Economy, Global Markets & Sector: Weekend Reading Articles

Weekend Reading Articles
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10 July 2020
Economy, Global Markets & Sector

Fundamentally sound stocks are available at inexpensive valuation
S Naren, ED & CIO, ICICI Prudential AMC
July 07, 2020 | Source: Business Standard
 On market sentiments: Investor sentiment in March after the market correction was that of panic. At
the same time, equity valuations were cheap and presented a once-in-a-decade opportunity, akin to
2008 and 2001. In the near-to-medium term, market volatility cannot be ruled out owing to geopolitical
and Covid-19-related developments. The best approach to investing is through multi-asset, dynamic
asset allocation funds/balanced advantage category funds, which will be well placed to make the
most of opportunities present across asset classes. Further, one should continue with the existing
systematic investment plans (SIPs). Unlocking the economy in a phased manner is a prudent step.
This will help the economy get back to normal slowly and steadily. Meanwhile, investors should keep
a tab on the infection trend.
 On opportunities in current markets: In India and globally a few stocks have delivered the bulk of
the returns. We believe these stocks are meaningfully overvalued relative to the market. Cyclically, it
appears these stocks are in the end-cycle, whereas the rest of the market is not. Value, small-, and
mid-caps are in the early stages of the cycle. Fundamentally sound stocks are still available at
inexpensive valuation, providing good dividend yield and reasonable earnings visibility. Long-term
investors looking for lump sum investment opportunities can consider value funds. Small- and mid-
cap funds are another segment close to its cyclical bottom. This market segment can deliver outsized
returns over the long term.
 On global central banks easy money policy: The equities markets globally have done well over the
last 12 years, largely due to the role of central banks. In the future, there exists a risk of their inability
to control an equity market decline. The only way to guard against this risk is by having adequate
exposure to debt mutual funds, besides gold and equity exposure governed by asset allocation rules.
However, no fund manager can predict when this risk can play out over the next decade.
 On US equities: The US equity market is heading towards a bubble with the US large-cap and tech
names currently transitioning from boom to a bubble phase. It is very easy to bring down interest
rates to zero, but how do you take them up is something that the world is still thinking about, and that
is a challenge at this point. In 2012, US equities were in the early stages of the market cycle.
Unfortunately, investors are now interested in investing in US funds, which, we believe, is close to the
top of the cycle. At some point, the US Federal Reserve will try to cut its accommodative stance and
reduce the amount of liquidity. One can then expect a correction across markets, including India.
Axis Securities Limited, Corporate office: Unit No. 2, Phoenix Market City, 15, LBS Road, Near Kamani Junction, Kurla (west), Mumbai-400070,
Tel No. – 022-40508080/022-61480808, Regd. off.- Axis House, 8th Floor, Wadia International Centre, Pandurang Budhkar Marg, Worli, Mumbai –
400 025. Compliance Officer: Anand Shaha, Email: compliance.officer@axisdirect.in, Tel No: 022-42671582. SEBI-Portfolio Manager Reg. No. INP000000654
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10 July 2020
 On sector preference: Software, pharmaceuticals, power, telecom, metal, and mining are some
sectors we are overweight on. We remain very selective in banks and finance, and have been
underweight on the consumer non-durables space for a while. After the Covid-19 pandemic, personal
mobility oriented thinking may give a fillip to the auto sector.
 On outflows in credit funds: Investors have realised the trouble in the debt markets is not systemic
and it has been business as usual for fund houses with good quality underlying debt paper. Credit as
an asset class remains attractive due to valuation comfort owing to the high spread between accrual
schemes and repo, which provides a good margin of safety for investments made. The gap between
yield to maturity of credit funds and the repo and the reverse repo rates of the Indian market is at its
widest, signifying that credit funds are at their lowest valuation and make it one of the most interesting
categories to invest in a lump sum for the long term. When asset classes are at the bottom of the
cycle and valuation, it is the best time for a lump-sum investment in an aggressive way.
 On debt segment opportunities: Both the duration and credit offer attractive investment
opportunities. For those looking to park money for a short span can consider the liquid-plus and ultra-
short category of funds. Since the yield curve continues to remain steep due to high risk aversion,
short- and medium-duration funds present an interesting investment opportunity. From a longer-term
investment horizon, investing in dynamic duration schemes can be considered. Investors, who do not
invest in debt mutual funds, are missing a very important and a stable asset class in their portfolio
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10 July 2020
Corporate
Booking trend is more in favour of smaller cars
Shashank Shrivastava, ED (Marketing & Sales), Maruti Suzuki
July 07, 2020 |Source: ET Now
 On improvement in things post the unlocking of the economy: Mr. Shashank Shrivastava, ED
(Marketing & Sales) of Maruti Suzuki said that the showrooms are open now. The enquiry levels were
definitely lower than the pre-Covid times by a wide margin. However, June actually was a much more
representative month because most of the showrooms were open. In fact, for Maruti Suzuki, almost
2,800 out of the 3,000 showrooms were open; barring those showrooms which are in the containment
areas. So the enquiry levels at the retail level as well as the booking level, which is actually a
reflection of the demand from the consumer side, are roughly 80-85% of the pre-Covid levels. That is
a good bounce back which we have seen in the month of June.
 On the recovery in demand: Mr. Shrivastava said that the data is only about 25 days’ because that
has been the normal operations so far. Given this caveat, they do believe there is a suggestion that
the rural markets are bouncing back a little better than the urban ones. If you look at the top 40 cities,
for example, the negative growth is much higher than the rural areas. As a result of that, the
percentage of the rural sales in Maruti’s portfolio is now roughly about 40-41%, which was about
38.5% last year. So yes, there seems to be a better bounce back in the rural areas.
 On whether there is further room for expansion in the rural domain: It all depends on how the
economy unfolds. Some of the positives which are going in favour of the rural at this moment are:
one, there has been a bumper rabi crop. Even the procurement is going on smoothly. Second, the
kharif sowing which has just begun this season is also very positive. The monsoon in the first month
so far is up by almost 20% over the last year. He believes these are pointers for very good farm
income in the future. That is also a very positive thing as far as sentiments in the rural markets is
concerned.
Secondly, most of the containment zones and red spot areas are confined largely to the urban
centres. Those are the two big positives and it is not affecting the rural areas so much. So on those
two counts, the rural is positive.
 On the Booking trend to be in favour of smaller cars: Mr. Shrivastava said that he thinks that
stance has actually been further strengthened a little bit because now we have data for a larger
timeline. So if you look at the trends in terms of bookings as well as enquiries, there seem to be some
bookings which have come in favour of the smaller cars and that is actually logical also. A lot of
people have been commenting on it and different researches have indicated a couple of things on
consumer behaviour post Covid, One of them is the shift downwards demand choices. He believes
that is something which they see very much happening in the current scenario.
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10 July 2020
Nestle India to focus on core categories to explore growth opportunities

