Market Strategy

November 2020
AUGUST 2, 2017

sw
 Market Strategy
November 2020

Amit Agarwal, CFA

agarwal.amit@kotak.com
MARKET OUTLOOK FOR NOVEMBER 2020
+91 22 6218 6439
The specter of the pandemic looms large over the global economy, with a resurgence in
infections across Europe and some other parts of the World clouding the growth outlook. The
differential in the pace of economic recovery across regions is starkly visible in economic data:
while unemployment is falling and exports are rising in the United States (US), the Eurozone
continues to see higher unemployment and declining trade. Inflation across advanced
economies such as Europe and Japan remains muted. Economic activity in the United
Kingdom (UK) and China is in expansionary mode, as suggested by gross domestic product
(GDP) and Purchasing Managers’ Index (PMI) data, respectively. As per NY Times, CNN and
other major news channels, the US presidential and congressional are now on the markets’
radar with polls pointing to an increasing likelihood of a Democratic sweep in the U.S. election.
Also the negotiations on fresh stimulus for the US economy has come to a grinding halt and
has been pushed back till the month of January or February 2021.

In India, domestic macro prints and high frequency indicators have shown improvement
month-on-month as the government took significant steps to unlock the economy. The pace
and quantum of recovery has been encouraging, although some of it can be attributed to pent-
up demand. While the government has announced series of liquidity stimulus on top of
Reserve Bank of India measures, direct budgetary spends have been modest given a weak
fiscal position. We expect judicious and targeted fiscal actions depending upon the evolving
situation to get the economy back on track. It seems India has hit the first wave peak with total
active cases declining over past few weeks, which could pave the way for a gradual sustained
pick-up in economic activities.

The result season has started on a very positive note. Sectors such as cement thoroughly
surprised D-Street with their robust volume and margin growth reinforcing the fact that the
ground level economy has indeed fared better. Further, early indication from Pharma and
FMCG numbers suggest speedy uptake in demand revival. IT players too performed as
expected and reported healthy topline as well as bottom-line growth in the second quarter.
Larger private sector banks are reporting healthy numbers with stable asset quality figures.

During the month of October the Nifty rallied by over 200 points with one of the shallowest
stock participation from index composition. Small & midcaps too did not participate in this
uptrend. Infact as per data from CDSL and NSE, FPIs have been the sole supporters in October
with net inflow in equities of Rs 19541 crores in the month till 30th October, 2020. With gradual
reopening of the economy, tax collections should improve over the next few months. We have
factored GDP growth of -11.5% and fiscal Deficit/GDP at 8% for FY21.

In earnings, we expect earnings of the Nifty-50 Index to grow 3.7% in FY21, 33.2% in FY22 and
19.9% in FY23. We estimate Automobiles, banks, consumer staples, electric utilities and
telecom sectors to drive incremental profits of the Nifty-50 Index in FY22E and FY23E. At
current levels of 11,642 the Nifty-50 trades at 22x on one year forward basis and 19.3x on
FY22E. Equity valuations are not supportive at the moment as the earnings yield (i.e. Nifty-50
yield) works just 4.5% way below the 10 Yr. G-Sec yield of 5.9%. However, the very low global
bond yields is supporting flows into risky assets like equities. Going forward global cues
coming from US elections, stimulus talks, Covid cases and earnings print will influence
markets in the near future. Developed markets face a bigger threat from the stronger second
wave of coronavirus in the US and Eurozone.

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Market Strategy
November 2020

INTERNATIONAL MARKETS
World Economic Outlook by IMF
The International Monetary Fund (IMF) in October 2020 turned slightly more positive on the
global economy for this year, but warned of a “long, uneven and uncertain” recovery. As per
IMF, the global economy is now projected to contract by 4.4% in 2020 — an upward revision
from an estimate of -4.9% made in June 2020 (which has now also been revised to -5.2% due
to a new methodology used by the IMF). The revision was driven by better-than-expected
growth in advanced economies and China during the second quarter of the year and signs of
a more rapid recovery in the third quarter. The IMF’s forecast assumes that social distancing
due to the coronavirus pandemic will continue into 2021, and that local transmission will fall
everywhere by the end of 2022.

