and as an indication to this, Maruti
Suzuki is expected to re-organize its diesel engine assembly plant in Gurugram.
The future of electric vehicles: In the electric vehicle space, we are still at the initial phase
of development where the country requires capital investment for battery charging
infrastructure and streamline procurement of lithium ion. Dominant OEMs such as TATA
Motors, Mahindra & Mahindra have already introduced electric vehicles and even MSIL is
pacing faster by setting up its own lithium ion factory in Gujarat. Therefore, incentivising
hybrid and electric vehicles could be the need of the hour if they are to be promoted faster.
We think that there is more to happen in the EV segment in terms of innovation and design.
Effect on Auto Ancillary businesses as electric vehicles increase: Most of the car ancillaries will
continue to exist except for certain engine components (though there is a lot of time for that
to happen). Furthermore, as safety regulations are being implemented, demand for sensors,
airbags, IoT (controllers), clusters, etc. may subsequently increase as components per
vehicle go up. At this onset, most auto ancillary companies have technological collaboration
with global makers for technical expertise. We think that ancillaries with high product
diversification especially in the new-gen technology will benefit largely from this shift.

CAPITAL GOODS & INFRASTRUCTURE
Q2FY19 has been a real surprise for the investors with ~19% earnings growth in capital
goods index aided by some positive performances from L&T, BEL and Graphite India. Post
the earnings season, profits for CG index is revised upwards by ~3.4% for FY19E and 1.0%
for FY20E in view of reviving optimism in the sector. Companies like L&T, Siemens, ABB,
Kalpataru have reported a strong growth in order book. Further to add, recent management
commentary signaled a sense of positivity in near to medium term aided by multiple
government initiatives providing the necessary levers for sustained growth. Industry is also
of the positive view about the outlook for domestic sales as underlying demand remains
positive due to investments by the government in creating infrastructure.
Of late, the sector witnessed a sluggish performance due to high interest cost, land acquisition
issues, over capacity in certain segments like power generation; however, it is showing signs
of recovery. Gross fixed capital formation in terms of GDP at Q2 of 2018-19 was estimated
at 32.3% compared to 30.8% in Q2 2017-18. The investment by both government and private
sector has picked up as new projects have been announced. The industry capacity utilisation
has increased to 73.8% in Q1FY19 from 71.2% in Q1FY18. The IIP-based capital goods index
was strong during the April-October period at 8.7% compared to 0.7% in the corresponding
period of previous financial year indicating a decent performance in FY19 & 20.
On construction front, while the government has been taking efforts ranging from increased
budgetary allocations to higher road project awarding, funding has been an issue. Of the
64 HAM projects awarded till now in 2018, around 30 projects have not achieved financial
closure yet. Among the ones that received FC, some projects have exceeded the stipulated
time line of 5 months to achieve FC indicating the issues from bank’s perspective. The
pace of road construction also slowed down in H1FY19 as issues related to land acquisition
cropped up. Under HAM, bank funding is available once 80% of land is acquired. Further to
add to the woes, existing developers have their hands full with significant orders indicating a
lower participation in new orders. However, we expect the execution levels to maintain the
current momentum.
In our view, an improving business cycle should bode well for the capital goods sector.
Though stable government at centre post elections is likely to boost the capital cycle, firm oil
prices and continued liquidity crunch may pose risk in near to medium term.
METALS AND MINING

The demand and supply of metals and mining are directly linked to the health of economies. A
growing economy requires them to stimulate industrial, construction and agriculture sectors.
However, metals and mining, being global commodities, the performance of an individual
economy (unless it is China which is believed to be the largest consumer and producer of
metals and mining) will hardly have an impact as it is the performance of global economies
especially economies producing and consuming them the most which will drive demand and
supply of these metals. In the latest World Economic Outlook, the IMF said that India would
grow at 7.3% in FY19E and 7.4% in FY20E. At the global level, the growth will be at FY17 level of
3.7%. China is forecasted to grow at 6.2% in FY19E.

India produces 95 minerals - 4 fuel-related minerals, 10 metallic minerals, 23 non-metallic
minerals, 3 atomic minerals and 55 minor minerals (including building and other minerals).
The government of India has taken initiatives as provided below to give a big push to metals
and mining sector;
yy Under the Mines and Minerals (Development and Regulation) Act of 1957, FDI upto
100% under automatic route is allowed for the mining and exploration of metal and
non- metal ores including diamond, gold, silver and precious ores, while FDI upto 100%
under government route is allowed for mining and mineral separation of titanium bearing
minerals and its ores.
yy FDI caps in the mining and exploration of metal and non-metal ores have been increased
to 100 per cent under the automatic route.
yy The Government of India aims at raising its steel production capacity to 300 million
tonnes (MT) by 2030-31.
Infrastructure projects across all sectors ranging from road, airports, shipping, power,
logistics and telecom continue to provide lucrative business opportunities for steel. Steel
consumption for housing construction is also likely to rise due to the “Housing For All”
initiative which aims to build around 12 million units in urban areas over next three years and
10 million units in rural areas by 2019. Rise in infrastructural activities will give rise for demand
of minerals like, coking coal, iron ore, manganese ore, zinc, aluminium, etc. Aluminium
production is forecasted to grow to 3.33 million metric tonnes by FY20.
Domestic automobiles sales increased at 7.01% CAGR between FY13-18 with 24.97 million
vehicles sold in FY18. The passenger vehicle sales in India crossed 3.2 million units in FY18
and is further expected increase to 10 million units by FY20. The country’s key strengths
such as a large domestic consumption base, a cost competitive value chain (that includes
low design, testing and validation costs, frugal engineering capabilities and low labor costs)
and strategic geographical location shall help in developing the country as a world class
automotive manufacturing base. Also, higher manufacturing of auto grade steel shall help in
import substitution, pushing demand for domestic steel.
The rise in production of electric vehicles (EVs) could lead to significant changes for the
mining industry, as demand for minerals such as lithium, cobalt, manganese ore and nickel,
used in the production of EVs rises. According to Statista, global demand for lithium stands
at 252,653 tonnes of lithium carbonate equivalent in 2018, but this will increase to 422,614
tonnes by 2025, as the metal is a key component in batteries that power electric vehicles.
There is significant scope for new mining capacities in iron ore, bauxite and coal as there are
considerable opportunities for future discoveries of sub- surface deposits.
On the supply side, elevated prices, lower imports (mainly in the US and Europe) and
increased supply from China may prove to be troublesome to metals and mining sector.
In the current scenario, where steel demand is slowing down in China and exports to the
US are restricted, Chinese exports may seek to re-enter a growing Indian market directly
or indirectly. Uncertainty about the impact of lingering US and China trade tensions, rising
interest rates, and the relative strength of the US dollar will influence future prices. India has
real fear of turning into a dumping ground for imported steel from South Korea and Japan
with whom it has Free Trade Agreement as a consequence of the US imposition of 25% duty.
The government of India on its part, having introduced Minimum Import Price, priority in
domestic steel procurement and other such measures are expected to protect the interest
of domestic manufacturers.

IT SECTOR
Growth momentum to continue
During 2018, BSE IT index returned 25% versus 2% returned by Nifty. We believe that this
outperformance was driven by a) favourable USDINR movement – a fall of nearly 10% YTD
(Rs. 63.7 to Rs. 70 and INR touched an all-time low of Rs. 74.4) b) announcement of large
deal wins by big IT companies c) revival of BFSI in the US and positive commentary on
client spending d) better valuation on a relative basis and e) many large institutions were
underweight in the sector at the beginning of the year. However, we believe that in 2019, IT
index may not outperform broader index on such a magnitude. We believe that at best it can
mimic the performance by broader indices.
In 2018, IT companies’ growth was driven by a combination of USDINR and in case of some
companies like HCLT and TCS, due to ramping up of large deals announced in the past.
In 2019, we believe USDINR will remain stable. We don’t expect INR to make fresh lows as
was the case during 2018. Hence, we don’t expect USDINR to contribute in a big way to IT
companies’ growth. However, in 2019 growth is going to be driven by ramping up of large
deals announced during H1 FY19. TCS announced large deals worth $5 billion between Jan
2018 and September 2018. HCLT announced 5 large deals. Wipro announced its largest ever
deal worth $1.5 bn with Alight HR Services India. Commentary from Infy and TechM was
encouraging.
However, we believe that IT services companies would find it hard to get hold of the talent
they require, specifically in the areas of new technologies like Artificial Intelligence (AI) and
Machine Learning (ML). Accenture in its Q1FY19 concall has highlighted that it is becoming
difficult to find the right talent in these new age technologies. Similarly, Infosys indicated
that it is looking to invest for a partial stake or buyout firms with the right talent pool in the
areas of newer technologies as it is finding it hard to recruit talent with capabilities in the new
technologies like AI and ML.

INDIAN ECONOMIC
OUTLOOK
The sharp rise in oil prices which had raised concerns about widening trade deficit and the
need for preemptive rate hikes due to INR depreciation has quite settled for now. However,
the stress still remains on the fiscal front owing to the upcoming elections. Also, sluggish
export growth signals a caution to the current account position.
During Q2FY19, the Indian economy grew at 7.1% vs. the consensus estimate of 7.4%. During
Q1FY19, GDP grew at 8.2% YoY. This indicates growth is on track to roughly meet the RBI
estimate of 7.4% growth for the entire fiscal year considering that November saw activity
in manufacturing and services sector pick up. The Gross Fixed Capital Formation (GFCF)
increased by 12.5% YoY during Q2FY19 as compared to 6.1% during Q2FY18. We expect capex
spending to lead growth on the back of higher capacity utilisation which recorded 73.8% in
Q1FY19 vs. 71.2% in Q1FY18. Bank credit growth accelerated in September 2018 where private
sector banks recorded more than 20% growth. The credit-deposit (C-D) ratio at the all-India
level improved to 76.4% in September 2018 as compared to 75.6% in the previous quarter.
Therefore, we expect this GDP growth momentum to keep pace on the back of higher
personal consumption indicated by increasing bank credit. Risks to the outlook are largely
on account of external sector, the lagged impact of currency depreciation and uncertain
political outlook.
Exhibit: GDP Growth YoY (%)

15
12
0
Dec-…
Sep-00
Sep-18
Sep-06
Sep-09
Sep-12
Sep-03
Jun-10
Jun-98
Dec-08
Dec-17
Jun-01
Dec-02
Jun-04
Jun-16
Jun-13
Mar-99
Jun-07
Mar-11
Sep-15
Mar-14
Dec-99
Dec-11
Dec-14
Mar-05
Mar-08
Mar-17
Mar-02
Exhibit: Capacity utilisation (%)

76% 74%
73%
74%
73%
72%
72%
71.9%
74.0%
72.0%
74.6%
75.2%
70%
73.8%
72.9%
71.0%
74.1%
71.8%
71.2%
71.2%
72%
68% 71%
Q2FY16
Q2FY18
Q3FY16
Q3FY18
Q2FY17
Q3FY17
Q4FY16
Q4FY18
Q4FY17
Q1FY19
Q1FY18
Q1FY17
Capacity Utilization 4-quarter average

Exhibit: IIP and 3M Moving Avg
10
Jun-16
Jun-18
Jun-17
Feb-16
Feb-18
Feb-17
Oct-16
Oct-18
Oct-17
Dec-14
Aug-14
Dec-15
Dec-16
Aug-15
Aug-16
Aug-18
Dec-17
Aug-17
Apr-15
Apr-16
Jun-15
Apr-18
Apr-17
Feb-15
Oct-14
Oct-15
-2
IIP (%) 3M Moving Avg IIP (%)
Source: MOSPI, Karvy Research
With escalating US-China trade tensions, the World Trade Organization (WTO) expects global
trade growth to slowdown which is likely to dampen oil prices yet be maintained due to the
intervention of the OPEC. If oil prices remain at bay, Indian economy will certainly benefit as
the subsidy burden could be minimized.
With New RBI Governor comes a new mandate: After Mr. Urjit Patel resigned citing personal
reasons, Mr. Shaktikanta Das has been appointed as the 25th RBI Governor. While the rest of
the Monetary Policy Committee remains unchanged, change in leadership means a change
in stance to “neutral” from “calibrated tightening” cannot be ruled out. Also the RBI is likely
to focus on liquidity and resolving PSU bank issues. We believe this indicates that the RBI
may keep repo rates unchanged for a couple of quarters. While outlook for inflation has
softened (RBI projects 3.8-4.2% in H1FY2019-20, but with an upward bias), with crude oil
prices declining to USD 61 per barrel and food deflating. However, a reversal in food deflation
is a risk to inflation outlook, given that core inflation is at ~5.7%; thus, the probability of cut in
policy rate is low.
The lower inflation projection largely reflects low food inflation as well as lower oil prices.
However, we believe that the inflation risks are still on the horizon, core inflation (CPI inflation
after stripping out food and energy) remains sticky at 6.2% in October 2018. Inflationary risks
cannot be neglected when capacity utilisation is rising, coming in at 76.1% for Q2FY2018-19,
PMI for November was 54 a 11-month high. Robust growth and a closing output gap further
increases inflationary risks.
Exhibit: CPI and Core CPI

10.0
7.5
5.0
2.5
0.0
May-14
May-15
May-16
May-17
May-18
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Sep-14
Nov-14
Sep-15
Nov-15
Sep-16
Nov-16
Sep-17
Nov-17
Sep-18
Nov-18
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
CPI (%) Core CPI (%)

Source: MOSPI, Karvy Research

RBI to continue to inject liquidity through OMO Purchases: The total injection of durable
liquidity for the month of December 2018 will be Rs. 500 bn. Going forward, RBI has decided
to conduct purchase of Government Securities under Open Market Operations (OMOs) for
an aggregate amount of Rs. 500 bn in the month of January 2019. The operations will be
conducted through five auctions of Rs. 100 bn each.
The exact calibration of the quantum of OMO would depend on sustained changes in the
behavior of currency in circulation, the magnitude of sterilization operations for RBI’s forex
operations and other relevant factors.
Credit growth of SCBs improved by 13% YoY in September 2018 driven primarily by private
sector banks which grew at 22.5% YoY. The asset quality of banks improved as the GNPA
ratio of SCBs (Scheduled Commercial Banks) decreased from 11.5% in March 2018 to 10.8% in
September 2018. Going forward, the RBI expects this to continue and estimates GNPA ratio
of SCBs to further decline to 10.3% in March 2019. The stressed advances ratio is gradually
converging to the GNPA ratio following the withdrawal of various restructuring schemes.
Therefore, increasing credit growth coupled with declining provision ratio is expected to lead
to higher economic growth.

THE GLOBAL ECONOMIC
OUTLOOK
Near inversion of the US yield curve as well as a sharp 19% decline from all time high for the
S&P 500 has heightened fears of a recession These fears are not restricted to the US alone,
data indicates that Chinese growth may be slowing down significantly and Japan & Europe
(especially Germany) are also showing signs of fatigue.
Exhibit: US yield curve (10 year yield - 2 year yield)

4.0
3.0 19 bps
2.0
1.0
0.0
-1.0
-2.0
-3.0
1976
2010
1978
2000
1986
1988
1996
1998
2014
1982
1992
2004
2016
2018
2006
2008
2012
2002
1980
1990
1984
1994
According to the NBER, the longest business cycle expansion in the US lasted for 120 months
starting from March 1991 to March 2001. The current cycle, the second longest expansion in
history began in June 2009 and questions about how long the business cycle expansion will
last are natural.
Exhibit: US post World War II Economic Cycle

Peak Trough Peak month Trough month Duration, peak Duration, Duration, peak to Duration, trough
month month number number to trough trough to peak peak to trough
Feb-45 Oct-45 1742 1750 8 80 93 88
Nov-48 Oct-49 1787 1798 11 37 45 48
Jul-53 May-54 1843 1853 10 45 56 55
Aug-57 Apr-58 1892 1900 8 39 49 47
Apr-60 Feb-61 1924 1934 10 24 32 34
Dec-69 Nov-70 2040 2051 11 106 116 117
Nov-73 Mar-75 2087 2103 16 36 47 52
Jan-80 Jul-80 2161 2167 6 58 74 64
Jul-81 Nov-82 2179 2195 16 12 18 28
Jul-90 Mar-91 2287 2295 8 92 108 100
Mar-01 Nov-01 2415 2423 8 120 128 128
Dec-07 Jun-09 2496 2514 18 73 81 91
1945-2009 (11 cycles) 11 58 69 70
Source: NBER, Karvy Research

To boost slowing growth, China announced a fiscal stimulus program on 21st December; this
comes on top of a reduction in the Reserve Requirement Ratio to 13.5% for smaller banks
and 15.5% for large commercial lenders. Since April this year, the China Caixin Manufacturing
PMI has reduced from levels higher than 51 to a reading of 50.2 for November, indicating a
slowdown in overall manufacturing activity. The business confidence numbers have also seen
a continuous decline from 51.9 in May to 50 in November 2018.
Exhibit: China Reserve Requirement Ratio (RRR)

25
20
15
10
2016
2018
2006
2009
2008
2013
2017
2012
2003
2007
2002
1990
1991
1994
2010
2000
2011
1995
1996
1999
2001
1998
1993
2014
1997
1992
2004
2015
2005
Source: PBOC, Bloomberg, Karvy Research
A Bloomberg survey indicates that economists foresee a 15% probability of a recession in

China in the next 12 months. Industrial profits in China declined in November this year, the first
decline since December 2015. China contributes the most to global growth, and with a debt
to GDP ratio of 265%, the problems in China are structural in nature.
Exhibit: China Industrial profits YoY%

40
30
20
10
-10
Nov-11
Nov-14
Nov-15
Nov-16
Nov-18
Nov-13
Nov-17
Nov-12
Adding to these data points from China, data coming in from the US is also troublesome.
While the 38% drop in oil prices reflects a glut in supply, a slowdown cannot be overlooked.
The International Energy Agency forecasts oil demand growth of 1.4 million barrels per day,
after an estimated increase of 1.3 mbpd. The manufacturing PMI in the US has declined from
56.5 in April to 53.8 in December, we are likely to witness deceleration in growth rates.
Tax cuts approved by the US last year have acted as a fiscal stimulus not only for the US
but the entire world. Last quarter, the US economy grew by 3.5% QoQ seasonally adjusted
annualized rate. The US economy is expected to slowdown to 2.6% growth in 2019 and 1.9% in
2020. The slowdown largely reflects the fading of the fiscal stimulus provided by the tax cuts.
It is important to note that many economists believe that US economic trend growth rate has
declined and is closer to 2.0%. Thus, 2019 would still witness growth above trends.