Suresh Narayanan, CMD, Nestle
July 08, 2020 | Source: Economic Times
 Focus on core category: In COVID-19 pandemic, food and nutrition company plans to focus on core
categories, including milk & nutrition, chocolates & confectionery and coffee & beverages to explore
growth and expansion opportunities in these segments. These are all areas where the company has
core competence and strength and will continue to work on the product offerings catering to such
needs in order to maintain consumer trust in respect of quality, better nutrition, and better immunity.
 Gradually establishing the new products launched: The company has made a foray into new
products like breakfast cereals business under the brand name NESPLUS, Nestle Health Science
business. With the advent of modern lifestyles and changes in consumer behavior, Maggi has
expanded its offering in the ready-to-eat segment in India with the launch of Maggi Ghee Tadka
Upma Express, and Maggi MasalaOnion Poha Express, providing convenience and taste to the
consumers, especially millennials. The products have been launched in a phased manner. In the first
phase, it was launched in Delhi, Gurgaon, Mumbai, Pune, Indore, Ahmedabad, Surat, Vadodara,
Chennai, Bengaluru, and Hyderabad. The move is expected to help the company to compete with
local home-grown consumer goods companies such as MTR Foods, iD Fresh Food, and Gits. After
the huge success of Maggi noodles over the years, the company is now trying to go deeper into the
kitchen though both the products (poha and upma) which were rolled out last December in portable
cups targeting out-of-home consumption. Recently, the company has recently launched flexible packs
and target is in-house consumption taking into consideration that work-from-home has become the
new normal, and likely to continue over the next few months, there has been a spike in home
indulgence.
 Price hikes: With regard to the price hike of products, there has been no price increase during the
COVID-19 period and some taken were not made opportunistically but considering factors like
commodity headwind that is not capable of being mitigated by the company either by better efficiency,
better economies of scale or by better and more efficacious manufacturing.
 Capacity Utilisation and expansion: On the company's production capacity and continuous supply
of products, all eight factories of the company are operational with an average of about 80% of the
manufacturing capacity. The company continues to evaluate the creation or addition of capacities at
the existing or new facilities, based on the demand and growth in various categories. The company
has plans to put up its ninth factory in Sanand in Gujarat with an investment of over Rs 700 crore of
which civil construction work has been impeded due to the labor shortage in the wake of COVID-19.
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10 July 2020
Going forward, India should be the steel producer of the world, not China
Sajjan Jindal, Chairman JSW Group speaks