IMF outlook warned that the coronavirus crisis is far from over and has cut its global GDP
growth expectations for 2021 to 5.2%, from an estimate of 5.4% made in June 2020. For India,
the International Monetary Fund (IMF) has projected the Indian economy to contract by 10.3%
in 2020 amidst the ongoing coronavirus pandemic and grow at an impressive rate of 8.8% in
2021 -- surpassing China's projected rate of 8.2% - thereby regaining position as the fastest
growing emerging economy.

Overview of the World Economic Outlook Projections by IMF (%)

Country CY19 CY20 CY21

World Output 2.8 –4.4 5.2

Advanced Economies 1.7 –5.8 3.9
United States 2.2 –4.3 3.1
Euro Area 1.3 –8.3 5.2
Germany 0.6 –6.0 4.2
France 1.5 –9.8 6.0
Italy 0.3 -10.6 5.2
Spain 2.0 -12.8 7.2
Japan 0.7 –5.3 2.3
United Kingdom 1.5 –9.8 5.9
Canada 1.7 –7.1 5.2
Other Advanced Economies 1.7 –3.8 3.6
Emerging Market and Developing Economies 3.7 –3.3 6.0
Emerging and Developing Asia 5.5 –1.7 8.0
China 6.1 1.9 8.2
India 4.2 -10.3 8.8
ASEAN 4.9 –3.4 6.2
Emerging and Developing Europe 2.1 –4.6 3.9
Russia 1.3 –4.1 2.8
Latin America and the Caribbean 0.0 –8.1 3.6
Brazil 1.1 –5.8 2.8
Mexico –0.3 –9.0 3.5
Middle East and Central Asia 1.4 –4.1 3.0
Saudi Arabia 0.3 –5.4 3.1
Sub-Saharan Africa 3.2 –3.0 3.1
Nigeria 2.2 –4.3 1.7
South Africa 0.2 –8.0 3.0
Source: IMF

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Market Strategy
November 2020

News from US

Preparing for the US elections

Markets appear to be warming up to a Joe Biden presidency and Democrat control of the
Senate and House of Representatives after the 3 November US elections. This can be seen in
the polls and through the renewed decline in the USD, rise in US Treasury yields and
outperformance of Emerging Market (EM) vs Developed Market (DM) equities this month.
However, polls are still close, especially for the Senate race, and they have been wrong before.

A Democrat win would raise the chances of higher taxes and tighter regulations, especially for
the energy, financial and technology sectors. Nevertheless, the Democrats’ ambitious fiscal
spending plan, focused on building “green” infrastructure, should offset those concerns as it
is likely to boost the US’ long-term growth potential and would be positive for equities.
Geopolitical risks, especially US-China tensions, are likely to remain elevated if President
Trump gets re-elected. In this scenario, emerging Market (EM) local currency bonds and Asian
USD bonds are likely to remain range-bound. A clear Democrat or a clear Republican win would
likely be supportive of corporate and EM bonds as well as equity market. With either outcome
should reduce policy uncertainty and return the focus towards the ongoing economic recovery.

For India, Favourable US trade policies, Federal Reserve’s low-interest policy with continued
inflow of cheap capital into Indian markets, geopolitical support with border standoff with
China and favourable visa policy are some of the expectations from either of the government.

US GDP rebounds
The US economy grew at a strong annualized rate of 33.1% in Q3CY20 — by far the largest
quarterly gain on record — rebounding from a deep plunge the H1CY20 (especially Q2CY20)
impacted by Covid19 and subsequent lockdown. It is better than consensus economist
estimated annualized rate of 31%. The economy did partially rebound as lockdown restrictions
eased. However, rising Covid-19 infections, higher unemployment rate of 7.4% and Congress
impasse on another stimulus package is not healthy for the economy.

US annualized GDP YoY change (%)

40.0
30.0
20.0
10.0
0.0
-10.0
-20.0
-30.0
-40.0

Source: U.S. Bureau of Economic Analysis

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Market Strategy
November 2020

European Economies
The coronavirus disease (COVID-19) pandemic is exacting a severe social and economic toll
on Europe. By end-October 2020, more than 250,000 people have lost their lives in Europe,
while nearly 7.2 million people are estimated to have been infected with the virus. Early spring
lockdowns, voluntary social distancing, and associated disruptions in supply chains and lower
demand led to a record collapse in economic activity. Real GDP fell by about 40% in the second
quarter of 2020 (annualized quarter-over-quarter), with deeper contraction in advanced Europe,
where the virus spread first, relative to emerging Europe. A resurgence in coronavirus cases in
October 2020 could defer the period of healing for the economy and could lead to job losses
and bankruptcies. Corona infection data of different countries is taken from European Centre
for Disease Prevention and Control.