Some policies from the US government have been unhelpful- trade wars between the US
and China can be harmful for growth, the Chinese economy may slowdown significantly if
trade slows down, which will have implications, especially for Asia as China may resort to a
competitive devaluation. In an extreme scenario, China can retaliate by selling its holdings of
US treasuries. In addition, domestic developments in the US are concerning. The shutdown of
the government over a showdown between President Trump and the legislature has soured
sentiment. Democrats’ control of the Congress is also leading to fears that the President will
find it difficult to get proposals through.
Since 2009, the US Fed had been pumping liquidity into the financial system. But now, as
the Fed opines that the US economy has strengthened, it has been reducing the size of its
balance sheet by USD 50 billion per month. US Fed Chairman has stated that the current
reduction program of the Fed balance sheet will continue and proceed as planned. This is
in addition to tightening via increasing policy rates. A recession has been preceded by an
inversion of the yield curve, but right now, 10 year yield is higher than the 2 year yield by
19 bps. The last two recessions were triggered by rate tightening, but we believe US rates
currently are at lower end of the “neutral” rate. Recessions have occurred one to two years
after the yield curve inverted.
While the US Federal Reserve has indicated that it is likely to increase rates twice in 2019 and
once in 2020, money markets indicate that 1) there is a split between no or one rate rise in
2019 2) there will be a rate cut in 2020. Thus money markets are pricing in a recession in 2020.
Exhibit: FOMC Dot Plot and money market implied rates

3.5
3.0
3.13
2.5
2.88
2.56
2.45
2.40
2.41
2.38
2.38
2.0
2.24
1.5
1.0
0.5
0.0
2018 2019 2020
FOMC Dots Median Fed Funds Futures - Latest Value OIS - Latest Value
Source: US Federal Reserve, Bloomberg, Karvy Research
With the liquidity moving out of the system and with other fundamentals deteriorating, fears
are rising, CBOE VIX or the “fear gauge” has increased to 25%. In India as well, in the recent
past, we have seen that the VIX index has doubled over last few months (in India) and has
risen almost 300% (in US) since the beginning of 2018.
Exhibit: VIX
90
80
70
60
50
40
30
20
10
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: CBOE, Bloomberg, Karvy Research

Exhibit: India VIX
90
80
70
60
50
40
30
20
10
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: NSE, Bloomberg, Karvy Research
Concerns from the Eurozone include weak exports from Germany (down 0.9%) in the recent
quarter, while the imports have risen by 1.3%, the Germany’s economy grew by 1.1% YoY for
the third quarter 2018. The Flash Composite PMI index (Services + Manufacturing) fell to 52.2
for December from 52.3 in the month of November, recording a 4 year low. For December
2018, Manufacturing PMI fell to 51.5, a 33 month low.
OECD leading indicators certainly indicate a slowdown in the pace of economic growth,
however the data is not consistent with the narrative of a recession.
Exhibit: OECD Leading Indicators

103 India Major 5 Asia OECD Total
101
99
97
95
2010
2010
2000
2000
2011
1996
1999
2001
1998
2014
1997
2004
2015
2015
2016
2018
2005
2005
2006
2009
2008
2013
2017
2012
2003
2007
2002
1995
1995
Source: OECD, Karvy Research
Another risk to the world arises from the possibility of a disorderly Brexit, the probability
of which has increased recently. While the long term economic impact is limited to a large
extent to the UK and EU, and an orderly Brexit would be a minor blip for the rest of the world,
Britain exiting from the EU without a transition deal would have a global impact, especially in
the area of financial services.
The Japanese economy hasn’t been in the best of shapes lately, with the Bank of Japan’s
Governor Mr. Kuroda highlighting the risks to the outlook of Japan’s economy and his
readiness to infuse more liquidity if needed. At 19, the Tankan survey indicates continued
weakness, last quarter Japanese economy declined by 0.6%. He has also implicitly said that
banks have room to cut interest rates, increase buying of assets and also can accelerate the
pace of printing money.

Exhibit: Tankan Survey
(Diffusion index, % points) Manufacturing
70
60 Large Enterprises
50 Medium-sized Enterprises Forecast
40 Small Enterprises
30
20
10
0
-10
-20
-30
-40
-50
-60
-70
-80
18
CY 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Source: Bank of Japan, Karvy Research
However, while growth is slowing down; we are far from the cusp of a recession. In the
Bar Analysis grid of US, currently 11 out of 19 economic indicators are pointing to positive
economic growth though eight indicators are negative. In the US, consumer confidence is
near an 18 year high, whereas unemployment rate at 3.7% is at a 40 year low. This indicates
that consumption will be resilient as wages are likely to rise on account of a tight labor market.
China has plenty of policy tools at its disposal to counteract a slowdown; its FX reserves are
USD 3.1 trillion, which gives it flexibility.
According to the IMF, India is among the few large economies where growth is resilient. IMF
forecasts growth for FY2019-20 to be 7.4%, which is a strong number. What we find more
encouraging is that the driver of growth is changing, increasingly led by capex. Gross Fixed
Capital Formation (GFCF) increased by 12.5% YoY during Q2FY19; the third consecutive
quarter of double digit growth.
Exhibit: IMF economic forecasts

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Brazil 3.0 0.5 (3.5) (3.5) 1.0 1.4 2.4 2.3 2.2 2.2 2.2
China 7.8 7.3 6.9 6.7 6.9 6.6 6.2 6.2 6.0 5.8 5.6
India 6.4 7.4 8.2 7.1 6.7 7.3 7.4 7.7 7.7 7.7 7.7
Indonesia 5.6 5.0 4.9 5.0 5.1 5.1 5.1 5.2 5.3 5.3 5.4
Japan 2.0 0.4 1.4 1.0 1.7 1.1 0.9 0.3 0.7 0.5 0.5
United Kingdom 2.0 2.9 2.3 1.8 1.7 1.4 1.5 1.5 1.6 1.6 1.6
United States 1.8 2.5 2.9 1.6 2.2 2.9 2.5 1.8 1.7 1.5 1.4
World (PPP) 3.5 3.6 3.5 3.3 3.7 3.7 3.7 3.7 3.6 3.6 3.6
Advanced economies 1.4 2.1 2.3 1.7 2.3 2.4 2.1 1.7 1.7 1.5 1.5
Euro area (0.2) 1.4 2.1 1.9 2.4 2.0 1.9 1.7 1.6 1.5 1.4
Emerging market &

5.1 4.7 4.3 4.4 4.7 4.7 4.7 4.9 4.9 4.8 4.8
developing economies
World
2.6 2.8 2.8 2.5 3.2 3.2 3.1 2.9 2.9 2.8 2.8
(market exchange rate)
Source: IMF Global Economic Outlook October 2018, Karvy Research, * For India refers to fiscal year
What does this mean for equities- if the global economy was tipping into a recession, a bear
market is a natural outcome. However, our analysis indicates that while we are experiencing
a deceleration in growth prospects, a recession is not on the horizon yet. Withdrawal of
liquidity and a slowdown in growth prospects mean valuations need to adjust lower. Also
the dispersion in stock returns has been low on account of accommodative policies; stock
picking will become more important for portfolios in the coming months.
Lastly, we need to keep a keen eye on economic data, especially from China in the coming
months.

WEALTH
MAXIMIZER
LARGE CAP STOCKS
BHARTI
INFRATEL LTD
Bloomberg Code: BHIN IN
Company’s Intent to Diversify Business Tends to be a Recommendation (Rs.)

Positive Move CMP (as on Dec 28, 2018) 263
New Revenue Streams: Considering the rapid increase of data services through Target Price 308
expansion of 3G / 4G network and infrastructure expansion across cities, we expect a
Upside(%) 17
likely surge in demand for small cells, fiberised backhaul, WiFi and In-building Solutions
(IBS) which are new revenue opportunities for tower companies. These will also be key Stock information
to the ‘Smart Cities’ - ‘Digital India’ project which is one of the biggest focus areas of
Mkt Cap (Rs.Bn/US$ Bn) 486.4 / 7.0
the Government of India. Development of ‘Smart Cities’ is a key initiative under the
‘Digital India’ Program and the Government has already announced the creation of 52-wk High/Low (Rs.) 384 / 242
100 ‘Smart Cities’. During the year, Bharti Infratel has been implementing the Bhopal 3M Avg.daily value (Rs. Mn) 649.4
Smart City project while the company’s Joint Venture with Indus won the bids for
Beta (x) 0.3
Smart city project of Vadodara and New Delhi Municipal Corporation area. For both
the Companies, these projects will open a new avenue of business. Sensex/Nifty 36077 / 10860
Low Rural Penetration Levels: Indian telecom market has a huge untapped potential in O/S Shares(mn) 1849.6
the rural areas. With wireless rural tele-density still at 58.7% (as of Mar 31, 2018, Source
Face Value (Rs.) 10.0
– TRAI), there is significant headroom for growth in voice services currently and in
data services over time in these untapped areas. The high cost of providing services Shareholding Pattern (%)
and the ability to quickly deploy state of the art networks will translate into growth
Promoters 53.5
opportunities for the Company. Already, Bharti Infratel has a wide footprint in the
Category B and C circles enabling the expansion of networks in rural markets. FIIs 42.3
Expect healthy gross tenancy additions ahead: Management indicated that gross DIIs 3.0
tenancy addition trend may be weak for some time but it is expected to bounce back Others 1.2
on account of aggressive 4G rollouts from incumbents. As per management, they do
not foresee any threat for gross tenancy additions despite Jio’s continued preference
to build some of the sites on its own. Stock Performance (%)
5G Incremental Opportunities: The company has stated that they have already started 1M 3M 6M 12M
deploying small cell in top 2 metros and this would be a scalable model for the company
Absolute 1 0 (12) (29)
as data usage will be elevated when 5G will be deployed.
Relative to Sensex 0 0 (14) (33)
Valuation and Risks: At CMP of 263, BHIN is trading at a P/E 21x FY20E EPS. The
consensus has valued the stock at P/E of 24.5x FY20E EPS, arriving at a target price of Source: Bloomberg
Rs. 308 with an upside potential of 17%.
Valuation Summary Relative Performance*

YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E 120
Net Sales 55583 60874 66212 146656 158457 105
EBITDA 24883 28251 31865 59153 62577

90
EBITDA Margin (%) 44.77 46.42 48.12 40.3 39.5
75
Adj. Net Profit 22474 27470 24937 23255 24068
EPS (Rs.) 11.9 14.7 13.5 12.8 12.5 60

Jun-18
Feb-18
Sep-18
Oct-18
Mar-18
Jul-18
Dec-18
Nov-18
Aug-18
Dec-17
Jan-18
Apr-18
May-18
RoE (%) 12.8 16.3 15.4 14.3 14.5
PE (x)* 32.2 22.1 24.9 21.0 21.0 BHIN Sensex
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price Source: Bloomberg; *Index 100

Company Background
Bharti Infratel is a provider of tower and related infrastructure and on a consolidated basis, the
company is one of the largest tower infrastructure providers in India, based on the number of
towers that Bharti Infratel owns and operates and the number of towers owned or operated by
Indus, that are represented by Bharti Infratel’s 42% equity interest in Indus ,which was created as
a Joint Venture among Bharti Infratel, Vodafone and Aditya Birla Telecom to hive off the Towers
business in 15 telecom circles.
The company is a pioneer in the tower infrastructure sharing concept in India with over 39,000+
towers across 18 states, and 11 Telecom circles, with some of them in the remotest and tough
terrains. The company has also pioneered the concept of environment friendly Towers or
‘GreenTowers’ and energy efficient methods for maintenance of these towers. Infratel has
helped Telecom operators maximize their reach in a short period of time. Infratel is a domain
within Airtel and is responsible for managing the tower infrastructure of Airtel’s wireless business.
Bharti Infratel is created as an independent tower company to provide compelling capex saving
opportunities to telecom service providers, while optimally utilising Airtel’s large tower base.
INFRATEL: Technical View
The stock price made an all time low of 126 in June’13, wherein from it witnessed stupendous
rise towards 499.65 made in the start of Aug’15. After clocking an all time high, stock entered
into a deep correction mode, which extended in time also. From the highs, prices made a swing
low of 281.75 in the start of Mar’17, wherein from price rebounded towards its all time high and
where it found resistance and again entered into a correction mode; in the last correction prices
failed to protect its previous swing low of 281.75 and moved lower. Technically, prices have a
typical behavior of respecting double bottoms and bouncing back; in the recent past, stock
has made a double bottom near 244 levels and attempted to recover, exhibiting possibility of
prices to regain strength in sessions to come. On the weekly momentum setup, 14-pd RSI was
consolidating below 40-levels from last couple of months, but in the recent pullback indicator
attempted to move above consolidation zone, which indicates prices may recover from lower
levels. Going forward, stock has important support near 230-240 levels, followed by 180-200
levels. On the higher side, stock is likely to find immediate resistance near 290-300 levels,
followed by 325-330 moving above which stock may move towards 380-400 mark.

HCL
TECHNOLOGIES LTD
Bloomberg Code: HCLT IN
Relative Underperformance Gives Confidence Recommendation (Rs.)

Price reaction overdone: After HCL Technologies (HCLT) announced $1.8 bn deal to acquire CMP (as on Dec 28, 2018) 958
8 software products from IBM, the largest ever deal by an Indian IT company, markets Target Price 1167
expressed concerns about the rationale behind the deal and punished the stock. We believe
Upside(%) 22
that these 8 products with a market size of $110 bn will bring in great synergies in the form
of $625mn in incremental revenues in 12 months after completion of the deal (mid-2019) Stock information
and addition of more clients. Moreover, we believe that relative underperformance of HCLT
Mkt Cap (Rs.Bn/US$ Bn) 1334.6 / 19.1
(returned just 5% YTD vs average YTD return of 23% recorded by Big Five IT firms and 25%
52-wk High/Low (Rs.) 1125 / 875
YTD return posted by BSE IT Index over the same period) prices in all the risks in the deal.
3M Avg.daily value (Rs. Mn) 2270.0
Large deal wins to support organic growth: Concerns surrounding organic growth rate
seem to be faded with the announcement of four mega deals from Broadcom, Nokia, P&G Beta (x) 0.7
and Barclays. Organic growth rate for H1 FY19 at 7%-8% was better than expected and we Sensex/Nifty 36077 / 10860
believe that HCLT might close FY19 with an organic growth rate of 7%-8%, much better than
O/S Shares(mn) 1392.6
5% guided by the management.
Mode 3 achieves scale as Mode 2 gains traction: One of the four large deals announced
recently was based on professional services related to cyber security and DevOps. We believe Shareholding Pattern (%)
that this is proof of HCLT’s capabilities and its past investments would further enhance its Promoters 60.2
Mode 2 revenues, thanks to its recent deals announced, we believe Mode 3 will gain traction.
FIIs 28.0
Key Catalysts for earnings re-rating in place: We believe regaining organic growth
DIIs 8.1
momentum and scaling up of products and platforms business are key catalysts for
rerating of the earnings and subsequently the stock. We believe that the ongoing large Others 3.7
deal momentum and maturing of IBM’s IP partnerships are giving visibility for the same.
In the coming year, we expect HCLT’s stock price to be re-rated given the rerating of
Stock Performance (%)
earnings.
1M 3M 6M 12M
Valuation and Risks: We remain positive on the stock given its relative
Absolute (8) (12) 5 9
underperformance, upside risks to core organic growth and its potential to increase
Mode 2 and Mode 3 revenues. We reiterate our buy on HCLT and value it on a consensus Relative to Sensex (9) (12) 2 2
FY20E PE of 14.5x with a target price of Rs. 1167, an upside of 22%. Source: Bloomberg

Net Sales 408082 475675 505690 601610 673306 120
EBITDA 87547 103844 112460 141197 157100

110
EBITDA Margin (%) 21.5 21.8 22.2 23.5 23.3
100
Adj. Net Profit 73188 86063 87210 101408 109762
90
EPS (Rs.) 51.9 60.1 61.4 73.7 80.2
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) - 28.3 25.2 25.8 24.3
PE (x)* 15.5 14.5 15.6 13.0 11.9 HCLT Sensex

Company Background
HCL Technologies is India’s fourth largest IT services company. HCL Technologies helps global
enterprise transform their businesses for the digital age through integrated portfolio of products,
solutions and services and IP. HCLT’s products are built around digital, IoT, AI, automation,
infrastructure management and engineering services. HCLT offers these services through a
global network of R&D labs, innovation labs, and delivery centers spread across 39 countries.
HCLT serves as a leading enterprise across key industries including 250 of the Fortune 500
companies and 650 of the Fortune 2000 companies. HCLT offers integrated portfolio of products
solutions and services and IP through Mode 1-2-3 strategy built around Digital, IoT, Cloud,
Automation, Cybersecurity, Analytics, Infrastructure management and Engineering Services to
help enterprises reimagine their businesses for the digital age.
HCLT has been the Top Employer in the UK for the past 12 consecutive years. HCL’s DRYiCE
COPA (Cognitive Orchestrated Process Autonomics) platform that applies AI to drive enterprise-
wide process automation and orchestration won the Best Innovation in RPA at AI Summit in San
Francisco in 2017.
HCLTECH: Technical View
HCLTECH has witnessed a stellar rally from the low of 654 levels till it clocked its life time high
of 1125 levels on 25th September, 2018. Thereafter, the rally took pause, on account of profit
taking; price corrected and made a low of 930.70 levels. Currently, the stock is consolidating
in a range of 930-980 levels forming a base before its next rally. Among the indicators and
oscillators, the 14-day RSI is trading above its 9-day signal line on daily chart and poised with
bullish bias, indicating that stock is likely to continue its outperformance in the coming month
as well. Among other leading indicators, parabolic SAR (Stop & Reverse) is trading below the
current price on monthly chart, suggesting an uptrend in the counter. The MACD is trading
above the signal line in buy territory on monthly chart, indicating positive momentum in the
stock on medium to long term perspective. On the downside, stock has an immediate support
around its 52 week low of 850 levels, followed by 760-750 levels. While on the higher side
stock may find immediate resistance near 1050-1060 levels, followed by 1125-1150 levels.
From the above observation, technically the stock has potential to surge higher towards its
life time high and eventually in an uncharted territory in the coming months.

HINDUSTAN
UNILEVER LTD
Bloomberg Code: HUVR IN
Horlicks Proves to be a Drink of Health for the Health Recommendation (Rs.)

Food Drinks Business CMP (as on Dec 28, 2018) 1822
HUL’s acquisition of GSK Consumer garners valuation of the entity at Rs. 317 Bn. HUL, Target Price 2138
implies a leadership in the domestic HFD (Health Food Drinks) business along with
Upside(%) 17
soaps and detergent category. Given the low penetration in the HFD category i.e.
14% in rural market and 24% in overall domestic market, there is ample opportunity Stock information
for growth which will be aided by HUL’s strong direct distribution network (3x GSK Mkt Cap (Rs.Bn/US$ Bn) 3944.1 / 56.4
Consumer’s). HUL’s volume increased more than its peers, such as Dabur, Marico,
52-wk High/Low (Rs.) 1871 / 1281
BCL, etc. Post-merger GSK Consumer will hold 5.7% in HUL with a lock in period of
one year. GSK Consumer would supposedly liquidate its shares to finance the Novartis
acquisition. Synergy from the acquisition will lower HUL’s operational expenditure, Beta (x) 0.8
employee costs, A&P spends, and procurement costs. Sensex/Nifty 36077 / 10860
Intimidating presence in premium detergents space: Channel checks have suggested
that the market share has increased for HUL in the premium detergents space. HUL’s Face Value (Rs.) 1.0
dominance reflects the company’s solid execution and market development efforts Shareholding Pattern (%)
as well.
Promoters 67.2
Valuation and Risks: We believe HFD portfolio growth will accelerate, given its strong FIIs 12.1
direct distribution and portfolio innovation. In addition, significant cost savings are
DIIs 7.3
expected in FY21E, after all synergies from the deal factor in. To consider all benefits
Others 13.4
of the acquisition, we have assigned HUL a P/E of 54x to arrive at a TP of Rs. 2138
reflecting an upside potential of 17%.
1M 3M 6M 12M
Absolute 5 13 14 35
Relative to Sensex 4 14 10 26
Source: Bloomberg

Net Sales 323670 347810 393652 444298 506764 130
EBITDA 63400 74990 88372 103644 120773 120
EBITDA Margin (%) 19.6 21.6 22.4 23.3 23.8 110
Adj. Net Profit 44760 52140 62070 72976 85800 100
EPS (Rs.) 20.7 24.1 28.7 33.6 39.6 90

Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 66.5 74.7 82.4 90.1 90.7
PE (x)* 44.0 55.4 63.1 53.6 46.0 HUVR Sensex

Company Background
Hindustan Unilever Limited (HUL) is India’s largest Fast Moving Consumer Goods company with
a heritage of over 80 years in India. In 1931, Unilever set up its first Indian subsidiary, Hindustan
Vanaspati Manufacturing Company, followed by Lever Brothers India Limited (1933) and United
Traders Limited (1935). These three companies merged to form HUL in November 1956; HUL
offered 10% of its equity to the Indian public, being the first among the foreign subsidiaries to do
so. Unilever now holds 67.25% equity in the company. The rest of the shareholding is distributed
among about 3 lakh individual shareholders and financial institutions. With over 35 brands spanning
20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants,
cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers, the Company is a part of
the everyday life of millions of consumers across India. Its portfolio includes leading household
brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove,
Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s and
Pureit.
HINDUNILVR: Technical View
HINDUNILVR is in uptrend and making higher highs and higher lows on weekly charts. The
historical price action in the stock reflects that, any meaningful dip in the stock may attract
market participants which will help stock to resume its up move. Currently, the stock is trading
near its all time high and seen profit bookings from its all time high levels of 1869.50 levels
which has placed the stock to the low of 1741.25 levels. Thereafter, the stock has bounced
from the said lower levels with supportive volume formation on daily charts which suggests
that the strong hands are accumulating the stock at higher levels. Prior to that, the stock has
seen sharp cut from the high of 1808 levels which has placed the stock near its 200 DEMA on
daily charts. The bounce from the 200 DEMA has seen supportive volume formation which
again reflects uptrend in the stock will remain intact. The stock is trading above all its major
moving averages on daily charts which indicates strength in the stock. On technical setup,
the 14 period RSI is pointing northwards indicates strength in the stock. The parabolic SAR
is trading below the price on weekly charts which indicates uptrend in the stock will remain
intact.