July 06, 2020 | Source: Economic Times
 On manufacturing sector in India:Mr Jindal Feels that in India, we have issues of land, of labour, of
getting finance because the cost of finance is very high. But if we say that in China there are no
issues, he would not agree with that. But then, we have a lot of advantages too. We have a huge
market. We have 1.35 billion people living in this country which give us a huge market. Therefore, we
can go on tom-tomming that we are not getting land. But why? Because we want land in Gurgaon.
The auto industry will say oh! I want to set up a plant in Chennai, I want to set up a plant in
Bangalore. You do not have to do that. If you want to get land, you can get land maybe 100
kilometres from Bangalore or 100 kilometres from Delhi, where you can get any amount of land.
There is no problem. Yes, finance is expensive in India but you can borrow in dollars. You will get
international rates of finance in dollars. Then you have created your own imports and exports, you
create a dollarized balance sheet.
 On Chinese steel manufacturer: He feels that that the Chinese manufacturers are getting highly
subsidized by their state governments. They were exporting over 100 million tonnes globally which
now has dropped to less than half of that. When the Chinese started dumping, every country in the
world which had their own steel industry, they put up anti-dumping duties or high tariffs on the
Chinese imports. Therefore they cut their own feet and now Chinese exports have dwindled as far as
steel is concerned. The whole world realized that they were not market driven and they were grossly
subsidizing their own products. Now, every country has put up anti-dumping barriers -- right from
Brazil, Argentina to the US, Canada, Japan, Korea or India.
 On capital allocation policy and automation after Covid-19: It is a very important point. Right now,
what is keeping me busy is how to digitalize the company, how to automate the process because the
steel industry is as heavy as any industry can get to be. It is the heaviest industry in the world and
also it is a highly manpower intensive industry. But given today’s environment with artificial
intelligence (AI), machine learning and digitalization, a lot of things can be done. As they say, never
waste a crisis because every crisis brings an opportunity. We are not letting it go by and we are
working to modernize our facilities. Our facilities are probably the most modern facilities in the world.
But we are now looking at industry 4.0 wherein we are trying to make it absolutely state of the art as
far as processes are concerned. For example, our locos which are moving hot metal from the blast
furnaces to the steel melt shop; have two people working on it. First we are reducing one person and
then we are going to make the process autonomous. So that loco will start from point A and will
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10 July 2020
automatically stop at point B without any man into any phase. We are doing many things like that.
Work is going on at a very high pace by now as we speak.
 On cost cutting and saving in next two to three years: We are constantly working on cost cutting
and improving the processes so that we can reduce the cost of operation and reduce the carbon
footprint by improving our operations. All those things are now showing very good results. Indian steel
is probably the most competitive in the world, maybe even much more competitive compared to
China because we have our iron ore. That is a very big strength. Plus, we have a very high quality of
steel manpower and a huge home market. These three factors give us a huge advantage and by
building very modern and very state-of-the-art steel plants, our costs are probably the lowest in the
world. These factors have helped Indian steel industry to become the most competitive or most
profitable steel industry in the world. Going forward, India should be the steel producer of the world
and not China.
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10 July 2020
Havells has been Atmanirbhar for many years
Anil Rai Gupta, Chairman and MD, Havells India