United Kingdom (UK)

UK economic growth slowed in August 2020 despite an easing of lockdown restrictions and
government subsidies. UK economy grew by 2.1% in August. The consensus expectation
among economists was for a 4.6% increase. It was the fourth consecutive month of economic
growth following a 20% contraction in April that led to the worst quarterly decline on record.
But growth rates were stronger in May (+2.7%), June (+9.1%) and July (+6.4%), signaling that
the recovery is losing momentum. GDP remains 9.2% below the levels seen in February 2020.
UK is currently in the grip of a resurgence in COVID-19 infections, with the country under
enhanced local restrictions and more than 20,000 daily cases.

Germany
Even Germany has been reintroducing restrictive measures across the country, the rules vary
from state to state. Germany’s current infection rate is more than 10,000 in a single day, with
the federal and state governments struggling to contain a second wave of coronavirus
infection. The GfK institute consumer sentiment index fell to -3.1 heading into November from
a revised -1.7 in the previous month. Germany will impose an emergency month-long lockdown
that includes the closure of restaurants, gyms and theatres to reverse a spike in coronavirus
cases beginning November 2nd. German economy is expected to shrink ~6 % in CY20.

France
The French Government plan and aims to rescue the economy from the impact of the
coronavirus pandemic by injecting a 42 billion-euro (USD 49 billion) stimulus in CY21. France's
economy is expected to shrink ~10% in CY20, in its worst recession since World War II. Earlier
the Government had unveiled a 100 billion-euro (USD 117 billion) recovery plan aimed at
creating jobs and saving struggling businesses. France is currently reporting 25000 cases per
day which is at a higher level unseen during the first wave. Even, France will go back into a
nationwide lockdown starting 30th October to 1st December 2020 to try to contain the COVID-
19 epidemic that is again threatening to spiral out of control.

Italy
As coronavirus cases continue to rise in Italy, it has avoided introducing tough lockdown
regulations and instead opted to put the economy first. While Italy had one of the strictest
lockdowns during the first wave of COVID-19 in Europe, it is now following a similar path to
other European countries that opted for less stringent measures. Under the latest rules, all
public places must close by 6 p.m. local time. Italy on an average is reporting over 10000 cases
per day (on October 27th and 28th it was over 20000 cases each day) which is at a higher level
unseen during the first wave. Italy’s economy is expected to shrink by over ~10 % in CY20.

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Market Strategy
November 2020

China’s GDP grew 4.9% in Q3CY19

GDP expanded 4.9% YoY in the third quarter of CY20, missing economists’ forecast for a 5.5%
expansion. The growth was followed by 3.2% growth in the second quarter of CY20..Both retail
sales and industrial production gained momentum in September, reassuring markets that the
recovery is on track. The numbers show China’s early containment of the coronavirus has set
the economy up for a faster rebound than any of its peers. The Chinese economy grew 0.7%
YoY in 9MCY20. As per IMF, China is the only economy in the world to show positive GDP
growth of 1.9% in 2020 as its GDP.

China quarterly YOY GDP (%)

8
6
4
2
0
-2
-4
-6
-8

Source: National Bureau of Statistics of China

Crude oil remains under pressure

Crude oil prices are down post 1) disappointing economic data out of China; 2) Weakness in
India; 3) fears of resurgence of coronavirus cases and additional lockdown measures in Europe
and 4) the looming threat that OPEC could turn on the taps in January 2021 as originally
planned. As per official announcement from OPEC, it is planning to ease its restriction on oil
production quotas from January 2021, from the 7.7 million bpd production cuts to 5.8 million
bpd production cuts. Even as per International Energy Agency (IEA), a resurgence of Covid-19
cases in many countries, local lockdown measures, continued teleworking and the weak
aviation sector led to downward revisions in crude demand from 92.2 million barrels per day
(mbpd) to 91.7 mbpd in CY20. Weak demand and oversupply means, crude prices would remain
under pressure. IMF forecast that oil prices will remain in the $40 to $50 range in 2021 and this
will lead to weak economic recovery in the Middle East and Central Asia.