ICICI BANK
LIMITED
Bloomberg Code: ICICIBC IN
Recovery and Stability at the Core Recommendation (Rs.)

The performance continues to underlie the traction in recovery & stability in the core CMP (as on Dec 28, 2018) 361
operating metrics. Headline loan growth numbers showed improvement as the quarter saw
Target Price 440
lesser drag from stressed book and the healthy part continues to grow. Margins showed
Upside(%) 22
sharp sequential uptick (14 bps QoQ) aided by multiple factors and the outlook remains
positive. Core fee income growth too held on to the improved growth trajectory. Stock information
Loan Growth: The loan book (Rs. 5.5 trillion) growth for the quarter was healthy and broadly Mkt Cap (Rs.Bn/US$ Bn) 2323.4 / 33.2
in line with the expectation at 5.5%/12.8% QoQ/YoY. The same was well diversified across
52-wk High/Low (Rs.) 375 / 257
the segments: Retail (5.0%/20.5% QoQ/YoY, 57.3% of loan mix), SME (5.8%/21.8% QoQ/
YoY, 4.6% of loan mix), Domestic Corporate (5.2%/5.3% QoQ/YoY, 25.4% of loan mix), and 3M Avg.daily value (Rs. Mn) 8010.3
Overseas (7.1%/-4.0% QoQ/YoY, 12.7% of loan mix). The growth in overseas is more optical Beta (x) 1.4
as the same reflects the positive impact of rupee depreciation. The growth in retail was
Sensex/Nifty 36077 / 10860
diversified largely across the products and gives us confidence on the hold on asset quality
at the granular level. While the headline loan growth in the domestic corporate was muted at O/S Shares(mn) 6440.4
5.3% YoY, the underlying growth in the non-stress book was healthy at ~15%. With big ticket Face Value (Rs.) 1.0
resolutions expected over 2HFY19E, we expect the headline reading on domestic corporate
to remain weak. We have revised our FY19E/FY20E growth estimates by 13.4%/18.0% (earlier Shareholding Pattern (%)
10.8%/16.7%). Promoters 0.0
Stable Asset quality: The headline asset quality ratios GNPA/NNPA/Coverage improved to FIIs 45.3
8.54%/3.65%/59.5% vs 8.81%/4.19%/54.8% in Q2FY19. The retail slippages were at ~Rs. 8 bn
DIIs 44.2
vs ~Rs. 11 bn in Q2FY19, which continue to inspire confidence. Of the ~Rs. 24 bn corporate
slippage (Rs. 29 bn in Q2FY19), Rs. 13.0 bn were due to impact of exchange rate movement. Others 14.5
The quarter also held a positive surprise on ~Rs. 18 bn of a steel account upgrade from the
bank’s stress list. Further the bank’s exposure to IL&FS is limited at ~Rs. 9.0 bn. We expect
credit costs to be at 3.1%/0.9% in FY19E/FY20E.
1M 3M 6M 12M
Valuation and Risks: We maintain “BUY” on the stock with target price at
Rs. 440 valuing subsidiaries at Rs. 101 per share and core banking book at 2.3x FY20E Absolute 0 18 33 14
P/B. Relative to Sensex (1) 19 29 7
Source: Bloomberg
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Relative Performance*
120
Net Interest Income 212240 217373 230258 271994 328055
Net Profit 97263 98011 67774 40575 149645 110
EPS (Rs.) 15.0 15.0 11.0 6.0 23.0 100

BVPS (Rs.) 140 156 164 169 188
90
P/E (x)* 20.7 20.6 29.9 49.9 13.5
80
P/BV (x)* 1.7 1.5 1.4 1.4 1.2
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 11.4 10.3 6.6 3.8 13.1
RoA (%) 1.6 1.4 0.9 0.5 1.5 ICICIBC Sensex

Company Background
ICICI Bank Limited provides banking and financial services in India and internationally. It
operates through Retail Banking, Wholesale Banking, Treasury, Other Banking, Life Insurance,
General Insurance and other segments. It provides home, car, two wheeler, personal, gold
and commercial business loans as well as loans against securities and loans for new entities. In
addition, the bank offers life, health, travel, car, two wheeler, home, and student medical insurance
products; pockets wallet; fixed income products; investment products such as mutual funds, gold
monetization schemes and initial public offerings as well as other online investment services. It
also provides farmer finance, tractor loans, and micro-banking services as well as other services to
agro-traders and processors and agro corporate. Further, it provides portfolio management,
trade, foreign exchange, locker, private and NRI banking and cash management services; family
wealth and demat accounts; commercial banking, investment banking, capital markets and
custodial, project and technology finance and institutional banking services as well as internet,
mobile and phone banking services.
ICICIBANK: Technical View
ICICIBANK is one of the preferred counters from the Banking sector as the stock is in secular
uptrend, making higher highs and higher lows on all chart frames. In the calendar year 2018,
the stock has generated over 15% of returns and has outperformed its broader index Nifty
Bank and even Nifty 50 for the same time frame. On daily chart, the stock is placed above all its
major moving averages indicating inherent strength in the counter and even it is trading near
to its all time high levels. As far as technical setup is concerned, the 14 period RSI is placed in
a comfort zone of 60-63 levels on weekly chart suggesting further potential in the counter.
On oscillator front, the stock is placed above the mean of the Bollinger band and is heading
towards the upper band on weekly chart frame affirming the bullish view in the counter; even
the ADX is clearly indicating that the stock is gaining strength of its current up move. Hence,
investors with medium to long term time horizon can start accumulating the stock in small
quantities on every dip towards the immediate support zone of 340 levels for the immediate
upside of 375 levels, which is also its all time high breaching which the stock might surge
further in the uncharted territory towards 408-410 levels as per price extension on technical
chart.

LARSEN &
TOUBRO LTD
Bloomberg Code: LT IN
Eight Decades of Leading the Change Recommendation (Rs.)

Robust order book, traction in infrastructure segment: L&T’s outstanding order book CMP (as on Dec 28, 2018) 1439
at the end of Sep 2018 stood at Rs. 2812 Bn (9% growth Vs H1FY18) from diversified
Target Price 1700
sectors while the order inflow for Q2FY19 stood at Rs. 419 Bn (46% growth Vs Q2FY18).
Order inflow is mainly due to strong tendering activity in domestic market. Although Upside(%) 18
the private sector investment remains subdued, public sector continues to drive the
Stock information
order inflow. Infrastructure segment constitutes for 77.6% of the order book and 54.8%
of its new order inflow during Q2FY19. Current outstanding order book is dominated Mkt Cap (Rs.Bn/US$ Bn) 2018.0 / 28.9
by domestic orders with 78% contribution followed by Middle East with 13%. 52-wk High/Low (Rs.) 1470 / 1183
Financial performance: Robust order book reflects its proven leadership in the 3M Avg.daily value (Rs. Mn) 3407.0
infrastructure & engineering segments and gives revenue visibility. While the consensus
Beta (x) 1.1
estimates a slowdown in ordering activity due to the scheduled general elections, they
remain optimistic about the execution momentum. Consensus estimates revenue Sensex/Nifty 36077 / 10860
CAGR of 14% & earnings CAGR of 18% during FY18-20E along with a healthy EBITDA O/S Shares(mn) 1401.9
margin of ~12% by FY20E.
Five-year strategic plan ‘Lakshya’ in place: LT has put in place its five-year strategic
plan “Lakshya’, which focuses on doubling sales to Rs. 2 tn by FY21, improving margins Shareholding Pattern (%)
(ex-services) from 10% in FY16 to 11.2% in FY21, value unlocking either by listing the
Promoters 0.0
asset or by divesting non-core assets, improving RoE’s from 12% in FY16 to 18% in
FY21 and bringing down working capital from 24% in FY16 to 18% by FY21. Successful FIIs 18.9
implementation of the strategic plan should ensure healthy operational growth for LT. DIIs 38.3
Buyback: L&T announced a share buyback of up to 6 crore equity shares at a maximum Others 42.8
price of Rs.1500/ share for aggregate amount of Rs. 9000 crore.
Metro: Entire corridor 1 of the Hyderabad metro became operational and the company is
planning to open another stage of the metro in FY19, taking the total operations to 56 km.
1M 3M 6M 12M
Valuation and Risks: L&T’s diversified exposure to various sectors/ geographies
coupled with its excellent execution capabilities across sectors and its balance Absolute 3 13 17 15
sheet strength compared to other peers in the sector has resulted in strong order Relative to Sensex 2 14 13 8
book build up. The consensus values the company at 23.5x for a target price of
Source: Bloomberg
Rs. 1700, representing an upside potential of 18%. Delay in capex cycle recovery &
order execution may pose threat to the call.

Net Sales 1000328 1076365 1179081 1377648 1551471

110
EBITDA 104571 110732 195911 166052 191154
EBITDA Margin (%) 10.5 10.3 16.6 12.1 12.3 100

Adj. Net Profit 41933 60287 87892 88390 100842
90
EPS (Rs.) 29.9 43.0 62.6 63.3 72.4
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 9.9 12.9 13.9 15.0 15.6
PE (x)* 29.0 31.5 28.0 22.7 19.9 LT Sensex

Company Background
L&T is a $18 bn technology, engineering, construction, projects, manufacturing and financial
services conglomerate with global operations. L&T is one of Asia’s largest vertically integrated
E&C Companies and is India’s largest Engineering & Construction Company. L&T has an excellent
track record of executing the most complex projects in diverse sectors like infrastructure,
oil & gas, defence, power and others making it the most preferred partner resulting in repeat
orders from the clients. L&T has strong presence in Infrastructure, Power, Metallurgical-material
handling, Heavy Engineering, Electrical & Automation, Hydrocarbon, Development projects, IT,
Financial services and others. It undertakes developmental projects like Buildings & Factories,
Transportation infrastructure, Heavy Civil Infrastructure, Power, water & renewable energy,
Ship Building, Defence, Machinery & Industrial products. L&T, through its subsidiaries, associates
and JVs operates in Financial services, Infotech, Infrastructure, Hydrocarbon, Manufacturing,
fabrication and other Services, etc.
LT: Technical View
LT has witnessed a stellar rally from the low of 645.50 levels till it clocked its life time high
of 1459.70 levels on 21st December 2018. Adding to that, the stock is trading well above its
21/50/100/200 DEMA with positive price structure indicating the positive momentum in the
stock is likely to continue in the coming month also. Among the indicators and oscillators front,
14 periods RSI is pointing northwards and poised with bullish bias, clearly indicating the bullish
trend in the stock is likely to continue and the counter is expected to head higher in the near
to medium term. The parabolic SAR (Stop & Reverse) is comfortably trading below the price
on daily as well as on weekly chart, which reflects buying will remain intact in the counter. The
MACD is trading above the signal line in buy territory on weekly chart, suggesting strength in
up move. The immediate support for the stock is placed around 1340-1300 levels followed by
1180-1150 levels, while on the higher side, the stock may face resistance near 1600-1650 levels
followed by 1850-1900 levels. From the above observations, it is evident that stock is likely to
surge higher and outperform its peers in the near to medium term perspective.

OIL & NATURAL
GAS CORP LTD
Bloomberg Code: ONGC IN
Impressive Performance Recommendation (Rs.)

Oil and Natural Gas Corporation in FY18 recorded standalone revenue of Rs. 850041 CMP (as on Dec 28, 2018) 151
Mn, up 9% over FY17 on the back of impressive production and sales performances. Target Price 210
Crude oil production on standalone basis increased to 22.31 MMT recording flattish
Upside(%) 39
growth of 0.3%. Natural gas production rose to 23.48 BCM registering an impressive
growth of 6%. Domestic hydrocarbon volumes at 50.05 MMtoe registered 3% growth. Stock information
Production of value added products at 3.39 MMT increased 4.6% over FY17. The
Mkt Cap (Rs.Bn/US$ Bn) 1931.4 / 27.6
company realized $ 7.33/barrel for crude oil sold in domestic market.
52-wk High/Low (Rs.) 213 / 135
Better Business Synergy: The acquisition of majority stake (51.11%) in Hindustan
Petroleum Corporation Limited provides synergy in terms of low crude procurement 3M Avg.daily value (Rs. Mn) 1781.9
cost for both HPCL and Mangalore refinery & Petrochemicals Limited (71.63% owned Beta (x) 0.9
by ONGC and 16.96% by HPCL). In event of decline in crude oil price, ONGC upstream
margin could be offset by an increase in refining margin of HPCL. Thus, acquisitions
of these entities help protect margins of each other thereby neutralizing erratic O/S Shares(mn) 12833.2
movements in crude price. Face Value (Rs.) 5.0
Upcoming Gas Projects: The company completed 17 projects during last 4 years
Shareholding Pattern (%)
contributing over 6 MMtoe of oil & gas supplies. Ramp-up in gas output is expected
from key projects such as KG-DWN-98/2, Daman and Vashishta fields whereas Promoters 67.5
Western Offshore redevelopment projects will add to oil production. FIIs 5.8
Transparent Pricing: ONGC’s crude subsidy burden has significantly eased following DIIs 13.3
downstream sector reforms. Domestic gas price is now linked to prices in international
Others 13.4
hubs (US Henry Hub, UK NBP, Alberta and Russia), which is revised every 6 months. We
believe, ONGC will continue to benefit from benign subsidy environment and its net
realization will now closely track oil price. Stock Performance (%)
Valuation and Risks: Synergies in ONGC’s upstream and downstream business with 1M 3M 6M 12M
the acquisitions of HPCL and MRPL will prove to be value unlocking and ensure not only
Absolute 5 (15) (2) (22)
retention of margin but also enhancement of the same for the company. Consensus
valuation for the company is PE 8.2x of FY20E EPS for the target price of Rs. 210 with Relative to Sensex 4 (15) (5) (27)
upside potential of 39%. Source: Bloomberg

110
Net Sales 1348162 3232749 3598789 4136673 4213822
100
EBITDA 405143 529583 574770 785366 796468
90
EBITDA Margin (%) 30.1 16.4 16 19 18.9
80
Adj. Net Profit 180600 240823 223602 324041 330703
70
EPS (Rs.) 9.4 18.8 17.4 24.9 25.7
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 6.8 12.5 11.1 14.8 13.7
PE (x)* 21.4 11.4 10.3 6.0 5.8 ONGC Sensex

Company Background
Oil and Natural Gas Corporation with ‘Maharatna’ status, is World’s No. 1 Exploration & Production
company and ranks 11 among global energy majors. In Forbes Global 2000 list 2018, ONGC ranked
3rd largest in India and 246th worldwide. ONGC group companies comprises of ONGC Videsh
Limited (having 41 oil and gas projects in 20 countries), Hindustan Petroleum Corporation Limited
(having 15000 retail outlets and pipeline network of 3370 kms), Manglaore Refinery & Petrochemicals
Limited, ONGC Petro additions Limited (OPaL) and ONGC Mangalore Petrochemicals Limited
(OMPL). ONGC is the fully integrated oil and gas company in India, operating along the entire
hydrocarbon. The company has established 8.70 billion tonnes of hydrocarbon reserves. The
company holds the largest share of hydrocarbon acreages in India (61% in Petroleum Exploration
Licence (PEL) Areas & 81% in Mining Lease (ML) Areas). The company produces over 1.26 million
barrels of oil equivalent per day, contributing around 70% of India’s domestic production. Of this
75% of crude oil produced is Light & Sweet.
ONGC: Technical View
ONGC has bounced well after finding support around 134 levels. The immediate trend in the
stock reflects lower lows and lower highs on daily charts. Prior to that, the stock has seen
sharp fall from its swing high of 212.85 levels which has dragged the stock to the low of 134.75
levels. The fall in the stock has placed the stock below all its major moving averages and
trading well below the same. The recent bounce in the stock from the support of 134 levels
and sustainability above this level will be a fresh trigger for the stock which indicates near
term bottom in the stock is placed and stock is expected to resume its up move in medium
term. The historical price action in the stock also reflects that any meaningful dip in the stock
may attract market participants which will help the stock resume its upward movement. On
technical setup, the 14 period RSI is pointing northwards indicates strength in the stock. The
immediate support is placed around 134 levels and below that is 120 levels. Whereas, the
resistance is placed around 165 levels and above that at 185 levels.