July 08, 2020| Source: Economic Times
 Dependence on China for white goods: Talking about Havells, he says the company has seen
Atmanirbharta for many years. The company had realized earlier that it cannot depend upon China
for a long period of time if they want to give quality products and good service to the consumers.
Much before Atmanirbhar Bharat and Make in India campaigns started, they have been investing
heavily into world class and world scale manufacturing for about 15 to 20 years ago for all products
which were traditionally imported from China. This included miniature circuit breakers, switch gears
and lighting. Havells was one of the first company to set up a lighting manufacturing facility in India
while China was supplying 60% of the lighting to the world.
 He thinks it is a little bit of a misconception that we are too dependent upon China. He is of the
opinion that as manufacturers, we really need to step up our will and determination so that we can
manufacture products at globally competitive prices and quality.
 Can white goods industry in India compete at a global level: Mr Gupta says that manufacturers
need to invest in R&D, in machines, in scale and that is what China has done over the last 30 years.
Many of the industries have started doing so in India. Most of the consumer durables are actually
manufactured in India, while there is some dependence on China but over a period of time, even in
the air conditioners over last two or three years, there has been a tremendous shift to manufacturing
in India.
 Mr Gupta mentions that when Havells acquired Lloyd, the entire sales were happening from imports
from China. Today 100% of what they sell in India is completely manufactured in India and these are
globally quality competitive products. They are now open to export to the world and are getting
traction from the rest of the countries because people do not want to depend on one country. They
are looking out for competitive manufacturers and India has a huge opportunity to become more
global.
 On manufacturing shift from China to India may unfavourably impact the production cost and
pricing power : Mr Gupta is of the opinion that Initially, there could be some short-term disturbances,
some increase in cost and that is why a little bit of a pragmatic approach is required. As long as we
are not dependent on foreign capital or are providing employment in India -- a little bit of dependence
on any country whether it is China or any other country is okay -- this is a global world.
 He says that if we want to develop industry in India, we need to give a little bit more time for all kinds
of components to be manufactured in India. It is not a long-term process. It is a little bit of a medium-
term process and the government is really looking at it and hopefully things will get much better soon.
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10 July 2020
 On LED segment where LED chips arecurrently imported from China: India is not a big
manufacturer of LED chips. India manufactures lighting fittings, lighting products and final finished
products, especially in the last three or four years and mostly larger companies have invested in
manufacturing. Right now, we do not have plants to manufacture LED chips in India. But he is of the
opinion that the world is open for India and over the next one-three years, there will be more
investments coming into India to make LED chips. So this concept of dependence on China is a
misconception. Whether it is LED chips or compressors or motors for any products, India has the
options. We can continue to buy from China if required but there are many options available all
across the world. But going forward, in two or three years we will have options within the country as
well.
 On possibility of Havells increasing in-house manufacturing: Mr Gupta said that, whatever they
sell, they should have a complete control on the supply chain. Whether they manufacture in-house or
get it manufactured through outsourced suppliers, for better control on technology cost and quality,
they have always invested in manufacturing. As compared to our peers, the company has invested
heavily on manufacturing and though it have turned out to be a more brand and distribution oriented
company, it is completely backed by R&D and manufacturing. So, they are already into manufacturing
and that has been the core philosophy of Havells for decades.
 On demand revival & recovery: He is of the opinion that, generally the consumers have come back
and are buying products. The consumer products are seeing demand revival. The building installation
products are also seeing a demand revival. Somewhere there is a little bit of slowdown in the
industrial sales which they were already experiencing even in the pre-Covid era. It is taking a little bit
more time for all industries to be coming on stream, all construction sites to be coming on stream.
Over the short to medium term, if things continue like this, we should definitely see a recovery very
soon. He states that in semi-urban towns, tier II and tier III cities, tier IV and tier V cities as well as
some rural areas they are witnessing a relatively better outcome as compared to larger metropolitan
cities- which are still facing some issues of either lockdowns or construction sites not coming back
fully on stream.
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10 July 2020
Orient Electric controls 20% of organized fans market