World oil demand Brent crude price (USD/barrel)

Demand (mn bpd)
100
2015 95.3
2016 96.4
2017 98.2
80
2018 99.3
2019 100.3 60
2020E 91.70
2021E 97.20 40
Source: IEA
20

Source: Bloomberg

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Market Strategy
November 2020

Global October Flash PMIs

Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index posted
55.5 at the start of the final quarter of 2020, up from 54.3 in September and signaling the
fastest increase in private sector business activity since February 2019. The US economy
looks to have started the fourth quarter on a strong footing, with business activity growing at
a rate not seen since early 2019. On the other hand flash IHS Markit Eurozone Composite PMI
fell for a third consecutive month in October, dropping from 50.4 in September to 49.4 to
register the first contraction of business activity since June. This indicates that the Eurozone
is at increased risk of falling into a double-dip downturn as a second wave of virus infections
led to a renewed fall in business activity in October. In Asia, Japan remains weak, while India
and China continued to move in the right direction, with PMI data for September 2020
highlighting many positives.

Composite PMI for major economies showing mixed signals

Month US Eurozone China India Japan UK

30-Sep-19 51.0 50.1 53.1 49.8 51.5 49.3

31-Oct-19 50.9 50.6 52.0 49.6 49.1 50.0
30-Nov-19 52.0 50.6 53.7 52.7 49.8 49.3
31-Dec-19 52.7 50.9 53.4 53.7 48.6 49.3
31-Jan-20 53.3 51.3 53.0 56.3 50.1 53.3
29-Feb-20 49.6 51.6 28.9 57.6 47.0 53.0
31-Mar-20 40.9 29.7 53.0 50.6 36.2 36.0
30-Apr-20 27.4 13.5 46.7 7.2 27.8 12.9
31-May-20 37.0 31.9 54.5 14.8 27.8 30.0
30-Jun-20 47.9 48.5 54.2 37.8 40.8 47.7
31-Jul-20 50.3 54.9 54.1 37.2 45.2 57.0
31-Aug-20 54.6 51.6 53.1 52.0 47.2 60.3
30-Sep-20 54.3 50.4 53.0 56.8 46.6 56.5
31-Oct-20 55.5 49.4 NA NA 46.7 52.9
Source: IHSMarkit

Potential coronavirus vaccine lifting market sentiments globally

Researchers worldwide are working around the clock to find a vaccine against SARS-CoV-2,
the virus causing the COVID-19 pandemic. Vaccines normally require years of testing and
additional time to produce at scale, but the Herculean effort means that a fast-tracked vaccine
could come to market anywhere from the end of 2020 to the middle of 2021.

To date, just two coronavirus vaccine has been approved- Sputnik V, developed by the
Gamaleya Research Institute in Moscow and EpiVacCorona, Russia. In both the cases,
regulatory approval were granted without entering Phase 3 clinical trials. Hence, experts have
raised considerable concern about the vaccine’s safety and efficacy. Johnson and Johnson
halted the enrolment process for phase III trials, which had 60,000 volunteers taking part, after
one of the volunteers in the study developed complications after reporting "mysterious" illness
(Source: www.jnj.com). This makes the vaccine group the second one after Oxford University
to experience side-effects in early-stage trials.

There are currently more than 100 COVID-19 vaccine candidates under development, with a
number of these in the human trial phase. News from across the globe on potential vaccine
progress is lifting broader market sentiment. Currently markets are desperate to latch onto any
positive developments in the vaccine field. However, till date we do have any really surprising
or significant news on the vaccine.

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Market Strategy
November 2020

How far we are from Covid Vaccine as on Oct 30th, 2020

Country Firm Preclinical
testing Stage 1 Stage 2 Stage 3 Approval

India Zydus Cadila Done Done On

India Bharat Biotech Done Done On
UK Imperial college London Done Done On
UK Astrazeneca & Oxford Univesity Done Done Done On
US Moderna Done Done Done On
US Novavax Done Done Done On
Germany BioNTech,Pfizer & Phosun Pharma Done Done Done On
Russia Sechenov First Moscow & Done Done Done On
State Medical University
Australia University of Melbourne & Done Done Done On
Murdoch Children’s Research Institute
Australia Vaxine Pty Ltd & Meditox Done On
China Wuhan Institute & Sinopharm Done Done Done On
China Sinovac Done Done Done On
China Cansino Biological & Beijing Institute Done Done Done On
Source: WHO regulatory focus

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Market Strategy
November 2020

DOMESTIC ECONOMY
Expect FY21E GDP growth of -11.5% & GFD/GDP at 8%
With gradual reopening of the economy, tax collections will improve over the next few months.
We have already seen some improvement in the activity levels. However, we have factored
GDP growth of -11.5% (nominal at -10%) in our fiscal estimates and estimate GFD/GDP at 8%.