STATE BANK
OF INDIA LTD
Bloomberg Code: SBIN IN
SBI: On the Road to Recovery Recommendation (Rs.)
Improvement in profitability: SBI reported positive earnings for Q2FY19. SBI reported CMP (as on Dec 28, 2018) 295
PAT of Rs. 9.4 bn after three consecutive quarters of losses on back of Rs. 15.6 bn gains Target Price 347
from stake sale in SBI General Insurance and merchant acquiring business. Domestic Upside(%) 18
NIM increased 29 bps YoY to 2.88% in Q2FY19. Global NIMs expanded to 2.73% in this
quarter. On sequential basis, net advances increased to 8.5%. Deposits growth came
Stock information
at 7% YoY at Rs. 28.07 lakh cr, increased by 2.2% sequentially. NII grew 12.5% YoY to Mkt Cap (Rs.Bn/US$ Bn) 2631.0 / 37.6
Rs. 20906 cr led by loan growth. 52-wk High/Low (Rs.) 335 / 232
Reduction in slippages: The GNPAs improved as it got lowered 74 bps sequentially to 3M Avg.daily value (Rs. Mn) 6738.0
9.95%. i.e. it lowered approx. 3.3% QoQ to approx. Rs 2.06 tn. This downtrend is likely Beta (x) 1.5
to continue. This GNPA was due to lower slippages (Rs. 109 bn), even though there Sensex/Nifty 36077 / 10860
was a sharp drop in overall reductions (Rs. 178 bn, down by ~28%). Across segments,
slippages were lower but SME slippages doubled QoQ (Rs. 38.3 bn) despite the bank
availing the RBI dispensation of Rs 5.1 bn. Corporate slippages lowered quarterly to
Rs. 31.9 bn (-14% QoQ) incl. slippages of ~Rs. 23.9 bn from the watch list. Shareholding Pattern (%)
Growth in various financial vectors: Management commented that advance growth Promoters 58.9
will be at 10% YoY in FY19E. NIM may reach to 3% as per management’s comment. FIIs 11.2
Domestic credit growth was at 11% YoY. Retail credit increased by 14.3% YoY to Rs. 5.79 DIIs 22.3
lakh crores in Q2FY19. Home loans grew by 14.26% YoY to Rs. 3.14 lakh crore. Advances Others 7.6
to large corporates increased by 14% YoY to Rs. 7.45 lakh crore.
Valuation and Risks: SBI with its focus on reducing NPAs and fresh slippages augur Stock Performance (%)
well in the long term. We value the stock at 1.3x FY20 BVPS with a “BUY” rating for a
1M 3M 6M 12M
target price of Rs. 347. Risks are IL&FS exposure and slippages outside the watch list.
Absolute 4 11 15 (4)
Relative to Sensex 3 11 11 (10)
Source: Bloomberg

Net Sales 775929 813367 823828 928742 1045000 110
100
EBITDA 122246 2412 (45563) 92244 276531
90
EBITDA Margin (%) 15.9 0.3 (5.3) 11.1 28.5
80
Adj. Net Profit 232.6 272.4 258.0 241.5 262.7
70
EPS (Rs.) 12.2 946.4 0.0 24.5 9.5
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 0.8 1.0 0.9 1.1 1.0
PE (x)* 0.5 0.4 (0.2) 0.3 0.7 SBIN Sensex

Company Background
State Bank of India is India’s largest bank offering personal banking, agricultural banking, corporate
banking and NRI banking with a consolidated balance sheet close to Rs. 36.2 lakh crore (Rs. 36.2 Tn).
SBI employs over 264,041 employees and operates through a network of 22414 branches and has
one of the largest ATM networks in the world with 59541 ATMs including Cash Deposit Machines
and Recyclers serving over 424 Mn customers. SBI, along with its merged subsidiaries provides
various services like deposits, retail loans for Home, Automobile, Education, other Personal and
Corporate loans. SBI has various non-banking subsidiaries: SBI Life Insurance Company, SBI
Capital Markets, SBI Funds Management and SBI Cards & Payments.
SBIN: Technical View
SBIN has gained more than 11% during the third quarter of 2019 Financial Year and is one of
the stocks in Bank Nifty index which has gained for the month of December 2018. The stock is
currently trading well above its all major moving averages like 50, 100, and 200 days moving
averages. Even on the weekly charts also, the stock is trading well above its all major moving
averages, confirming the uptrend. However, on a broader trend, the stock is stuck in the range
of 245-325 levels over last few quarters. The overall chart structure of the stock indicates
that though the stock is stuck in the broader range, the volumes, momentum and magnitude
suggest the bulls are having strong grip on the counter. The stock has good support around
Rs. 255-250 levels below which the next levels of meaningful support lie around Rs. 230-225
levels. As far as the technical setup of the stock is concerned, the ADX is clearly indicating that
the stock is gaining strength of its current up move and a similar picture is being painted by
the RSI which is trading around 57 on weekly charts. Investors with a medium term horizon can
start accumulating the stock in bits and parts with a provision to add more on dips towards
250 levels and may hold with a stop loss placed below Rs. 230 on a closing basis for potential
upside technical targets of Rs. 330-350 in the next few quarters.

TATA MOTORS
LTD
Bloomberg Code: TTMT IN
To Overcome Near Term Challenges Recommendation (Rs.)
Despite the near term pressure on margins due to slowdown in luxury car demand, we CMP (as on Dec 28, 2018) 171
think that the management’s focus on improving core profitability will help recover Target Price 259
from the stress. Also, new vehicle launches lined up during the next 2 years including Upside(%) 51
that of the EV platform is expected to drive volume growth. Increased focus on the
Stock information
LCV and utility vehicle segment has led TTMT’s domestic market share to improve
considerably during YTDFY19. Though we are not worried about the domestic business
but for the irregularities in the JLR business. We expect JLR business to get streamlined 52-wk High/Low (Rs.) 444 / 155
during FY20E. 3M Avg.daily value (Rs. Mn) 3528.8

Beta (x) 1.3
JLR business to revive on the back of new launches: JLR’s business was impacted by
lower volume due to disruption in the Chinese market while other markets such as UK and
Europe have done fairly better. Inventory destocking and higher discounts led to a decline O/S Shares(mn) 2887.3
in the overall profitability. However, new models in the hybrid segment are expected to be Face Value (Rs.) 2.0
launched under the JLR cap which we think will be helpful in reviving demand.
Cost measures to fill the profitability gap: The company has evaluated several measures Promoters 37.3
to maintain operating costs at lower levels where the entire business will be restructured FIIs 18.8
to achieve higher operating margin. Some of the parameters include modular architecture, DIIs 17.2
procurement, in-house engineering to simulate product design changes and overall business
Others 26.7
consolidation.
Valuation and Risks: After the recent correction in the stock, we think that TTMT is Stock Performance (%)
available at cheap valuation. We expect steady recovery in the JLR business and think
1M 3M 6M 12M
that cost reduction measures being taken will work in favour of the company. TATA
Absolute (2) (24) (35) (59)
Motors is valued on SOTP basis based on consensus estimates for a target price of
Relative to Sensex (3) (23) (37) (62)
Rs. 259 having an upside of 51%. However, uncertainties in the JLR business continue
Source: Bloomberg
to be the downside risk to our call.

Net Sales 2673201 2639995 2910930 3176151 3490468

90
EBITDA 371520 344314 351842 329936 418515
EBITDA Margin (%) 13.9 13.0 12.1 10.4 12.0 60

Adj. Net Profit 107498 79842 83290 30217 77859
EPS (Rs.) 32.0 23.0 25.7 8.8 22.9 30

Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 17.1 10.9 12.3 3.2 7.7
PE (x)* 12.2 19.8 12.7 19.4 7.5 TTMT Sensex

Company Background
Tata Motors Group is an automobile manufacturer with a portfolio that includes a wide range
of cars, sports vehicles, trucks, buses and defence vehicles spread across 175 countries around
the globe. TATA Motor’s Jaguar Land Rover Automotive PLC is the holding company of Jaguar
Land Rover Limited, a British multinational automobile company with its headquarters in Coventry
United Kingdom. Models under the Jaguar series include XF, XJ, F-Pace, XE etc. and models
under the Land Rover series are Defender, Discovery and Range Rover (RR) series having more
prominence in the UK, Europe, North American and Chinese regions.
TATAMOTORS: Technical View
TATAMOTORS is in secular downtrend and is in the cycle of making lower tops and lower
bottoms from the highs of 598.40 levels and is currently trading in a truncated trading zone of
160-180 levels. The stock is placed below all its major moving averages on daily chart. However
at current juncture, the stock is trading in a narrow range having immediate support placed
around 150-154 levels, which is also the multiple support for the counter on weekly chart
followed by its multiyear support of 135-140 levels sustaining which the stock is expected
to surge higher close to its immediate resistance of the unfilled gap placed around 205-208
levels. As far as the technical setup of the stock is concerned, the ADX is clearly indicating
that the stock is gaining strength at current scenario and the bulls are trying to fight hard
against the bears. Even the weekly RSI depicts the same kind of view as it is placed near to the
oversold region suggesting the stock to be bottomed out soon and a reversal in the trend can
be witnessed. Tata Motors being one of the underperformers from the auto sector in the FY18
is expected to perform in FY19. Hence, investors with medium to long tern time horizon can
start accumulating the stock in small quantities on every dip towards the immediate support
zone for the potential upside of 205-208 levels, breaching which the stock might surge further
towards 225-230 levels.

UPL LTD
Bloomberg Code: UPLL IN
Traction in Latin American Business has kept Growth Recommendation (Rs.)

Stable CMP (as on Dec 28, 2018) 758
Growth in India and LATAM jointly contribute to ~66% of total sales. Products like Sweep
Target Price 1004
Power, Avancer Glow and Delma received encouraging response from the farmers
in India Business, despite erratic business. H2FY19 is expected to be encouraging Upside(%) 32
with higher reservoir levels than last year. Except for Argentina, LATAM growth has
Stock information
remained healthy for the recent quarter at 25.8% YoY. The inventory position in LATAM
is below normal with healthy order book, coupled with the benefits accruing from the Mkt Cap (Rs.Bn/US$ Bn) 386.2 / 5.5
US-China trade war. UPL posted stable volume growth of 8% YoY for Q2FY19, driven by 52-wk High/Low (Rs.) 830 / 537
robust performance across India, LATAM and Africa. Better realization and favourable
currency movement resulted in a 14% YoY growth in net revenue to Rs 42.5 bn.
Management has re-iterated its revenue growth guidance for FY19E at 10-12%. UPL is Beta (x) 1.2
well-positioned to post stronger growth in 2HFY19, driven by better farmer sentiments Sensex/Nifty 36077 / 10860
following the recent MSP hike (which would increase agri spends by farmers),pick-up
in demand amid better monsoon and healthy performance of the new and existing O/S Shares(mn) 509.3
product portfolio in key crops like Cotton, Soybean and Sugar beet. Face Value (Rs.) 2.0
Positive Synergies from UPL-Arysta Life Sciences Acquisition continue: The acquisition
will enhance UPL’s position as a global leader in the agricultural solutions. Through this,
it intends to find market opportunities in emerging markets like Asia, Latin America Promoters 27.9
and Europe. The consolidation in the industry is driven towards giving crop solutions FIIs 42.4
to farmers. UPL has been investing in the same from the last few years to improve
DIIs 8.6
their ability to fight climate change. Globally, Arysta is 4th in seed treatment while
being 7th/8th in seed treatment solutions. Arysta also has an alliance with Japanese Others 21.1
manufacturers who have access to several patented and new molecules which
would bring in new value to UPL. Strong backward integration, consolidation in the
agrochemical space with a boost to geographical/ segment/ product mix would give Stock Performance (%)
strong traction to the business and aid profitability. 1M 3M 6M 12M
Valuation and Risks: Factoring in strong backward integration, consolidation in Absolute (2) 14 25 (1)
the agrochemical space with a boost to geographical/ segment/ product mix and
Relative to Sensex (3) 15 21 (7)
strong traction in LATAM business, at CMP Rs. 758, as per consensus estimates, we
recommend ‘BUY’ for a target of Rs. 1004 valuing at 5 year average historical PE of 16x Source: Bloomberg
on FY21E EPS representing an upside potential of 32%.

Net Sales 160750 171410 194041 273652 289361

100
EBITDA 29850 35050 40017 57542 62786
EBITDA Margin (%) 18.6 20.4 20.6 21.0 21.7 80

Adj. Net Profit 17270 20220 22456 26854 32005
EPS (Rs.) 34.1 39.8 44.9 53.8 62.8 60

Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 28.4 23.2 22.5 21.8 21.6
PE (x)* 21.3 18.4 16.7 14.2 12.1 UPLL Sensex

Company Background
United Phosphorous Ltd (UPL) is the largest producer of agrochemicals in India. The company
produces and exports off-patent crop protection products, other industrial chemicals.
Incorporated in the year 1969, UPL is among the top five post–patent agrochemical manufacturers
in the world and is present across 123 countries. It offers wide range of products and has developed
more than 100 insecticides, fumigants, rodenticides, fungicides, herbicides, specialty chemicals,
industry chemicals and chloroalkaline products. All the units of UPL are certified under the ISO
9001 for quality assurance, 14001 for Environment Pollution Control norms and OHSAS 18001
for healthy and safety. UPL also manufactures Caustic Chlorine, White Phosphorus, Industrial
Chemicals and Specialty Chemicals. It also has captive power plant that has a generating capacity
of 48.5 MW i.e. BEIL (Bharuch Enviro Infrastructure). BEIL is engaged in collection and disposing
off solid/hazardous wastes from member industries in the regions. CEL (Chemo Electronic
Laboratory) is part of UPL’s diversification strategy. It is one of the largest manufacturers of
toxic gas detection devices and is the only manufacturer of chemical detector tubes in India. ETL
(Enviro Technology) has a common effluent treatment plant in Gujarat. Recently, it acquired a
seed treatment/solutions company called Arysta Life Sciences in a 4.2 Bn deal.
UPL: Technical View
UPL stock price clocked an all time high of 902.50 in the start of Aug’17, post which it entered
into a correction mode, and continued to drift lower till July 18, almost a year long price
correction, wherein prices retraced its key Golden Fibonacci Ratio by placing a swing low of
537, post which it witnessed gradual recovery towards 790 levels in last couple of months.
Technically, prices managed to recover from the lows and formed higher-high and higher
low in the recent recovery, also prices moved above its major 200-DEMA (706) and from
last two months it is sustaining above that, also it is holding above its 21 & 50-DEMA which
is currently placed near 753 & 733 levels respectively. On the weekly momentum setup, 14-
pd RSI after testing oversold territory, moved back in bullish territory, and it is also reflected
on daily time frame chart where indicator managed to float above 40-levels from last many
sessions, regaining underlying strength in the counter. Going forward, stock has important
support near 700-710 levels, followed by 580-600 levels. On the higher side, stock is likely
to find immediate resistance near 800-830 levels followed by 890-910 moving above which
stock will enter into an uncharted territory towards 960-990 mark.

YES BANK
LTD
Bloomberg Code: YES IN
Odds In favour of Yes Recommendation (Rs.)

The bank’s Q2FY19 performance disappointed on asset quality notwithstanding the healthy CMP (as on Dec 28, 2018) 181
business momentum. The slippages were much higher than anticipated nevertheless the
Target Price 410
miss was led by concentrated exposure and the bank continues to see good possibility
of recovery. Additional disclosure on asset quality pertaining to lower SMA2 accounts Upside(%) 127
(> Rs. 50 mln at 0.15%) and no exposure to IL&FS at the parent level should somewhat balance
Stock information
out the negative on slippages. Business momentum remained healthy with advances led by
across the segments. NIMs surprised on the positive and held stable notwithstanding high Mkt Cap (Rs.Bn/US$ Bn) 419.5 / 6.0
consumption. The outperformance on NIMs vis-a-vis retail peers could be explained by 52-wk High/Low (Rs.) 404 / 147
much higher proportion of variable book and quite less pressure on retail book. The bank
has lowered its branch expansion targets nevertheless we see past investments sufficing to 3M Avg.daily value (Rs. Mn) 12779.9
maintain the granular momentum in the medium term. Factoring in higher treasury losses, Beta (x) 1.4
lower loan growth and a similar performance on divergences as it was last year, we estimate
ROEs to be at ~16%/18% in FY19E/FY20E.
Outperformance on margins: The NIMs were stable QoQ at 3.3% notwithstanding high
capital consumption as against our expectation of a sequential decline. We believe the Face Value (Rs.) 2.0
outperformance as against the retail peers is led by higher proportion of variable book and
less competitive pressure on retail book.
Promoters 19.9
Loan growth remains strong: We expect loan growth to remain healthy (~20/25%) not
withstanding capital and transition issue. The loan growth for the quarter was quite FIIs 39.6
strong at 12%/61% QoQ/ YoY. The same was led by the business banking, 9.5%/57% DIIs 22.9
QoQ/ YoY and corporate banking, 12.6%/63% QoQ/ YoY. Within the business banking
the most granular of the segment, Retail Banking, continues to show the strongest Others 17.6
momentum at 14%/102% QoQ/ YoY. We expect some pressure on growth because
of constrained capital to be led by corporate banking leading to a positive shift in the
loan book mix towards business banking. We estimate loan growth at 25%/21% FY19E/
FY20E. 1M 3M 6M 12M
Valuation and Risks: We rate “BUY” on the stock with a Target Price of Rs. 410 valuing Absolute 12 (1) (45) (42)
the stock at 2.67x FY20E P/B. We believe that uncertainties about its top management Relative to Sensex 11 (1) (46) (46)
and asset-quality issues will remain a cloud on the stock price in the near term.
Source: Bloomberg
Valuation Summary
Relative Performance*
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
140
Net Interest Income 45667 57973 77371 99294 113656
120
Net Profit 25394 33301 42246 43745 58762
100
EPS (Rs.) 12.0 15.0 18.0 19.0 26.0
80
BVPS (Rs.) 66 97 112 130 154
60
P/E (x)* 16.4 13.6 10.8 10.4 7.8
40
P/BV (x)* 3.0 2.1 1.8 1.5 1.3
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 19.9 18.6 17.7 15.7 18.0
RoA (%) 1.8 1.9 1.7 1.3 1.4 YES Sensex

Company Background
Yes bank is a private bank set-up in 2004. Over the years, the bank’s strong business growth,
healthy net interest margins, stable profitability, healthy capitalization have made it one of the top
five private sector banks in India. It has steadily built a Corporate, Retail & SME banking franchise,
with a comprehensive product suite of Financial Markets, Investment Banking, Corporate Finance,
Branch Banking, Business and Transaction Banking, and Wealth Management business across the
country. Its Treasury segment includes investments and financial market activities such as trading,
maintenance of reserve requirements and resource mobilization. The Corporate/Wholesale
Banking includes lending, deposit taking and other services offered to corporate customers. The
Retail Banking includes lending, deposit taking and other services offered to retail customers. The
Other Banking Operations segment includes Para banking activities, such as third party product
distribution and merchant banking among others. Yes bank has adopted knowledge driven
approach to offer financial solutions, which go beyond the traditional realm of banking.
YESBANK: Technical View
YESBANK witnessed a huge correction from the higher levels of 404 towards 146 levels
within a short time frame of around 4 months. The stock is trading far from the major moving
averages and is trading near the major support area of 150-160 levels and formed a good base
around the same levels from past few weeks. The stock has been in the sideways consolidation
mode from past few weeks and witnessed reasonable volumes indicating strong hands have
started accumulating the stock at current levels after the recent correction. At the current
juncture, the stock is indicating a bullish divergence as seen with its momentum indicators and
is looking bullish. The stock is poised to surge higher towards 280 plus levels with 14 days RSI
plotting comfortably around 45-50 levels suggesting positivity in the counter. On the shorter
time frame, the stock will enter into bullish trajectory once the price breached its immediate
resistance level of 195 followed by 205 levels. On the flip side, the next best support for the
counter is placed around 145-150 which may be utilized as a good accumulating opportunity
for the long-term period. On the overall front, we expect the stock to gradually move
northwards in the next few months and may continue to trade with positive bias. Long-term
investors may buy the stock at current levels and accumulate more if the stock dips towards
the support zones.

Wealth Maximizer - Largecap (WM) is an investment product of Karvy Stock Broking Ltd formulated
by our Equity Fundamental & Technical Research, based on Techno-Funda Analysis. It enlists 10 stocks
from the Karvy Large-cap stock universe.
The objective of ‘Wealth Maximizer’ is to deliver superior returns over an extended time frame. The
investment philosophy works on simple but superior fundamental research.
The 10 large cap companies detailed in this product in our opinion, reflect superior businesses with
consistent future cash flows, operating efficiency and growth potential.
We also track short-term price distortions that create long-term value, driven by sound economic
fundamentals of the company. This reflects that stocks that have margin of safety will converge to
their intrinsic value over a period of time and will reflect superior returns.
This is also a part of managing the overall risk, the objective is to attain higher risk adjusted returns and
deliver consistent outperformance.
The stocks’ performance will be assessed on an ongoing basis and the composition of the stocks in
the product will be altered based on target achievement, changes in the fundamentals of the stocks,
industry position, market performance and broad macro-economic factors.
The product is being given to the clients in the form of non-binding investment recommendations so
that they can decide to capitalize on the robust fundamentals and future plans of the company which
are being discussed in the report.

VALUE
INVEST
MID CAP STOCKS
BAJAJ
ELECTRICALS LTD
Bloomberg Code: BJE IN
Consumer and EPC Business Both on a Strong Footing Recommendation (Rs.)