Atul Jain, VP, Orient Electric
08 July 2020 |Source: Economic Times
 On challenges faced by India’s fan manufacturers in the current situation: Mr. Atul Jain, VP,
Orient Electric which is part of the CK Birla group and leading player in the fans segment says, the
fans market has seen pent up demand in late May and early June as unlock 1.0 unfolded. However,
there is uncertainty about what the future holds because of business de-growth and job losses said
Mr. Jain. He also mentioned, off late consumer spending has been minimal. VP of Orient Electric
highlighted some other challenges like rising costs of production, logistical challenges, inability of the
company to provide service as consumers are still wary of allowing visitors including technicians and
delivery guys inside the premises.
 Opportunities in the current scenario: The Company sees opportunities in both the current
scenario as well as post-COVID period. With Indian Society of Heating, Refrigerating and Air
Conditioning Engineers (ISHRAE) issuing safety guidelines to prevent transmission of N-cov following
concerns that heating, ventilation and air-conditioning (HVAC) systems could be adding to the spread
of COVID-19 pandemic, industry players feel fans should be used to increase air movement and
exhaust fans, in kitchens and toilet. Health experts too are recommending consumers to stay in well
ventilated areas where there is regular flow of air. Use of fans increases air circulation in indoor
areas, lowering the risk of air contamination. As workplaces resume operations under strict hygiene
regime, we are likely to see increasing installation of fans to enhance air circulation. Vice President of
Orient Electric feels that fans are taking on an important role to beat COVID-19 and the heat too.
 On Indian Fan industry’s size and growth outlook: The size of the organized fans market in India
is pegged at Rs 7,500 crore. As per third party research by Market Pulse, fans industry grew 9.5% by
value and 6.7% by volume in FY19-20. Because of Covid-19, growth in the March to May 2020 period
may not correspond to the previous growth rate. Orient Electric controls 20% of the organized fans
market and manufactures 10 million units per annum at its Faridabad and Kolkatta plants.
 On current inventory position and ability to fulfill consumer demand: Mr. Atul Jain said the initial
period of stock-outs at retail points was not due inventory deficit, but largely due to supply chain
bottlenecks. Currently, there is ample availability of inventory and Orient Electric has also started
production at its plants at Faridabad and Kolkata. In case the government announces complete
lockdown again, the existing inventory will help the company cater to consumer demand for the next
1-2 months.
 On plans to increase product basket: For Orient Electric, product development is a continuous
process and the company has been continuously focusing on developing products which are
innovative and disruptive. The company recently introduced i-series of fans with ECM technology that
provides 50% savings on energy and electricity cost. The company is also preparing itself to migrate
to BEEs star energy rating norms as and when it kicks-in.
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10 July 2020
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Economy, Global Markets & Sector: Weekend Reading Articles

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Weekend Reading Articles

Economy, Global Markets & Sector

Nestle India to focus on core categories to explore growth opportunities

Sajjan Jindal, Chairman JSW Group speaks

Havells has been Atmanirbhar for many years

Anil Rai Gupta, Chairman and MD, Havells India

Orient Electric controls 20% of organized fans market

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