We estimate FY21E GDP growth at -11.5%

Components FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E

Real GVA 6.1 7.2 8.0 7.9 6.9 6.6 3.9 (11.2)
Agriculture and allied 5.6 (0.2) 0.6 6.3 5.0 2.9 4.0 3.5
Industry 3.8 7.0 9.6 7.7 5.9 6.9 0.9 (19.9)
Mining 0.2 9.7 10.1 9.5 5.1 1.3 3.1 (19.4)
Manufacturing 5.0 7.9 13.1 7.9 5.9 6.9 0.0 (16.9)
Electricity 4.2 7.2 4.7 10.0 8.6 7.0 4.1 0.2
Construction 2.7 4.3 3.6 6.1 5.6 8.7 1.3 (32.7)
Services 7.7 9.8 9.4 8.4 8.1 7.5 5.5 (10.3)
Trade, hotel, transport, communication 6.5 9.4 10.2 7.7 7.8 6.9 3.6 (22.5)
Financial, real estate, professional services 11.2 11.0 10.7 8.7 6.2 7.4 4.6 (4.8)
Non-agriculture GVA 6.2 8.7 9.5 8.2 7.3 7.3 10.0 (1.9)
Real GDP 6.4 7.4 8.0 8.2 7.2 6.8 4.2 (11.5)
Source: CEIC, Kotak Economics Research estimate

CPI inflation at an eight-month high

September CPI inflation rose to 7.34% as against 6.69% in August amid an increase in
momentum. Food inflation rose to 10.7% (9.1% in August). Meanwhile, fuel and light inflation
moderated to 2.9% (3.2% in August). Rural and urban CPI inflation are broadly moving in
tandem. We expect CPI inflation to average 5.9% in FY21.

Growing momentum led to a higher CPI reading in September

12.00
CPI (%) WPI (%)
9.00

6.00

3.00

0.00

-3.00

-6.00

-9.00
Jun-13

Dec-13
Mar-14
Jun-14

Dec-14
Mar-15
Jun-15

Dec-15
Mar-16
Jun-16

Dec-16
Mar-17
Jun-17

Dec-17
Mar-18
Jun-18

Dec-18
Mar-19
Jun-19

Dec-19
Mar-20
Jun-20
Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19

Sep-20

Source: CEIC, Kotak Economic Research

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Market Strategy
November 2020

August IIP disappoints, suggesting uneven economic recovery

August IIP fell 8% (July -10.8%) and by 1.3% on a sequential basis, indicating that uncertainty
about economic recovery continues to linger. On a sectoral basis, mining and manufacturing
production were down 9.8% and 8.6% respectively, while electricity production was nearly back
to last year’s levels.

Sectoral Classification of IIP

Mining (%) Manufacturing (%) Electricity (%) General (%)
2019 2020 2021 2019 2020 2021 2019 2020 2021 2019 2020 2021

April 3.8 5.1 (27.0) 4.9 4.0 (67.1) 2.1 6.0 (23.0) 4.5 4.3 (57.6)
May 5.8 3.2 (21.0) 3.6 2.5 (39.3) 4.2 7.4 (15.4) 3.8 3.1 (34.7)
June 6.5 1.5 (19.6) 6.9 0.2 (16.0) 8.5 8.2 (10.0) 7.0 1.2 (15.8)
July 3.4 4.9 (12.8) 7.0 4.2 (11.6) 6.6 4.8 (2.5) 6.5 4.3 (10.8)
August (0.6) 0.0 (9.8) 5.2 (1.7) (8.6) 7.6 (0.9) (1.8) 4.8 (1.4) (8.0)
September 0.1 (8.6) 4.8 (4.0) 8.2 (2.6) 4.1 (4.3)
October 7.3 (8.0) 8.2 (2.3) 10.8 (12.2) 1.8 (4.0)
November 2.7 1.9 (0.7) 2.7 5.1 (5.0) 8.5 1.8
December (1.0) 5.7 2.9 (0.7) 4.5 (0.1) 7.3 0.1
January 3.8 4.4 1.3 1,8 0.9 3.1 7.5 2.2
February 2.2 9.6 (0.3) 3.8 1.3 11.5 6.9 5.2
March 0.8 (1.4) 0.1 (22.4) 2.2 (8.2) 5.3 (18.3)
Average 2.9 1.5 3.9 (1.1) 5.2 1.1 3.9 (0.6)
Source: CEIC, Kotak Institutional Equities