Q2FY19 Update: The revenues came in at Rs. 1598 mn growing by 70.9% YoY beating
CMP (as on Dec 28, 2018) 497
our expectations. Both the segments have performed strongly to drive growth. EPC
has posted strong growth of 126.9% YoY majorly driving the huge revenue growth. Target Price 670
Consumer durable segment has shown consistent growth of 25% with major Upside(%) 35
sub-segment growth in fans and appliances. PBT was at Rs. 533 mn showing a
Stock information
growth of 73.8% and PAT was at Rs. 341 mn for a growth of 79.6%. Considering YoY,
the margins have shown an improvement but QoQ there is a decline in margins. The Mkt Cap (Rs.Bn/US$ Bn) 51.0 / 0.7
margins declined QoQ due to increase in commodity prices and depreciation of rupee. 52-wk High/Low (Rs.) 706 / 400
Consumer Durables: With the implementation of RREP the company was able to 3M Avg.daily value (Rs. Mn) 37.7
establish a strong distribution network of 180,000 touch points. It is in the process of
Beta (x) 1.1
bringing new products and expanding its existing product range. BJE motivates and
encourages the distributors by bringing new incentive schemes and training session. It Sensex/Nifty 36077 / 10860
has taken a price hike due to increase in commodity prices and its margin and working O/S Shares(mn) 102.4
capital cycle has improved a lot.
Nirlep Acquisition: Bajaj has expanded its consumer segment portfolio and has
acquired 79.85% of Nirlep appliances which is majorly into the business of non-stick Stock information
cookware. The management expects the acquisition to be revenue accretion in the Promoters 62.8
coming years. The management expects Nirlep revenues to grow at CAGR of 30% FIIs 9.6
over the next 3 years.
DIIs 5.3
Healthy Order book: The improvement in execution and being selective about projects
Others 22.3
has helped the company revenue to grow. In order to improve the execution and supply
chain, the company has used Theory of Constraints. Margins can fall in UP orders Shareholding Pattern (%)
due to increase in commodity price and slightly higher execution cost. Management
1M 3M 6M 12M
expects revenue to be around Rs. 40 bn in FY19.
Absolute 6 (1) (6) 1
Valuation and Risks: With a very positive scenario for both consumer and EPC
Relative to Sensex 4 (1) (9) (6)
segment, we expect the revenue to grow at CAGR of 14% during Fy18-20E and EBITDA
margin to improve to 7.0%. We rate “BUY” valuing the company at 25x on FY20E EPS Source: Bloomberg
for a target price of Rs. 670 representing an upside potential of 35%.

140
Valuation Summary
125
110
Net Sales 46267 42983 47164 56860 66270
95
EBITDA 2642 2445 2935 3696 4639
EBITDA Margin (%) 5.7 5.7 6.2 6.5 7.0 80

Jun-18
Feb-18
Sep-18
Oct-18
Mar-18
Jul-18
Dec-18
Nov-18
Aug-18
Dec-17
Jan-18
Apr-18
May-18
Adj. Net Profit 1103 1093 1730 2023 2720
EPS (Rs.) 10.9 10.8 17.1 20 26.9 BJE Sensex

RoE (%) 14.6 12.5 18.3 18.2 20.1 Source: Bloomberg; *Index 100
PE (x)* 17.4 28.8 29.9 24.8 18.4

Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price

Company Background
Bajaj Electricals Ltd is a flagship company under Bajaj Group, one of the oldest conglomerates
in India. Bajaj Electricals Ltd, established in 1938, is a pioneer in electrical home appliances,
lighting and luminaries business. Over the last 75 years, it has progressively diversified into
turnkey project contracts involving Power Distribution and Transmission Line Towers (TLT)
by establishing a new SBU (Strategic Business Unit) for Engineering and Projects (E&P). While
the power distribution projects are working on rural electrification, the TLT projects cater to
connecting power transmission grids across India - connecting power generating plants or
sub-stations. The company majorly follows asset-light model as it procures products from the
market and sells it under the brand name of Bajaj. In November 2002, the company entered
into a technical collaboration and brand licensing agreement with Morphy Richards, United
Kingdom for the sales and marketing of electrical appliances under the brand name of “Morphy
Richards” in India.
BAJAJELEC: Technical View
BAJAJELEC has been trading with bullish bias from past few quarters making higher highs and
higher lows on the weekly charts. The counter has clocked all-time high of 692 in April 2018
and witnessed a round of correction which dragged the counter towards the lower support
area of 450-500 where an unfilled gap is acting as a strong support on the daily charts. At
the current juncture, the stock is trading in the sideways consolidation mode with bullish
bias and is on the verge of breakout above 520-525 levels on the short term charts. On the
levels specific data, the counter is having support around 470 followed by 450 level while
resistance is pegged around 525 followed by 580-600 levels where the unfilled gap is placed.
The counter is currently trading in the cluster of moving averages on the daily charts with
Bollinger band (20,2) expanding in the northward direction. We expect the stock to move
higher in the coming weeks and may test 560-580 levels in the medium term perspective with
strong supports pegged around 450 level. Medium to long-term investors may buy the stock
from current levels and may accumulate more around the mentioned supports.

FINOLEX
CABLES LTD
Bloomberg Code: FNXC IN
Volume Impacted But Set to Recover in H2FY19 Recommendation (Rs.)

Q2FY19 Update: Finolex top line grew marginally by 3.8% YoY on the back of strong CMP (as on Dec 28, 2018) 459
performance from communication cables which grew by 14.3%. The growth was lower Target Price 600
due to the tepid performance of the electrical segment. The electrical segment was
Upside(%) 31
impacted due to transport disruption in July and floods in Kerala which is one of the
prominent places for electrical cables business. The absolute EBITDA has shown a Stock information
growth of 6.6% with margins at 12.0% showing a decline of 234 bps YoY. Profit for the Mkt Cap (Rs.Bn/US$ Bn) 70.1 / 1.0
quarter has declined by 6.8% due to a higher incidence of taxation because of expiry 52-wk High/Low (Rs.) 758 / 402
of tax exemption period of Roorkee facility. The net profit margins were lower at 13.0%
showing a fall of 147 bps.
Beta (x) 0.8
Growth in Cables Segment: Communication cables can grow with 20% sales CAGR
over FY18–20E led by government’s investments in Bharat Net, electrical cables’ growth
has been muted over the past five years—2% CAGR over FY13-18. The electrical cables
segment has given a flat performance due to transport issues at its Roorkee facility Face Value (Rs.) 2.0
and floods in Kerala. The EBIT margins for electrical cables segment declined by 210 Shareholding Pattern (%)
bps due to commodity prices variation.
Promoters 37.3
Consumer durable business: The new segment mainly comprises of electrical consumer FIIs 6.5
durables like Fans, Switchgear and Water heaters which the company forayed into last
DIIs 20.6
year. The products have been well received by the market on the back of strong brand
Others 35.6
name Finolex, with a strong supply chain system. The revenue from other segment
has shown a growth of 28.0% YoY. The management expects higher profitability in the Stock Performance (%)
coming quarters.
1M 3M 6M 12M
Valuation and Risks: At CMP of Rs. 459, FCL is trading at 16.8x to FY20E EPS. FCL Absolute 1 (14) (18) (34)
is expected to generate healthy free cash flows over time. Due to the recent price
correction, we recommend “BUY” rating by valuing the company at 22x (3 years avg)
Source: Bloomberg
on FY20E EPS for a target price of Rs. 600 representing an upside potential of 31%.
120
Valuation Summary
Net Sales 24610 26707 28842 32361 36047

80
EBITDA 3390 3714 4223 4854 5407
EBITDA Margin (%) 13.8 13.9 14.6 15.0 15.0 60

Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
Adj. Net Profit 2488 3159 3583 3711 4170
EPS (Rs.) 16.3 20.7 23.4 24.3 27.3 FNXC Sensex

RoE (%) 17.0 16.8 16.3 15.9 15.6 Source: Bloomberg; *Index 100
PE (x)* 20.7 25.0 27.7 18.9 16.8


Company Background
Finolex Cables Limited is a manufacturer of electrical and communication cables and copper
rods. The Company’s business segments include Electrical Cables, Communication Cables,
Copper Rods and Others. The Electrical Cables segment includes 1,100 Volts polyvinyl chloride
(PVC) insulated cables, motor winding PVC insulated cables and approximately three core flat
cables, automotive/battery cables and elevator cables. The Communication Cables segment
includes jelly filled telephone cables (JFTCs), local area network cables, coaxial cables, speaker
cables, optic fiber cables and closed-circuit television (CCTV) cable. The Copper rods segment
offers continuous cast copper (CCC) rods of over eight millimeters diameter. The other
segment includes Electrical Switches, which include switches, sockets & regulators. In addition
to this also includes lamps, which include retrofit and non-retrofit compact fluorescent lamps
(CFL), as well as T5 Tube Lights fittings and light-emitting diode base lighting switches.
FINCABLES: Technical View
The stock is in an uptrend and making higher highs and higher lows on monthly charts and
made the all-time high of 744.47 levels in February 2018. The stock has seen profit taking
from the lifetime high which has dragged the stock to the low of 442.80 levels. The stock
has corrected around 55% from its previous rally from 197.55 to 744.47 and trading near the
support 448 levels which is 200 EMA on the weekly chart. The stock is trading in the range
of 442-477 levels from last one month. The immediate support is placed around 437 levels
which is the 50 EMA moving average on monthly chart and below that is 406 levels which
is 61.80% retracement level of the said rally. The stock is trading below its 50/200 DEMA
moving averages on daily charts suggesting short-term weakness in the counter. Among the
indicators and the oscillators, the 14 period RSI is pointing northwards after giving positive
crossover with signal line. On the higher side, resistance is placed around 490 levels followed
by 530 levels. Hence, we recommend investors with a longer time horizon to go long in the
counter around current levels, average on declines towards 437 levels.

JAIN IRRIGATION
SYSTEMS LTD
Bloomberg Code: JI IN
Revenue Growth Visibility Recommendation (Rs.)

Jain Irrigation Systems Limited is the largest in domestic and 2nd largest in global CMP (as on Dec 28, 2018) 69
Micro Irrigation System business. The company has well-diversified product portfolio
Target Price 101
comprising of Hi-tech Agri Input Products (MIS i.e., drip & sprinkler and Tissue Culture),
Plastic Division (PE/PVC Pipes & sheets), Agro Processing Division (De-hydrated Upside(%) 46
Onions/ Garlic, Spices and Processed Foods) and Other Business Division (Green
Stock information
Energy). The company registered consolidated revenue of Rs. 79468 Mn (excluding
other income and net of excise duty) up 17.4% in FY18 on the back of strong growth it Mkt Cap (Rs.Bn/US$ Bn) 35.3 / 0.5
registered in all business segments. The company posted EBITDA growth of 12% and 52-wk High/Low (Rs.) 150 / 55
PAT growth of 26% over FY17 on YoY basis.
Strong Segmental Performances: The Company recorded growth of 28% in Hi-tech
Beta (x) 1.5
Agri Input Products Division, 12% in Plastics Division and 0.5% in Agro Processing
Division in FY18 on YoY basis. It continued with good segmental performance during Sensex/Nifty 36077 / 10860
H1FY19 having registered growth of 21% in Hi-tech Agri Input Products Division, 24% in O/S Shares(mn) 496.4
Plastics Division and 26% in Agro Processing on YoY basis.
Government Irrigation Initiatives to be Growth Stimulator: Central Government
initiatives like adding at least 1 million hectares of land under micro irrigation every Shareholding Pattern (%)
year, Building 100 Smart Cities, Housing for All, Swachh Bharat, etc. and resolve of Promoters 28.6
state governments to bring more hectares of land under irrigations to provide big fillip
FIIs 30.8
to MIS and plastic pipes & sheet business.
DIIs 7.2
Fast Growing Agro Processing Business: Food-processing is largely export-oriented. It
has some domestic business as well. Much higher level of growth in overseas markets Others 33.3
helped the company to register growth of 26% during H1FY19 on YoY basis.
Overseas Business: The recent acquisitions of Agri Valley Irrigation (AVI) and Irrigation
Design and Construction (IDC) amidst stabilization of economic and political situations 1M 3M 6M 12M
in Turkey, Brazil and Mexico ensures increased order inflows from these regions. Absolute 5 13 (13) (46)
Valuation and Risks: We have valued the stock on 1 year forward PE 9.5x of FY20EPS Relative to Sensex 4 14 (15) (49)
and have arrived at TP of Rs. 101 with 46% upside potential. Greater dependence on Source: Bloomberg
government irrigation policy and seasonal nature of business are potential risks to the
call. Relative Performance*
120
Valuation Summary
100
80
Net Sales 63222 67698 79468 90427 102540
EBITDA 8183 9402 10554 13233 15979 60
EBITDA Margin (%) 12.9 13.9 13.3 14.6 15.6 40

Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
Adj. Net Profit 487 1762 2213 3764 5470
EPS (Rs.) 1.1 3.3 4.3 7.3 10.6

JI Sensex
RoE (%) 1.3 4.3 5.2 8.3 11.1
Source: Bloomberg; *Index 100
PE (x)* 57.7 28.5 25.1 9.5 6.5

Company Background
Jain Irrigation Systems Limited, incorporated in the year 1986 is a Indian multinational company
engaged in the business of Hi-tech Agri Input Products, Plastic Piping & Products Agro
Processing and Other Business divisions (Solar thermal products, solar photovoltaic grid and
off-grid products, Bio-gas and Solar Power generation). The micro irrigation system (MIS) is the
flagship product of the company wherein company offers end-to-end water solution projects.
The company has manufacturing plants in 30 locations and more than 11000 associates
worldwide. Such large distribution network has helped company to hold 40% market share
in domestic MIS industry and around 20% market share in domestic PVC piping. Further, the
company has in-house R&D to capitalize on opportunities arising in MIS, tissue culture and
agro-processing industries.
JISLJALEQS: Technical View
JISLJALEQS has gained more than 14% during the third quarter of 2019 Financial Year ending 3
quarters of losses. The stock seems to be ending its downtrend as it is finding strong support
as it is nearing its previous swing lows of 55 and witnessed a bounce back from these levels.
The stock is currently trading above its short-term moving averages like 21 and 100 days
moving averages. However, on a broader trend, the stock is stuck in the range of 245-325
levels over last few quarters. Adding to it, Heiken candlesticks is signaling positive trend on
the daily charts as well as weekly charts reflecting the stock is well placed to move higher
in the coming days. 14 periods RSI is trading at 44.01 above the 9 period averages trading at
41.41 on weekly chart indicating positive momentum. The stock has good support around Rs.
55-57 levels below which the next levels of meaningful support lie around Rs. 44-46 levels.
As far as the technical setup of the stock is concerned, the ADX is clearly indicating that the
stock is gaining strength of its current up move on daily charts. Investors with a medium-term
horizon can start accumulating the stock in bits and parts with a provision to add more on dips
towards 58-60 levels and may hold with a stop loss placed below Rs. 55 on a closing basis for
potential upside technical targets of Rs.90-95 in the next few quarters.

K.P.R.
MILL LTD
Bloomberg Code: KPR IN
Exports Continue to Improve Recommendation (Rs.)

Exports excel, capex plans on track: Garment export business thrives as volumes
CMP (as on Dec 28, 2018) 565
increased by 15.36% (Rs. 44.5 Mn vs Rs. 37.6 Mn) and the realization by ~6% (Rs. 137.75 vs
Rs. 129.78 in H1FY19). Exports contribution has increased to ~ 43% of consol. Revenues Target Price 716
as of H1FY19 vs ~40% in previous fiscals as more of the yarn and fabric is now being Upside(%) 27
consumed internally for the garment manufacture. With private consumption
(domestic) on the rise, improvement in realization for both - yarn & fabric division and Stock information
garment, we revise our revenues estimates for FY19E and FY20E upwards by ~9% and Mkt Cap (Rs.Bn/US$ Bn) 41.0 / 0.6
10% and PAT by 2.4% for FY19E and 6% for FY20E. We revise our rating upward to
52-wk High/Low (Rs.) 850 / 552
‘BUY’, with a Target price of Rs. 716.
Garment division gets further boost: KPR is also on track to begin manufacture at
its new plant in Ethiopia (capacity of 10 mn units) by Q4FY19. The plant will provide Beta (x) 1.0
import duty benefits between 10% and 18% and further improve competitiveness. The Sensex/Nifty 36077 / 10860
company in principle has an agreement for the manufacture of garments with 2 clients
O/S Shares(mn) 72.6
from this unit and is positive of ramping up seed capacity in 6 months. Currently, the
export order book stands at Rs. 6,000 Mn for the garment business. The depreciation Face Value (Rs.) 2.0
of rupee has provided levy for the company to improve bottomline and also pass on
the benefits to its clients.
Promoters 75.0
Cotton price outlook: Cotton prices are higher on YoY basis on the back of rise in
MSP (by 28% and 26% for medium and long staple cotton) and increased import by FIIs 1.7
China. India already garners about 25% cotton sales to China and with continued DIIs 14.1
tariff war scenario between China and the US is expected to further increase the
Others 9.2
export percentage to China. Cotton prices are expected to stabilize at ~Rs. 45,000 to
Rs. 46,000 per quintal (vs ~Rs. 40,000 per quintal in the same period last year).
Valuation and Risks: Owing to good numbers in the last few quarters and expectations
1M 3M 6M 12M
of steady performance in FY19E and FY20E, valuations have remained fairly stable
despite the overall correction within the sector and markets in general. Major trigger Absolute (5) (7) (11) (28)
for the stock will increase garment revenue in the overall mix and improvement in Relative to Sensex (6) (6) (14) (32)
margins on the back of commencement of Ethiopia plant. We value the stock at 13.2x (5
year average 1yr forward P/E) on FY20E EPS of Rs. 54.4. Key risks to the call are higher
than expected cotton prices due to global factors and lower growth from US market. Relative Performance*
120
Valuation Summary
110
100
Net Sales 26005 28166 30245 34687 37314 90
EBITDA 4696 5633 5753 6466 7181 80
EBITDA Margin (%) 18.1 20.0 19.0 18.6 19.2 70
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
Adj. Net Profit 2107 2726 2925 3450 4018
EPS (Rs.) 28.0 36.3 39.6 46.7 54.4

KPR Sensex
RoE (%) 17.1 17.7 19.1 20.4 20.6
Source: Bloomberg
PE (x)* 29.7 18.1 14.3 12.1 10.4

Company Background
KPR Mill Ltd. is an apparel manufacturing company engaged in the production of yarn, knitted
fabric and readymade garments. It has one of the largest vertically integrated manufacturing
capacities in India, enabling the company to utilize and customize the products as per client
specifications. Building on its maiden business in 1984, the company currently has 0.35 Mn
spindles to produce 90,000 MT of yarn per annum, knitting facility to produce 27,000 MT per
annum and garmenting facility to produce 95 Mn pieces per annum (one of the largest garment
manufacturers in India). The power requirements are met through the company owned 66
wind mills and through green power through a Co-gen Cum Sugar Factory with capacity of 30
MW and 5000 Tons Crushed per Day (TCD).
The board, including Chairman Mr. K.P. Ramasamy and Mr. K.P.D. Sigamani, the Managing
Director, have vast experience in the textile industry, which has aided in the company’s
evolution into fabric and garment segments.
KPRMILL: Technical View
The stock is in a secular uptrend making higher highs and higher lows on the monthly chart.
The stock witnessed a strong rally from the lows of 310 levels registered in February 2016 to
the highs of 878 levels registered in June 2017. The stock formed a double top on the daily
charts in January 2018 when the stock re-visited levels near the highs that it had registered
previously. As far as the technical setup of the stock is concerned, the stock has re-traced
more than 50% since and is trading near a confluence of supports. The 200 period exponential
moving average on the weekly chart for the stock is placed around 547 levels and the 50
period exponential moving average on the monthly chart for the stock is placed around 533
which also coincides with the 61.8% Fibonacci retracement levels of its previous rally. The stock
is currently placed below all the major moving averages on the daily chart which indicates that
the stock may see weakness in the near term. Hence investors with medium to long-term
time horizon can start accumulating the stock on dips towards the immediate support zone
of 533-547 levels and may hold with a stop loss placed below its swing support placed around
450 levels for the potential upside of 690-700 levels, breaching which the stock might surge
further towards 830-850 levels.

MENON
BEARINGS LTD
Bloomberg Code: MEN IN
Expansion Plans & Value Unlock in Aluminum Division Recommendation (Rs.)

Strong revenue growth, healthy profit margins: Menon enjoys a marquee list of clientele
CMP (as on Dec 28, 2018) 79
like TATA, VOLVO, Mahindra & Piaggio and state of the art manufacturing facilities.
Menon undertakes designing, testing, validation & manufacturing of bearings, bushes Target Price 120
& thrust washers for a wide range of applications. We expect the investments made Upside(%) 52
by the firm in new facilities will start paying off by FY20E. In view of the order book
Stock information
position, customer demand, we expect revenue CAGR of 16.5% during FY18-20E. We
also expect EBITDA margins to stabilize around ~26% by FY20E. Mkt Cap (Rs.Bn/US$ Bn) 4.4 / 0.1
Capacity enhancements: Menon has invested Rs. 400 Mn for enhancement of 52-wk High/Low (Rs.) 127 / 70
aluminum division and the facility is expected to be ready by FY20E to cater to 3M Avg.daily value (Rs. Mn) 2.5
increased customer demand. With enhanced capacities, Menon is in good place to
Beta (x) 1.1
de-risk its product mix. Considering the strong clientele & new contracts, we are of the
positive view about Menon’s focus on increasing the aluminum share from the current Sensex/Nifty 36077 / 10860
levels of ~30%. We also expect the segment to witness a faster growth ahead. O/S Shares(mn) 56.0
Financial position: Net debt/ equity of 0.1x in FY18, net working capital/ sales at less Face Value (Rs.) 2.0
than 25% and cash per share of Rs. 3.3 indicate its balance sheet strength to remain
debt free while maintaining operational superiority. The company is expected to meet Shareholding Pattern (%)
its capex through internal accruals & debt. Historically, Menon Bearings has been Promoters 70.9
recording a healthy profitability & return ratios; we expect the trend to continue in
FIIs 0.1
future with RoE reaching 24.0% & RoCE of 32.5% levels by FY20E.
DIIs 1.2
Valuation and Risks: At CMP of Rs. 79, MBL is trading at 15.7x to FY20E EPS. In view of
the capacity enhancements, product mix de-risking and healthy profitability margins Others 27.7
coupled with superior return ratios, we ascribe a multiple of 24.0x to FY20E EPS (5 year
average of one year forward PE) and recommend a “BUY” rating for a target price of
Rs. 120 representing an upside of 52%. We believe that on account of high return on 1M 3M 6M 12M
capital at 33.6% over the last 3 years, the company has potential to be re-rated. Threat Absolute 4 (5) (9) (18)
of counterfeit products which mainly cater to aftermarket segment (10% of Menon
revenues) along with slowdown in industrial & automotive segments especially tractor
Source: Bloomberg
& CV sales may pose risk to the call.
130
Valuation Summary 120
100
Net Sales 1109 1228 1449 1609 1964
90
EBITDA 286 324 364 425 512
80
EBITDA Margin (%) 25.7 26.4 25.1 26.4 26.1
70
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
Adj. Net Profit 149 191 211 246 280
EPS (Rs.) 3.2 3.4 3.8 4.4 5.0

MEN Sensex
RoE (%) 28.7 29.8 27.3 26.4 24.8
PE (x)* 15.5 21.4 26.1 17.9 15.7

Company Background
Incorporated in 1991 & headquartered at MIDC in Kolhapur, Maharashtra, the company is

engaged in manufacturing automobile components like bushes, bearings, thrust washers,
aluminum die cast and bimetal strips. These products are customized according to the clients’
requirements in various specifications. Different varieties of bearings supplied by the company
include flanged bearings, tri-metal bearings, copper-bronze & aluminum-tin bearings for
crankshafts. The products find applications in light & heavy commercial vehicles, passenger
vehicles, compressors, combustion engines and electrical appliances such as refrigerators and
air conditioners. The company caters to OEMs, replacement market and the export market. Its
products are exported to countries across the globe such as USA, UK and Middle East.
MENONBE: Technical View
MENONBE has rallied from 19.93 levels in March 2015 to 125.77 levels in January 2018 and
corrected from there to 70.10 levels, which is around 50% Fibonacci retracement level of the
said rally and bounced back to settle above 38.2% Fibonacci retracement levels of the rally
indicating the end of the correction. The stock was in consolidation mode for very long time
followed by a strong breakout with huge jump in volume indicating a fresh leg of rally from
these. Adding to it, the Parabolic SAR and Heiken candlesticks are signaling positive trend
on the daily charts as well as weekly charts reflecting the stock is well placed to move higher
in the coming days. 14 periods RSI is trading at 56.17 above the 9 period averages trading at
44.20 on weekly chart indicating positive momentum. The stock is trading well above all of its
major moving averages on daily as well as weekly charts indicating strong positive momentum
in the counter for all major time frames. On Bollinger band, weekly chart stock has tested
the mean and started to move towards upper bands indicating positive momentum. At the
current levels, investors with a medium-term horizon can start accumulating the stock in bits
and parts with a provision to add more on dips towards 80 levels and may hold with a stop loss
placed below Rs. 70 on a closing basis for potential upside technical targets of Rs. 118-120 in
the next few quarters.

RELAXO
FOOTWEARS LTD
Bloomberg Code: RLXF IN
Relaxo Continues to Push Forward Recommendation (Rs.)

Footwear segment has seen various listed players take up dominant share in the
CMP (as on Dec 28, 2018) 732
organized space. While Bata and Mirza have focused on value-added (non-leather)
products in recent years and have increased their efforts to penetrate into the Target Price 911
domestic market, the competitive nature of the industry (largely unorganized and Upside(%) 24
smaller players) has limited the pace of growth. Relaxo – which focuses on providing
higher quality than unorganised players at very competitive prices in the low price Stock information
region, have managed to widen their reach and improve volumes (Relaxo’s volumes Mkt Cap (Rs.Bn/US$ Bn) 88.1 / 1.3
have improved 8%, over FY15-18) , supported by rural India (for its low priced products)
52-wk High/Low (Rs.) 874 / 550
and has also gained acceptance in urban India in the “home wear category”.
Growth story expected to maintain pace: In the listed space, Relaxo has been a
consistent performer in the last 5 years. Revenue has grown at 14% and an improvement Beta (x) 0.8
of operating margins by 458 bps has led to 29% CAGR growth in PAT over the same Sensex/Nifty 36077 / 10860
period. With best in class return ratios (average RoE of 26.2% and RoCE of 32.6% in
the last 5 years) and backed by improving realization and growing customer base, we
expect top and bottomline to grow by 16.3% and 21.1% CAGR over FY18-21E. Face Value (Rs.) 2.0
Focusing on brand building: Channel sales continue to drive major sales growth Shareholding Pattern (%)
for Relaxo. The company is also investing heavily towards brand building. Since
Promoters 74.3
2012, the company has focused more on celebrity endorsements and increasing its
retail presence. Currently, Relaxo has 311 retail outlets and spends about 4.5% of its FIIs 3.9
revenues on advertisements, which is higher than its peers in the listed space. Higher DIIs 2.2
value products such as Sparx are believed to constitute in the range of 10% to the total
Others 19.6
volumes and the company is looking to significantly improve the revenue mix in the
coming fiscals.
Valuation and Risks: Consistent performance has led to improvements in valuations
1M 3M 6M 12M
by 4x over the past 5 fiscals. It currently trades at 2 year forward P/E of 31x. We believe
the company warrants premium valuation, given the continued high growth prospects Absolute (4) 0 6 7
and the brand building efforts being undertaken. We value the stock at 38x (a premium Relative to Sensex (5) 0 3 0
to its 5 year average 2 year fwd P/E of 30x), on FY21E EPS of 24 and arrive at a target Source: Bloomberg
price of Rs. 911. Key risks to the call are difficulties in penetrating into the online
category, and intensified competition from unorganized players. Relative Performance*
130
Valuation Summary
120
110
Net Sales 15000 17332 16520 19644 22984
100
EBITDA 2006 2399 2309 3021 3482
90
EBITDA Margin (%) 13.4 13.8 14.0 15.4 15.1
80
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
Adj. Net Profit 1031 1160 1200 1611 1947
EPS (Rs.) 8.6 9.7 10.0 13.4 16.2

RLXF Sensex
RoE (%) 31.7 27.4 22.1 23.6 23.1
PE (x)* 37.7 37.7 49.8 48.6 45.3

Company Background
Incorporated in 1984, Relaxo Footwears Ltd. is the largest footwear manufacturer in India,
engaged in the manufacture and trading of footwear and related products. It started off with
the manufacture of Hawaii slippers and subsequently diversified into manufacturing casuals,
joggers, school and leather shoes. Relaxo has the capacity to manufacture over 100 million
pairs, per annum. Relaxo’s capacity to manufacture 300,000 pairs of Hawaii slippers per day is
the highest in the footwear industry.
The portfolio of the company includes 5 brands (Relaxo, Flite, Sparx, Bahamas and Schoolmate)
and sells its products mainly through 50,000 retailers, and also has 311 retail outlets to improve
brand visibility. It sold a total of 157 million pairs in FY18, and is estimated to have a market share
in the range of 5% to 6%. Nearly 90% of the revenue is attained from the domestic market.
RELAXO: Technical View
The stock is in a secular uptrend making higher highs and higher lows on the weekly chart.
The stock is placed above all the moving averages on the monthly chart which suggests large
scale accumulation in the counter. The stock has gained nearly 8.50% this calendar year
after gaining more than 68% in the previous calendar year which indicates that the stock is
sustaining at higher levels after a strong rally suggesting that it is one of the preferred picks in
the footwear segment for Medium to Long term investors. As far as the technical setup of the
stock is concerned, the stock is trading near a confluence of supports. The 200 DEMA for the
stock is placed around 725 levels and the 50 period exponential moving average on the weekly
chart for the stock is placed around 713. On the momentum oscillator front, the 14 period RSI
is placed below the 9 period signal line on the daily as well as monthly charts which suggests
weakness in the stock in the near term. Hence investors with medium to long-term time
horizon can start accumulating the stock on dips towards its 50 period exponential moving
average on the weekly chart which also coincides with the swing support near 710-715 levels
with a provision of adding more on dips towards its 21 period exponential moving average on
the monthly chart placed around 650-655 levels and may hold with a stop loss placed below its
swing support placed around 590 levels for the potential upside of 860-865 levels.

SUNTECK
REALTY LTD
Bloomberg Code: SRIN IN
Expanding Product Portfolio; Strong Pre-sales Recommendation (Rs.)

Sunteck Realty Ltd (SRL) is engaged in the business of developing, designing and
CMP (as on Dec 28, 2018) 348
managing high-end and premium residential and commercial properties predominantly
in the Mumbai Metropolitan Region (the “MMR”). In the last decade, the company has Target Price 497
developed a project portfolio of ~30 mn sqft spread over 25 projects, with ~12 msf to Upside(%) 43
be completed by FY23. SRL has a strong cash flow visibility on back of strong project
portfolio in MMR.
Stock information
Bandra Kurla Complex (BKC) and Oshiwara District Center (ODC) – core assets of Mkt Cap (Rs.Bn/US$ Bn) 50.9 / 0.7
the company: The company has carved a niche for itself in the ultra-luxury and luxury 52-wk High/Low (Rs.) 527 / 296
segment by differentiating itself in each micro-market through brand positioning
with a different product offering. While the projects in BKC are residential projects
catering to ultimate luxury and premium customers, ODC project will be a mixed- Beta (x) 1.0
use development project with residential, commercial and retail space. A significant Sensex/Nifty 36077 / 10860
amount of operating cash flow - Rs. 31 bn - is expected to be realized from these two
projects over a period of 3-4 years.
Consolidated revenue to grow at CAGR 29% over FY18-FY20E: Since last few quarters,
the company has experienced healthy growth in pre-sales and it delivered ~100% YoY Shareholding Pattern (%)
growth in presales in H1FY19 (Rs. 6027 mn pre-sales in H1FY19 as compared to Rs. 2976
Promoters 66.8
mn in H1FY18) due to overwhelming response to first phase of Naigaon project. Going
forward, we expect SRL to sustain its current growth momentum and have forecasted FIIs 24.5
a consolidated revenue CAGR of 29% over FY18-20E period (Revenue in FY20E). DIIs 3.4
Forayed into mid-income level segment: The company has launched its affordable Others 5.4
housing project on 100 acres land parcel at Naigaon, Mumbai. We believe that the
government’s push for affordable housing coupled with conservative pricing by the Stock Performance (%)
company will drive the sales. The company has already sold ~2000 units worth more 1M 3M 6M 12M
than Rs. 600 cr (out of 2476 units) during the launch of the project in September.
Absolute 0 (13) (4) (17)
Valuation: We have valued SRL using the NAV method, wherein we have calculated the
value of ongoing projects and unsold inventories from completed projects. We have
Source: Bloomberg
assumed a cap rate of 8% for rental assets and a discount rate of 13% for residential
projects. We estimate a target price of Rs. 497/share (post-tax) on FY20E basis.
130
Valuation Summary
120
Net Sales 2434 9522 8883 9418 14825 100

90
EBITDA 239 3481 3720 3876 5655
80
EBITDA Margin (%) 9.8 36.6 41.9 41.1 38.1
70
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
Adj. Net Profit 206 2202 2233 2450 3777
EPS (Rs.) 1.4 15.0 15.3 16.7 25.8

SRIN Sensex
RoE (%) 1.3 12.3 8.5 8.6 11.8
PE (x)* 8.4 22.3 25.4 21.3 13.8

Company Background
SRL is one of the leading real estate development companies of the country with a focus on
city-centric developments well spread-out across Mumbai Metropolitan Region (MMR). The
company’s business focuses on designing, developing and managing premium residential and
commercial properties.
The company has carved a niche for itself in the ultra-luxury and luxury segment by
differentiating itself in each micro-market through brand positioning with different product
offering, brand partnerships and having different reputed channel partners for each product.
SRL started the residential development business with its iconic project “Signature Island” in
BKC (Bandra Kurla Complex), Mumbai. The company chose BKC to start its residential foray at
a time when other industry players were focused on making commercial footprints in the area.
Post the successful launch of Signature Island, the company launched two more projects viz.
“Signia Isles” & “Signia Pearl” in BKC.
SUNTECK: Technical View
SUNTECK witnessed a strong up move from the lower levels of 225 towards 500 plus level
within a short time frame of around 16 months. The stock is trading around the major moving
averages and is trading near the major support area of 320-340 levels and formed a good
base around the same from past few weeks. The stock has been in the sideways consolidation
mode from past few weeks and witnessed reasonable volumes indicating strong hands have
started accumulating the stock at current levels after the recent correction. At the current
juncture, the stock is looking bullish and is poised to surge higher towards 400 plus levels
with 14 day RSI trading comfortably around 45-50 levels suggesting positivity in the counter.
On the shorter time frame, the stock will enter into definite bullish trajectory once the price
breached its immediate resistance level of 370 followed by 380 level. On the flip side, the
next best support for the counter is placed around 315-320 which may be utilized as a good
accumulating opportunity for the long-term period. On the overall front, we expect the stock
to gradually move northwards in the next few month and may continue to trade with positive
bias. Long-term investors may buy the stock at current levels and accumulate more if the
stock dips towards the support zones.

TAKE
SOLUTIONS LTD
Bloomberg Code: TAKE IN
Looks Attractive with Improving Fundamentals Recommendation (Rs.)

Clinical business to be the growth driver: Take Solutions (TAKE) has been focusing on
CMP (as on Dec 28, 2018) 148
Clinical business as total R&D spends is expected to reach $181 bn by 2022 growing
annually at 2.4%. To take advantage of this and to improve margins, TAKE is leveraging Target Price 226
use of technology. It is in the process of developing OneClinical into platform-as-a- Upside(%) 53

service by adding components of clinical trial business process as part of its digital
transformation. It is further revamping the entire suite of OneClinical platform by Stock information
adding features like use of mathematical models to support site selection, initiation, Mkt Cap (Rs.Bn/US$ Bn) 21.9 / 0.3
patient screening and enrolment modules. It is enhancing the Reporting Module of
52-wk High/Low (Rs.) 307 / 127
OneClinical to facilitate ease of understanding.
Support generics firms to gain first-to-market advantage: TAKE has end-to-end
bioavailability and bio-equivalence services to fast track client’s first-to-market Beta (x) 0.7
strategy. TAKE has thus been helping generics firms with their state-of-the art Sensex/Nifty 36077 / 10860
facilities in Manipal, Mangalore, Bengaluru and Chennai. The bio-analytical labs set up
at Manipal and Bengaluru are regulatory compliant. It enables to develop and validate
new methods in 4 weeks. Company has a huge database of volunteers including of Face Value (Rs.) 1.0
23000 males and 1000 females.
Revenue visibility boosts confidence: During Q2FY19 TAKE reported revenue growth
Promoters 66.8
of 39% which is highest in past 6 quarters. We expect TAKE to continue to report
higher growth rates going forward and reach historical levels of ~40% due to strong FIIs 13.8
order book. During end Q2FY19, TAKE’s order book stood at $228 mn with revenue DIIs 1.6
visibility of 2x-3x of this order book in the future. While the management has guided for
Others 17.8
organic growth of 23-24% in USD terms, we believe it has upside risks due to inorganic
component. Moreover, continuous decline in its conversion rate of order book (45% Stock Performance (%)
in Q1FY17, 39% for Q1 FY18 and 37% in Q1 FY19) implies increasing proportion of high
value-added offerings and increasing mix of long-term deals providing growth visibility 1M 3M 6M 12M
for longer period. Absolute 10 (3) (35) (8)
Valuation and Risks: While we remain optimistic about TAKE’s future prospects, Relative to Sensex 9 (3) (37) (14)
recent correction gives a good entry opportunity with a target price of Rs. 226, based Source: Bloomberg
on FY20E EPS of Rs 19.8 and 3 –year historical average PE of 11.4x. We think regulatory
risks and low RoE are key risks to our price target. Relative Performance*
200
Valuation Summary
170
Net Sales 10301 13446 15872 19364 23625 140
EBITDA 2133 2622 3065 3885 4819 110
EBITDA Margin (%) 20.7 19.5 19.3 20.1 20.4

80
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
Adj. Net Profit 1197 1462 1599 2225 2890
EPS (Rs.) 9.9 11.2 12.2 15.3 19.8

TAKE Sensex
RoE (%) 20.6 18.9 14.3 15.4 16.9
PE (x)* 14.3 11.3 12.1 9.7 7.5

Company Background
Take Solutions (TAKE) delivers domain intensive services in Life Sciences and Supply Chain
Management. In the fast-growing Life Sciences space, TAKE offers clients a unique combination
of full-service Clinical, Regulatory & Safety services, backed by unique technology capabilities.
TAKE’s service offerings span from Clinical trials to regulatory submissions to post-marketing
safety, all backed by insights derived through proprietary industry networks forums. With a
team of leading Life Sciences experts, best-in-class systems and processes, and bespoke,
industry-specific technology and analytics, TAKE delivers successful outcomes for clients.
TAKE’s clients include large and small innovator biopharmaceutical companies as well as
generic manufacturers. TAKE’s operations are spread across North America, Asia, Europe and
South America, with Americas contributing 81%, followed by APAC with 12% of revenues and
rest contributed by Europe. Within Life Sciences, Clinical contributes 30%, Consulting and
Nets, 12% and Regulatory & PV contributing 58%.
TAKE’s Supply Chain business contributes 10% of revenues. In Supply Chain TAKE focuses
on high margin niches, in engineering services, and supply chain collaboration. TAKE’s IP-led
approach enables its clients to automate supply chain processes, track, trace and control and
optimize their processes.
TAKE: Technical View
Since Jun’18, TAKE is correcting from the highs at 308 levels and is currently trading close to its
support zone around 135-140 levels. We expect the stock to witness a round of consolidation
in the near term before taking the fresh leg of an up move, and medium to a long-term investor
may start accumulating the stock from current levels and add more on declines towards
135-140 levels which are a confluence support of the counter as the stock has witnessed
consolidation at the mentioned levels in the recent past and finding support around that area.
On the oscillator front, the 14 periods RSI is indicating consolidation in the near term and is
currently placed around the oversold region, indicating a pause in the counter. On the weekly
chart, the stock is nearing its upward slope trend line connecting the higher lows since Jul’15
which would act as strong support at 130 levels. Going ahead key support is placed around
135 levels followed by 125 levels while resistance is placed around 180 levels followed by 210
levels. In the current scenario, considering all the data mentioned above, one may go long in
the counter on any dip towards the mentioned support zone.