Scope for a rate cut even in the February 2021 policy has reduced
Even as economic activity lost momentum in August, high frequency data suggests that
recovery gathered pace in September. We continue to expect gradual normalization in
economic activity (although uneven), with FY21 GDP growth likely to be around -11.5%.
Meanwhile, the MPC signaled that it will retain its accommodative stance into FY22, but will
cut rates only after a durable reduction in inflation. While a rate cut in the December policy
seems extremely unlikely, the recent inflation print casts doubt on the chances of any rate cut
in the February policy as well, given that inflation is seemingly higher than the MPC’s recent
projections for 2QFY21. We therefore believe that policy easing in February, if any, is
contingent on the evolution of food prices over the next few months. We expect CPI inflation
to average 5.9% in FY21.

Some pick-up in GST collections

Based on the monthly PIB release, total GST collection was at Rs955 bn for September 2020
(+3.9% YoY) and compared to Rs864 bn in August 2020. Gross GST collections in 1HFY21 were
at Rs4.5 TN—contraction of 25% over 1HFY20. Part of the increase is likely on account of
delayed filing by small businesses. Although economic activity and tax revenues will improve
over the next few months, we expect a shortfall of Rs1.5-2 TN in FY21E CGST collections. We
maintain our FY21E GFD/GDP estimate of 8% factoring in a shortfall of Rs5.3 TN in total
receipts, Rs3 TN of Covid-related expenditure and Rs1.7 TN of expenditure cuts.

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Market Strategy
November 2020

Trend in GST collections and components (Rs bn)

Month CGST SGST IGST Cess Total

June-18 160 220 495 81 956

July-18 159 223 500 84 965
August-18 153 212 499 76 940
September-18 153 211 501 80 944
October-18 165 228 534 80 1,007
November-18 168 231 497 80 976
December-18 164 225 479 79 947
January-19 178 248 512 87 1,025
February-19 176 242 470 85 972
March-19 204 275 504 83 1,066
April-19 212 288 547 92 1,139
May-19 178 245 499 81 1,003
June-19 184 253 478 85 999
July-19 179 250 596 86 1,021
August-19 177 242 490 73 982
September-19 166 226 451 76 919
October-19 176 237 465 76 954
November-19 196 271 490 77 1,035
December-19 200 268 481 83 1,032
January-20 209 282 530 86 1,108
February-20 206 273 485 89 1,054
March-20 192 256 445 83 976
April-20 NA NA NA NA 323
May-20 NA NA NA NA 620
June-20 190 240 426 77 909
July-20 161 214 423 73 875
August-20 159 211 475 72 864
September-20 177 231 403 71 955
Source: Ministry of Finance, Kotak Institutional Equities

Central government to borrow for GST compensation cess shortfall in lieu of states
As per the ministry of finance. the Central Government, in an attempt to resolve the issues
surrounding GST compensation, has decided to borrow Rs1.1 TN itself (rather than states)
under Option 1. The amount borrowed would be passed on to the states under a special
window as a ‘back-to-back loan in lieu of GST compensation cess. While this borrowing would
not reflect in the center’s fiscal deficit or debt, we await clarity about the exact mechanism.

The central government’s decision to borrow on behalf of states is a positive step towards
financing of the consolidated GFD. The incremental borrowing of Rs1.1 TN will not affect the
center’s fiscal metrics. We, however, believe that higher supply in the 3-year and 5-year bucket
will lead to flattening of the G-Sec yield curve. Factoring the overall weakness in tax receipts,
we now expect states’ GFD/GDP at 5%, with consolidated GFD/GDP to be around 13%.

Export-led moderation in trade deficit.