THE PHOENIX
MILLS LTD
Bloomberg Code: PHNX IN
Doubling Portfolio and Increased Consumption at Existing Malls Recommendation (Rs.)

As India’s largest mall owners and operators, the Phoenix Mills Limited (PML) is evolving
CMP (as on Dec 28, 2018) 557
into a trusted proxy for the consumption trends of India’s urban middle class. India’s
retail infrastructure has come a long way and PML is at the forefront of creating fully Target Price 735
integrated recreational centers on a pan India basis. The company operates 8 malls, Upside(%) 32
close to 6 Mn sqft. in total, across 6 Tier-1 cities in India.
Stock information
Higher Occupancy levels across Malls: According to a JLL report, Occupancy level in
malls across India is hovering around 85%. PML has been consistently able to maintain Mkt Cap (Rs.Bn/US$ Bn) 85.3 / 1.2
occupancy level for all its stabilized malls at more than 90% compared to industry 52-wk High/Low (Rs.) 732 / 489
standards of 85%. With higher occupancy level, PML has achieved rental CAGR of 11%
over FY13-18. MarketCity Malls at Pune and Bangalore have achieved a higher rental
CAGR of 16% over the same period. The growth in rentals can also be attributed to Beta (x) 0.6
PML’s superior mall management skills of churning, relocating and resizing of retailers Sensex/Nifty 36077 / 10860
on a continuous basis.
Retail portfolio to double by FY22-23: PML has ~6msf of rentable area spread across 8
malls in 6 cities. It has partnered with Canada Pension Plan Investment Board (CPPIB)
and has acquired 2 land parcels – one each in Pune and Bengaluru – and an under Shareholding Pattern (%)
construction retail asset at Indore. Outside of the alliance, PML has acquired also an
Promoters 62.8
under construction retail asset at Lucknow and has entered into JV with Bsafal Group
to develop a mall in Ahmedabad. These 5 acquisitions will be operational by FY22-23 FIIs 27.9
and has a retail development potential of ~4.8 msf. DIIs 4.2
PAT to grow at 23.6% over FY18-20E: PML’s PAT grew at 17% CAGR over FY14-18. Over Others 5.1
FY18-20E, PAT is expected to grow by 23.6% CAGR driven by 1) Revenue growth with
3 year CAGR of 12.2%. 2) Renewals - Major area in HSP Mumbai (44%) and MarketCity Stock Performance (%)
Pune (36%) is coming up for renewal in next 2 years 3) Improved realizations at
1M 3M 6M 12M
MarketCity Mumbai.
Absolute (7) 1 (14) (14)
Valuation: We have valued PML using the NAV method, wherein we have calculated the
value of ongoing projects and unsold inventories from completed projects. We have Relative to Sensex (8) 2 (17) (19)
assumed a cap rate of 8% for rental assets and a discount rate of 13% for residential Source: Bloomberg
projects. We estimate a target price of Rs. 735/share (post-tax) on FY20E basis.

115
Valuation Summary
Net Sales 17795 18246 16198 17816 20680

85
EBITDA 7869 8469 7774 8615 10207
EBITDA Margin (%) 44.2 46.4 48.0 48.4 49.4

70
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
Adj. Net Profit 1289 1679 2422 2814 3701
EPS (Rs.) 8.4 11.0 15.8 18.4 24.2

PHNX Sensex
RoE (%) 6.4 7.8 8.5 8.2 9.9
PE (x)* 55.4 34.5 37.4 32.9 25.0

Company Background
Phoenix Mills have an operational history of more than 100 years. It started off as a textile
manufacturer and later on reinvented itself as a retail mall developer. PML specializes in
the ownership, management and development of iconic large format retail led mixed-use
properties that include shopping, entertainment, commercial, residential and hospitality
assets. All the Phoenix malls enjoy the leadership position in their respective cities.
The company has a 6msf retail portfolio spread across 8 malls. PML has a presence across
Mumbai, Chennai, Bengaluru, Pune, Lucknow and Bareilly.
During FY13-18, consumption at all its malls has grown at a CAGR of 20%. Rental income during
the same period grew at a CAGR of 15%. During FY18, PML completed stake purchases of
private equity partners across the portfolio and has reached majority stake in key assets.
PHOENIXLTD: Technical View
The stock is in an uptrend and making higher highs and higher lows on monthly charts and
made the all-time high of 723.11 levels in May 2018. The stock has seen profit taking from the
life-time high which has dragged the stock to the low of 489 levels which is around 50% of
previous rally from 234.70 to 723.11 levels. The stock has found the buying interest around 489
levels and resumed its up move. The immediate support is placed around 510 levels and below
that is 465 levels which is the 200 day EMA moving average on weekly chart. The stock is
trading below its all major moving averages on daily charts suggesting short-term weakness in
the counter. Among the indicators and the oscillators, the 14 period RSI is pointing southwards
on daily chart and weekly chart as well after giving negative crossover with signal line. The
parabolic SAR is placed above the price on daily charts as well which indicates weakness in the
stock will remain intact in near term. As far as the long-term moving averages are concerned,
the 200 day exponential moving average on weekly chart is placed around 465 levels and the
stock is comfortably trading above it. On the higher side, resistance is placed around 600
levels followed by 640 levels. Hence we recommend investors with a longer time horizon to go
long in the counter around current levels, average on declines towards 510 levels.

VISAKA
INDUSTRIES LTD
Bloomberg Code: VSKI IN
Improved Capacities & Volumes, Margins to Expand Recommendation (Rs.)

Diversified product portfolio & enhanced capacities: Visaka enjoys a strong position in
CMP (as on Dec 28, 2018) 426
cement asbestos, V-board and yarn business. It has a market share of 18% in cement
asbestos segment while boards and panels segment enjoys a market share of 26%. Target Price 750
During FY18-19 Visaka has made capex towards enhancing the capacities in boards & Upside(%) 76
panels segments. Management is positive about the commencement of operations Stock information
from H2FY19 onwards at its new plant in Jhajjar, Haryana. The facility has a potential
of Rs. 650 Mn revenue addition if operated at full capacities. The facility is expected
to improve the profitability margins by 75-100 bps due to reduced transportation 52-wk High/Low (Rs.) 840 / 360
costs. Also the management is expecting its innovative product, ATUM-solar roofing 3M Avg.daily value (Rs. Mn) 18.3
product, commercialization to start in FY19E and expecting a revenue addition of
Beta (x) 1.3
Rs. 150 Mn from for FY19E. While we do not account for revenue from the product, we
believe it to be an upside catalyst in near future. Sensex/Nifty 36077 / 10860
Non-Asbestos revenue contribution, improved profitability margins: Current revenue O/S Shares(mn) 15.9
mix is in favour of asbestos segment with a 68% contribution; however, management Face Value (Rs.) 10.0
is focusing on bringing a proper balance due to its improved profitability from boards
& panels segment. Management is of the view to bring about equal balance between Shareholding Pattern (%)
asbestos & non-asbestos which will help improve margins in future. Promoters 41.5
Improvement in working capital: Historically, VIL’s working capital cycle has been FIIs 3.9
ranging from 100-125 days due to high inventory from asbestos segment due
DIIs 0.6
to its products dynamics. Considering the management’s focus to increase the
non-asbestos revenue (boards & panels), which enjoys higher margins are expected Others 54.0
to have a dual effect in terms of reduced working capital cycle along with higher
profitability at the consolidated level. We expect the NWC to reach 95 days by FY20E. Stock Performance (%)
Valuation and Risks: In view of the management’s focus on increasing the 1M 3M 6M 12M
non-asbestos revenue, enhanced capacities and anticipated improvement in working Absolute (3) (4) (12) (33)
capital cycle along with reduced transportation costs, we value the company at 15x (5 Relative to Sensex (4) (3) (14) (37)
year average of one year forward PE) to FY20E EPS and recommend a “BUY” rating with
Source: Bloomberg
a target price of Rs. 750 with an upside potential of 76%. Competition from alternate
products along with potential ban on asbestos products may pose a threat to the call.
130
Valuation Summary
110
90
Net Sales 10049 9606 10123 10960 12145
EBITDA 952 1172 1502 1578 1804 70
EBITDA Margin (%) 9.5 12.2 14.8 14.4 14.9

50
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
Adj. Net Profit 244 428 666 685 803
EPS (Rs.) 15.4 26.9 41.9 43.1 50.6

VSKI Sensex
RoE (%) 7.0 10.9 14.9 13.7 14.1
PE (x)* 6.9 10.0 15.4 9.9 8.5

Company Background
Hyderabad based Visaka Industries Ltd was founded by Dr. G. Vivekanand in 1981. The company
has two main business verticals i.e., Building Products (including cement asbestos and fiber
cement boards like V-Boards and V-Panels) and Synthetic Yarn. The company has 36 depots
and more than 6000 dealer outlets pan India to ensure smooth & timely supply of products.
The company is the second largest manufacturer of cement fiber roofing sheet and is the
largest player in V-Board business. It is the market leader in twin Air Jet technology in the
textile synthetic yarn business. The company has 11 manufacturing facilities and 13 marketing
offices across India.
VISAKAIND: Technical View
The stock is in consolidation mode since its lifetime high of 838 levels clocked in January
2018 and currently found support around 370-390 levels and rallied from there on. The stock
is trading below its 200 - days Simple moving average while is trading above its 200-week
simple moving averages indicating that long-term investors are present at lower levels. We
expect the stock to witness a round of consolidation in the near term before taking the fresh
leg of an up move, and medium to a long-term investor may start accumulating the stock from
current levels and add more on declines towards Rs. 380-400 zone which is a retracement
zone of its current swing low of 367.20 levels to the high of 448 levels. On the oscillator front,
the 14 daily periods RSI is indicating a pause and is placed near the oversold region, while the
weekly chart is trading above the 9 period EMA indicating a bullish bias in the medium term.
Going ahead key support is placed around 400 levels followed by 380 levels while resistance
is placed around 540 levels followed by 630 levels.

Value Invest - Midcap (VI) is an investment product of Karvy Stock Broking Ltd formulated by our
Equity Fundamental & Technical Research, based on Techno-Funda Analysis. It enlists 10 stocks from
the Karvy Mid-cap stock universe.
The objective of ‘Value Invest - Midcap’ is to deliver superior returns over an extended time frame. The
investment philosophy works on simple but superior fundamental and technical research.
The 10 midcap companies in this product in our opinion reflects superior businesses with consistent
future cash flows, run competently and have potential for exponential stock price growth.
We also track short-term price distortions that create long-term value, driven by sound economic
fundamentals of the company. This reflects stocks that have margin of safety will converge to their
intrinsic value over a period of time and will reflect superior returns.
This is also a part of managing the overall risk, the objective is to attain higher risk adjusted returns and
deliver consistent out-performance.
The stock performance will be assessed on an ongoing basis and the composition of the stocks in
the product will be altered based on target achievement, changes in the fundamentals of the stocks,
industry position, market performance and broad macro-economic factors.
The product is being given to the clients in the form of non-binding investment recommendations so
that they can decide to capitalize on the robust fundamentals and future plans of the company which
is being discussed in the report.

DIVIDEND
MAXIMIZER
DIVIDEND MAXIMIZER
OUTLOOK
In a strong equity market, where stocks have delivered good capital appreciation
(Sensex rose at a 11.2% CAGR over the last 5 years), investors may not have paid
attention to dividends. Taking re-invested dividends into account, total shareholder
returns over the same period were 12.8% CAGR.
This adds up over time; an investment of INR 100 made 20 years ago is worth Rs. 1160,
with reinvested dividends, the value of investment is Rs. 1613. Investing in stocks with
healthy dividend yields and high dividend payouts is a stable form of investing. In the
current economy, where bank fixed deposits offer interest rates to the tune of 6-7%,
investing in stocks with a good investment yield is a good investment in our view.
Further, the interest on bank fixed deposits is taxable whereas no tax is payable on
dividends until Rs. 10 lakh, leading to a efficient post-tax outcome. We recommend that
investors consider adding high dividend yield stocks to their portfolio to bring in regular
inflows. We offer a list of 10 stocks with high yields. We have considered stability of
dividends as well while looking for stocks with high forecast dividend yield. We have
also taken care to remove sector bias by adjusting the sector composition to be as
close as possible to the sector composition of BSE 500.
Exhibit: Sensex Price Returns Vs Sensex Total Returns

2000
1500
1000
500
0
Dec-16
Dec-18
Dec-06
Dec-09
Dec-08
Dec-13
Dec-17
Dec-12
Dec-03
Dec-07
Dec-02
Dec-10
Dec-99
Dec-00
Dec-11
Dec-98
Dec-01
Dec-14
Dec-04
Dec-15
Dec-05
Price returns Return with Reinvested dividend

BAJAJ
CORP LTD
Bloomberg Code: BJCOR IN
Bajaj Corp Limited is engaged in the business activity of trading and manufacturing of
RECOMMENDATION (RS.)
cosmetics, toiletries and other personal care products. The company has leadership
position in the hair oil segment. Some of its major brands are - Almond Drops hair oil CMP (as on Dec 28, 2018) 360
(over 60% market share in the light hair oil market and 2nd largest brand in the overall Dividend/share 13.4
hair oil segment), Nomarks (3rd largest anti- marks brand nationally). The company is
Dividend Payout (%) 77.9
also into the oral care products under the brand name Bajaj Black Tooth powder. The
brands are being sold through approximately 7,900 stockists and are available in over STOCK INFORMATION
3.92 million retail outlets across the country. Bajaj Corp has nine production facilities
(including 3rd party operations), to cover footprints across India and overseas. The
company has maintained an average RoE of ~38% in the last 5 years, paid out ~82% of 52-wk High/Low (Rs.) 525 / 340
profits as dividend and has 62% of its net worth as investments in FY18. 3M Avg.daily value (Rs. Mn) 20.7
Beta (x) 0.7
Exhibit 1: Dividend/Share
16
12
12.8 13.4
11.5 12.0
11.5 11.5
8 SHAREHOLDING PATTERN (%)
4 6.5 Promoters 66.9
0 FIIs 23.4
FY14 FY15 FY16 FY17 FY18 FY19E FY20E
DIIs 5.7
Others 4.0
Exhibit 2: Dividend Payout (%)
100
STOCK PERFORMANCE (%)
98.3 1M 3M 6M 12M
75 86.5 83.9 83.3
77.7 77.9
50
Absolute 2 (13) (9) (25)
64.4
25
Source: Bloomberg
0

YE Mar (Rs. Mn) FY14 FY15 FY16 FY17 FY18 125
Net Sales 6707 8238 7975 7948 8091 110
EBITDA 1860 2392 2739 2640 2539

95
EBITDA Margin (%) 27.7 29.0 34.3 33.2 31.4
80
Adj. Net Profit 1489 1727 1964 2182 2111
65
EPS (Rs.) 10.1 11.7 13.3 14.8 14.3
Jun-18
Feb-18
Sep-18
Oct-18
Mar-18
Jul-18
Dec-18
Nov-18
Aug-18
Dec-17
Jan-18
Apr-18
May-18
RoE (%) 29.7 34.3 40.5 44.8 42.8
PE (x)* 21.5 39.1 29.0 26.7 33.0 BJCOR Sensex

BHARAT HEAVY
ELECTRICALS LTD
Bloomberg Code: BHEL IN
Bharat Heavy Electricals Limited (BHEL) is the largest engineering and manufacturing
enterprise in India in the energy-related/infrastructure sector. In addition to the
power generation equipment, the company’s products cater to a wide spectrum of CMP (as on Dec 28, 2018) 72
customers encompassing various fields of operation, like Fertilisers & Petrochemicals, Dividend/share 2.3
Refineries, Oil Exploration and production, Steel and metals, Cement ,Sugar and Paper
Plants, Transportation and Non-conventional energy sources, etc. The company’s
operations are organised around three business sectors, namely Power, Industry STOCK INFORMATION
- including Transmission, Transportation, Telecommunication & Renewable Energy
- and Overseas Business. This enables BHEL to have a strong customer orientation,
and be sensitive to their needs and respond quickly to the changes in the market. The 52-wk High/Low (Rs.) 108 / 62
company’s products include Power, Air pre-heaters, Boilers, Control Relay Panels, 3M Avg.daily value (Rs. Mn) 1024.7
Electrostatic Precipitators, Fabric Filters, Gas Turbines, Hydro Power Plant, Pulverizes,
Beta (x) 1.2
Turbo generators, etc.
3
2 2.3
SHAREHOLDING PATTERN (%)
1.9 1.9
1 1.6
Promoters 63.1
0.3 1.1
0.8
0 FIIs 13.6
DIIs 17.8
Others 5.6
136
110 131.7 131.7 1M 3M 6M 12M
84
58 Absolute 8 5 3 (22)
32 19.9 19.3
48.9 54.0 Relative to Sensex 6 6 0 (27)
6
-20 Source: Bloomberg
-14.0

Net Sales 388483 301475 260902 276174 279778

100
EBITDA 45855 25297 (13569) 10570 19701
EBITDA Margin (%) 11.8 8.4 (5.2) 3.8 7.0 80

Adj. Net Profit 35029 14524 (7041) 4573 4412
60
EPS (Rs.) 9.5 4.0 (1.9) 0.8 1.2
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 11.0 4.3 (2.1) 1.4 1.4
PE (x) 13.7 39.7 - 131.3 68.4 BHEL Sensex
Source: Bloomberg, Karvy Research Source: Bloomberg; *Index 100

BHARTI
INFRATEL LTD
Bloomberg Code: BHIN IN
Bharti Infratel is a provider of tower and related infrastructure and on a consolidated

basis, the company is one of the largest tower infrastructure providers in India, based
on the number of towers that Bharti Infratel owns and operates and the number of CMP (as on Dec 28, 2018) 263
towers owned or operated by Indus, that are represented by Bharti Infratel’s 42% Dividend/share 11.2
equity interest in Indus ,which was created as a Joint Venture between Bharti Infratel,
Vodafone and Aditya Birla Telecom to hive off the Towers business in 15 telecom circles.
The company is a pioneer in the tower infrastructure sharing concept in India and ia STOCK INFORMATION
also a leader with over 39,000+ towers across 18 states, and 11 Telecom circles, with
some of them in the remotest and tough terrains. The company has also pioneered
the concept of environment friendly Towers or ‘GreenTowers’ and energy efficient 52-wk High/Low (Rs.) 384 / 242
methods for maintenance of these towers. Infratel has helped Telecom operators 3M Avg.daily value (Rs. Mn) 649.4
maximize their reach in a short period of time.
Beta (x) 0.3
16
16.0 Face Value (Rs.) 10.0
12 14.0
12.0
8 11.0 11.2 SHAREHOLDING PATTERN (%)
4 Promoters 53.5
4.4
3.0
0 FIIs 42.3
DIIs 3.0
Others 1.2
112
104.8 108.8 1M 3M 6M 12M
84 103.7
94.1 89.3
56 Absolute 1 0 (12) (29)
55.0 25.2
28 Relative to Sensex 0 0 (14) (33)
0 Source: Bloomberg

Net Sales 108267 116683 55583 60847 66212

100
EBITDA 44001 50041 24883 28251 31865
EBITDA Margin (%) 40.6 42.9 44.8 46.4 48.1 80
Adj. Net Profit 15179 19924 22474 27470 24937

60
EPS (Rs.) 8.0 10.5 11.9 14.7 13.5
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 8.6 11.4 12.7 16.3 15.4
PE (x)* 25.3 36.5 32.2 22.1 24.9 BHIN Sensex

GRAPHITE
INDIA LTD
Bloomberg Code: GRIL IN
Graphite India Limited (GIL) is a Kolkata based company from the K.K. Bangur Group RECOMMENDATION (RS.)
which came into being in 1960s. It is involved in manufacturing and selling graphite
electrodes. The company has four plants at Durgapur (West Bengal), Bangalore CMP (as on Dec 28, 2018) 770
(Karnataka), Nashik (Maharashtra) and Nurnberg (Germany). GIL is the leading Dividend/share 56.7
graphite electrode manufacturer in the domestic market and along with its German
subsidiary, Cova, as on date, is the 3rd largest non-Chinese electrode manufacturer
globally with a combined manufacturing capacity of 98,000 tonnes per annum (tpa). STOCK INFORMATION
There was strong improvement in GIL’s business returns and cash flows in the current
financial year as a result of a sharp increase in global graphite electrode (GE) prices.
52-wk High/Low (Rs.) 1127 / 596
The increase in GE prices is a result of higher demand for steel production through the
electric arc furnace (EAF) route. The company’s overall financial profile continues to 3M Avg.daily value (Rs. Mn) 649.8
remain strong as a result of its highly conservative capital structure and strong liquidity Beta (x) 0.9
profile.
Exhibit 1: Dividend/Share O/S Shares(mn) 195.4

64 Face Value (Rs.) 2.0
60.9
48 56.7 SHAREHOLDING PATTERN (%)
32
Promoters 65.2
16
3.5 2.0 2.0 2.0 5.0 FIIs 8.3
0
DIIs 8.1
Source: Bloomberg; *Index 100 Others 18.4
Exhibit 2: Dividend Payout (%) STOCK PERFORMANCE (%)

70
60
66.7
1M 3M 6M 12M
50
55.6 Absolute (17) (9) (4) 13
40 52.2
47.6
30
Relative to Sensex (17) (8) (6) 6
20 30.2 31.8
9.5
10 Source: Bloomberg
0

Net Sales 20093 17107 15323 14678 32660

140
EBITDA 2773 1533 1409 520 14619
EBITDA Margin (%) 13.8 9.0 9.2 3.5 44.8 110
Adj. Net Profit 1299 576 828 705 10320

80
EPS (Rs.) 6.7 3.0 4.2 3.6 52.8
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 7.5 3.3 4.7 3.9 45.0
PE (x) 13.4 28.2 16.9 31.1 13.7 GRIL Sensex

HERO
MOTOCORP LTD
Bloomberg Code: HMCL IN
HERO MOTOCORP (HMCL) is a two wheeler manufacturing company based in New

Delhi. It is into manufacturing of motorcycles and scooters and is promoted by the
Munjal Family. Some of its flagship products are Splendor, Passion and HD Deluxe in the CMP (as on Dec 28, 2018) 3123
motorcycle segment and Duet, Pleasure and Glamour in the scooter segment. HMCL Dividend/share 109.9
has extensive sales and service network which spans over 6,000 customers touch
points across the country which comprise a mix of authorized dealerships, service & Dividend Payout (%) 58.0
parts outlets and dealer appointed outlets. Apart from domestic market, the company
STOCK INFORMATION
has been able to spread its presence across 37 countries. Furthermore, a new plant is
being commissioned at Chittoor, AP upon which the installed capacity will be ramped Mkt Cap (Rs.Bn/US$ Bn) 623.6 / 8.9
up to ~11 million units in the next two years. The company will have 6 manufacturing 52-wk High/Low (Rs.) 3862 / 2648
facilities in India (Incl Chittoor) and a R&D centre at Jaipur. In addition to this, they have
two other facilities at Bangladesh and Columbia. HERO MotoCorp has more than 50%
domestic market share in the motorcycle segment. The company has sold ~5.5 Mn Beta (x) 0.8
vehicles during Apr-Nov 2018 recording a growth of 9.3% YoY. Sensex/Nifty 36077 / 10860
109.9
88 100.3
85.0
95.0 SHAREHOLDING PATTERN (%)
66
72.0
44 65.0 60.0 Promoters 34.6
22 FIIs 38.9
0
DIIs 14.8
Source: Bloomberg; *Index 100 Others 11.7

69 STOCK PERFORMANCE (%)
61.7 1M 3M 6M 12M
46 55.2 58.0
50.7 50.3 50.0
45.5 Absolute 4 6 (11) (16)
23
Relative to Sensex 3 7 (14) (21)
0 Source: Bloomberg

Net Sales 251249 273033 284427 285005 322305 110
100
EBITDA 35392 35086 44550 46348 52802
90
EBITDA Margin (%) 14.1 12.9 15.7 16.3 16.4
80
Adj. Net Profit 21027 23647 31602 33771 37972
70
EPS (Rs.) 105.3 118.4 158.2 169.1 190.1
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 39.6 38.9 41.1 35.7 34.7
PE (x)* 21.6 22.3 18.3 17.1 15.2 HMCL Sensex

INDIABULLS HOUSING
FINANCE LTD
Bloomberg Code: IHFL IN
Indiabulls Housing Finance Ltd (IBHF) is one of the leading housing finance companies
in India. The company has launched e-home loans, one of its kind in the home loan CMP (as on Dec 28, 2018) 849
industry. It has credit rating of AAA from CRISIL and ICRA, and is among the very few Dividend/share 48.8
who enjoy such rating from the rating agencies. It has pan India presence with a strong
hold in tier 1 and tier 2 cities. IBHF is one of the largest housing finance companies Dividend Payout (%) 41.2
with AUM of more than Rs. 1 tn. By Q2FY19, IBHF’s borrowings were balanced between
STOCK INFORMATION
debentures & securities (54%), bank loans (31%), sell downs (11%) and ECB’s (4%). Its
Yield on Assets (11.36%), Cost of funds (8.12%) and Interest Spreads (3.24%) are industry Mkt Cap (Rs.Bn/US$ Bn) 362.4 / 5.2
leading. In terms of loan asset composition, Mortgage Loans account for 80% and
52-wk High/Low (Rs.) 1440 / 639
Corporate Mortgage Loans constitute the rest. During FY18, Return on Assets (RoA)
and Return on Equity (RoE) were 3.3% and 30% respectively. FY18 Capital Adequacy 3M Avg.daily value (Rs. Mn) 8332.7
Ratio (CAR) stood at 20.82% splitting into Tier I of 15.07% and Tier II of 5.76%. Loan
Beta (x) 1.5
asset quality measured as a percent of loan assets reached 0.77% and 0.58% at gross
and net level respectively by Q2FY19. Sensex/Nifty 36077 / 10860
40 48.8
45.0
41.0
30
29.0
Promoters 21.7
20 26.0 27.0
10 FIIs 55.2
0 DIIs 14.4
Others 8.7

80
1M 3M 6M 12M
60 75.3
60.4 Absolute 23 (1) (25) (29)
40
47.3 45.3
39.2
43.8 41.2 Relative to Sensex 21 (0) (27) (33)
20
Source: Bloomberg
0

Net Interest Income 20572 22066 30848 43905 64734 110
Net Profit 15642 19011 23447 29064 38474

90
EPS (Rs.) 48.0 55.0 59.8 68.8 90.5
70
BVPS (Rs.) 170.8 186.5 253.8 286.0 314.7
P/E (x) 5.0 10.2 10.9 14.5 13.7 50

Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
P/BV (x) 1.4 3.0 2.6 3.5 3.9
RoE (%) 28.7 30.8 27.1 25.5 30.1 IHFL Sensex
RoA (%) 3.7 3.7 3.5 3.2 3.3 Source: Bloomberg; *Index 100

INDIAN OIL
CORP LTD
Bloomberg Code: IOCL IN
Indian Oil Corporation Limited, a Maharatna PSU was incorporated in 1959 as Indian RECOMMENDATION (RS.)
Oil Company Limited which was changed to Indian Oil Corporation Limited in 1964
upon merger of Indian Refineries Limited with the company. The core business of the CMP (as on Dec 28, 2018) 138
company has been refining, transportation and marketing of petroleum products. Dividend/share 8.1
Over the years, the company has expanded its operations across the hydrocarbon
value chain – upstream into oil & gas exploration and production and downstream
into petrochemicals, besides diversifying into natural gas and alternative energy STOCK INFORMATION
resources. It continues to expand its business operations abroad through its overseas
establishments in Sri Lanka, Mauritius, the UAE, Singapore and USA. Mkt Cap (Rs.Bn/US$ Bn) 1342.2 / 19.2
Indian Oil corporation has also been pursuing diverse business interests through joint 52-wk High/Low (Rs.) 214 / 105
ventures with reputed business partners from India and abroad. The company has 3M Avg.daily value (Rs. Mn) 2487.8
been generous in paying high dividend and maintains high dividend payout ratios.
Beta (x) 1.1
24
18 21.0
12
SHAREHOLDING PATTERN (%)
6 9.3
Promoters 56.8
2.2 3.5 7.9 8.1
1.7
0
FIIs 6.0
DIIs 11.2
Others 26.1
90
88.1 89.7
1M 3M 6M 12M
60
Absolute 3 (10) (10) (29)
55.6
30 44.7 43.0 Relative to Sensex 2 (10) (13) (34)
29.8 32.4
Source: Bloomberg
0

110
Net Sales 4872595 4481443 3383125 3486904 4125045
100
EBITDA 207996 113168 250511 340425 415976
90
EBITDA Margin (%) 4.3 2.5 7.4 9.8 10.1 80
Adj. Net Profit 70856 49120 120225 198495 221895 70
EPS (Rs.) 7.3 5.1 6.3 10.5 23.4 60

Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 10.8 7.2 15.1 20.7 20.5
PE (x) 9.7 18.2 15.5 18.5 7.5 IOCL Sensex

JK TYRE &
INDUSTRIES LTD
Bloomberg Code: JKI IN
JK Tyre, part of the JK Organization, is among India’s leading tyre manufacturers. It
is headed by Dr. Raghupati Singhania, Chairman & MD. The company offers a wide CMP (as on Dec 28, 2018) 104
range of products catering to diverse business segments in the automobile industry. Dividend/share 3.8
The company operates 12 plants, including 9 in India and 3 in Mexico. Currently, the
total capacity of all its plants together is ~ 32 Mn tyres per annum. It has a workforce
of nearly 300,000 people. Some of the brands of the company include Vikrant, Tornel STOCK INFORMATION
& Challenger which are marketed both in the Indian as well as overseas markets. The Mkt Cap (Rs.Bn/US$ Bn) 23.7 / 0.3
company has more than 900 SKUs (Stock Keeping Units) catering to various categories
52-wk High/Low (Rs.) 193 / 83
of the automobile industry. Around 87% of the revenue is derived from India and 13%
comes from Mexico. During FY18, more than 180 products had been launched as 3M Avg.daily value (Rs. Mn) 103.8
compared to 155+ in FY17. Beta (x) 1.1

Exhibit 1: Dividend/Share O/S Shares(mn) 226.8
4
3 3.8
2.5 2.9 SHAREHOLDING PATTERN (%)

2 2.5 2.5
Promoters 52.5
1 1.5
1.0
FIIs 7.6
0
FY14 FY15 FY16 FY17 FY18 FY19E FY20E DIIs 2.3
Others 37.6

100
1M 3M 6M 12M
80 86.2
60 Absolute 6 7 (14) (29)
40 Relative to Sensex 5 8 (16) (34)

15.1 18.6 17.7
8.3 10.3 12.1
20 Source: Bloomberg
0

Net Sales 75958 73257 68231 74590 81512

110
EBITDA 9175 9308 11166 11324 7371
EBITDA Margin (%) 12.1 12.7 16.4 15.2 9.0 80

Adj. Net Profit 2630 3297 4673 3754 660
EPS (Rs.) 11.6 14.5 20.6 16.6 2.9 50

Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 26.3 26.3 29.6 20.2 3.1
PE (x)* 2.8 6.8 3.9 7.8 55.3 JKI Sensex

MULTI COMMODITY
EXCHANGE OF INDIA LTD
Bloomberg Code: MCX IN
Multi Commodity Exchange of India (MCX) is the leading commodities exchange
in India based on value of commodity futures contracts traded. They are a de- CMP (as on Dec 28, 2018) 733
mutualised exchange and received permanent recognition from the Government Dividend/share 29.4
of India on September 26, 2003 to facilitate nationwide online trading, clearing and
settlement operations of commodities futures transactions. The Indian commodities
market in terms of value of futures traded is estimated at ~Rs. 60 tn out of which MCX STOCK INFORMATION
has a market share of ~91.4%. The market share of MCX till H1FY19 in key segments
are Precious Metals and Stones-99.58%, Energy-100%, Base Metals-100% and
Agri-Commodities 14.47% respectively. Till Q2FY19, MCX has 680 members, 53824 52-wk High/Low (Rs.) 958 / 650
authorized persons, 1458909 terminals (including IBT, WT, CTCL) and has a presence 3M Avg.daily value (Rs. Mn) 528.6
in 1076 cities across India.
Beta (x) 0.9
O/S Shares(mn) 51.0
30
29.4 Face Value (Rs.) 10.0
20
17.0
10 Promoters 0.0
10.0 10.0
6.5 6.5
0 FIIs 28.7
DIIs 39.8
Others 31.5
100
75 90.6
85.7
77.4 79.8 1M 3M 6M 12M
50
Absolute 4 7 1 (22)
25 40.3
33.1 26.1 Relative to Sensex 3 7 (2) (27)
0
Source: Bloomberg

Net Sales 3407 2225 2349 2594 2598

100
EBITDA 1493 877 1618 796 719
EBITDA Margin (%) 43.8 39.4 68.9 30.7 27.7 85

Adj. Net Profit 1532 1258 425 1266 1084
EPS (Rs.) 30.2 24.8 8.4 24.9 21.3 70

Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 13.3 9.9 3.0 9.2 7.9
PE (x) 16.4 45.3 100.1 48.4 31.3 MCX Sensex

VEDANTA
LTD
Bloomberg Code: VEDL IN
Vedanta Limited is a globally diversified Vedanta Group Company with low-cost

operations across zinc, copper, lead, aluminium, silver, iron ore, oil & gas and power.
The company business span across India, South Africa, Namibia, Ireland and Australia. CMP (as on Dec 28, 2018) 199
It is the largest private sector oil and gas producer in India producing 25% of India’s Dividend/share 14.0
crude oil production. The company operates the zinc business with 78% market share
in India’s zinc market through Hindustan Zinc Limited (HZL) and Zinc International in
South Africa and Namibia. It is also among top 10 silver producers globally. It has the STOCK INFORMATION
largest aluminium capacity of 2.3 MTPA in India and operates through Balco and enjoys
40% market share. The company has iron ore mine reserves and resources of 100 MT
with life of 20 years and is the largest private sector exporter of iron ore in India. The 52-wk High/Low (Rs.) 356 / 190
company is one of the largest power generators. It generates 9 GW diversified power 3M Avg.daily value (Rs. Mn) 3192.9
portfolio out of this 3.6 GW power is for commercial purpose and balance for captive
Beta (x) 1.1
uses.
24
18 21.2
19.5
17.5
12 SHAREHOLDING PATTERN (%)
14.0
6 3.3 4.1
3.5
Promoters 50.1
0 FIIs 16.6
DIIs 17.8
Others 15.5
90 STOCK PERFORMANCE (%)
82.8 1M 3M 6M 12M
60 74.9 74.2
Absolute 3 (14) (13) (40)
30 15.1 44.5
0
Source: Bloomberg
-7.8 -8.5
-30 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

Net Sales 657333 733641 639201 717210 913720 110
EBITDA 203597 220445 151957 213570 251910

90
EBITDA Margin (%) 31.0 30.0 23.8 29.8 27.6
70
Adj. Net Profit 62985 (156458) (122705) 69580 103420
50
EPS (Rs.) 21.5 (52.8) (41.4) 23.5 28.3
Mar-18
Dec-17
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
May-18
Feb-18
Sep-18
RoE (%) 13.9 (24.7) (25.1) 13.3 16.7
PE (x) 8.8 - - 11.7 9.8 VEDL Sensex

DISCLAIMER
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ommendation(s) or views contained in this research report.
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INVESTMENT

Vivek Ranjan Misra

Bharti Infratel Ltd INFRATEL Telecom 486 263 308 17

HCL Technologies Ltd HCLTECH IT 1335 958 1167 22

Hindustan Unilever Ltd HINDUNILVR FMCG 3944 1822 2138 17

ICICI Bank Ltd ICICIBANK Banking 2323 361 440 22

Larsen & Toubro Ltd LT Infrastructure 2018 1439 1700 18

State Bank of India Ltd SBIN Banking 2631 295 347 18

Tata Motors Ltd TATAMOTORS Automotive 540 171 259 51

UPL Ltd UPL Chemicals 386 758 1004 32

Yes Bank Ltd YESBANK Banking 420 181 410 127

Finolex Cables Ltd FINCABLES Electrical Equipment 70 459 600 31

K.P.R. Mill Ltd KPRMILL Textiles 41 565 716 27

Menon Bearings Ltd MENONBE Auto Ancillary 4 79 120 52

Relaxo Footwears Ltd RELAXO Footwear 88 732 911 24

Sunteck Realty Ltd SUNTECK Real Estate 51 348 497 43

Take Solutions Ltd TAKE IT 22 148 226 53

The Phoenix Mills Ltd PHOENIXLTD Real Estate 85 557 735 32

Visaka Industries Ltd VISAKAIND Construction Materials 7 426 750 76

Bharti Infratel Ltd INFRATEL Telecom 486 263 11.2 89.3

Hero MotoCorp Ltd HEROMOTOCO Automotive 624 3123 109.9 58.0

1 KARVY INVESTMENT STRATEGY REPORT 2019

Source: Bloomberg, Karvy Research

2 KARVY INVESTMENT STRATEGY REPORT 2019

Source: Bloomberg, Karvy Research

- Head of Fundamental Research

3 KARVY INVESTMENT STRATEGY REPORT 2019

Q) What is your outlook for equity markets in 2019?

4 KARVY INVESTMENT STRATEGY REPORT 2019

Q) What are the risks for equities in 2019?

Domestically, the main risk is of an unfavourable election outcome. If an unstable coalition

Q) Which sectors are the best bets for 2019?

5 KARVY INVESTMENT STRATEGY REPORT 2019

6 KARVY INVESTMENT STRATEGY REPORT 2019

7 KARVY INVESTMENT STRATEGY REPORT 2019

Exhibit: Nifty Returns

Source: Bloomberg, Karvy Research

Caution sets the stage for returns

yy Concerns regarding interest rates and financial system

Drivers for 2019

8 KARVY INVESTMENT STRATEGY REPORT 2019

Exhibit: FII Inflows and Nifty Returns

Source: Bloomberg, SEBI, Karvy Research

Exhibit: Sensex returns vs Rupee

9 KARVY INVESTMENT STRATEGY REPORT 2019

Exhibit: India Real Effective Exchange Rate

Source: BIS, Karvy Research

Exhibit: FII vs DII inflows

Source: Bloomberg, SEBI, Karvy Research

Exhibit: Cumulative FII vs DII flows since 2007

Source: Bloomberg, Karvy Research

10 KARVY INVESTMENT STRATEGY REPORT 2019

Exhibit: Household financial savings invested in capital markets

Source: RBI, Karvy Research

Exhibit: Investment of savings of households in Equities

Source: RBI, Karvy Research

Exhibit: Working age population (%)

Source: World Bank, Karvy Research

11 KARVY INVESTMENT STRATEGY REPORT 2019

Exhibit: Performance of Indian equities vs peers (in USD)

Exhibit: 12 month forward PER of Sensex

12 Month forward PER Average -1 SD +1 SD

Source: Bloomberg, Karvy Research

Exhibit: 12 month forward PER of Sensex vs subsequent performance