A sharper recovery in exports relative to imports led to a moderation in the trade deficit in
September. September imports contracted 19.6% to US$30.3 bn but registered a sequential
growth of 2.8% as domestic economic activity continued to normalize. Oil imports fell 36% to
US$5.8 bn while non-oil imports fell by 14.4%. Preliminary estimates suggest that exports grew
5.3% in September (-12.7% in August) to US$27.4 bn, and 20.7% MoM. This bounce in export
activity is a reflection of pick-up in economic activity in economies that have opened up after
the lockdowns.

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Market Strategy
November 2020

We believe that import recovery in FY2021 will lag behind the export recovery given the relative
weakness of domestic demand versus global demand. Despite the moderation in the number
of daily Covid cases, localized lockdowns continue and will weigh on domestic economic
activity. With oil prices likely to remain in check in FY21E, (expect average crude oil price of
US$40/bbl), we maintain our estimate of current account surplus of 1.1% of GDP. The capital
account will be well supported by FDI flows. We continue to estimate BOP in surplus of
US$94.4 bn in FY21E

Foreign trade for India in US $ bn

Date Sep-20 Sep-19 Aug-20 YoY MoM YTD YTD YoY
Chg (%) Chg (%) FY21 FY20 Chg (%)

Exports 27.6 26.0 22.7 6.0 21.5 125.0 159.0 (21.3)

Oil exports 3.6 3.4 1.9 5.1 88.0 12.0 22.0 (44.9)
Non - Oil exports 24.0 22.6 20.8 6.1 15.4 113.0 137.0 (17.5)
Imports 30.3 37.7 29.5 (19.6) 2.8 149.0 248.0 (40.1)
Oil imports 5.8 9.1 6.4 (35.9) (9.2) 32.0 65.0 (51.0)
Non - Oil imports 24.5 28.6 23.1 (14.4) 6.2 117.0 183.0 (36.2)
Gold imports 0.6 1.3 3.7 (52.8) (84.0) 7.0 16.0 (57.1)
Trade Balance (2.7) (11.7) (6.8) (23.0) (89.0)
Source: CEIC, Kotak Institutional Equities

USD-INR in the range of 72-75 through the rest of FY21

The economic outperformance of the US along with geopolitical uncertainties has recently
provided a depreciation bias to the INR. We believe that the following factors will drive
movements in INR going ahead, (1) pace of global economic recovery, (2) crude oil prices, (3)
uncertainty ahead of the US Presidential elections and tensions with China, and (4) evolution
of the spread of Covid. While the factors could impart volatility, the overall global
accommodative policy along with the sound external vulnerability matrix of India should
provide support to INR. We thus expect USD-INR in the range of 72-75 through the rest of FY21.

INR likely to range between 72-75 through rest of FY21

Average Q1FY21 Q2FY21 Q3FY21E Q4FY21E FY18 FY19 FY20 FY21E

USD/INR 75.9 74.4 73.3 73.3 64.5 69.9 70.9 74.2

EUR/USD 1.1 1.17 1.18 1.2 1.17 1.16 1.11 1.16
GBP/USD 1.24 1.29 1.3 1.3 1.32 1.31 1.27 1.28
USD/JPY 107.5 106 106 107.5 110.8 110.8 108.7 106.8
Depreciation/appreciation against the USD (%)
INR (4.6) 2.1 1.5 0.0 4.0 (7.7) (1.4) (4.4)
EUR (0.1) 6.3 0.9 1.7 6.9 (0.9) (4.1) 4.6
GBP (3.0) 3.9 0.8 0.0 1.0 (0.4) (3.2) 0.9
JPY 1.3 1.4 0.0 (1.4) (2.1) 0.0 1.9 1.9
Source: Bloomberg, Kotak Economics Research estimates

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 Market Strategy
November 2020

SIP inflows drops

Investment in mutual funds through systematic investment plans (SIPs) dropped for the fifth
consecutive month to Rs 7788 crore in September 2020, amid challenging economic
environment due to the COVID-19 pandemic. Contributions towards SIPs are seeing a declining
trend as a) investors are reacting to market volatility and valuations; 2) personal
circumstances resulting from job losses/salary cuts and 3) preference for safer assets and
liquidity during uncertainty.

However, account addition remained strong on the direct equity side. In Q2FY21, Central
Depository Services Limited (CDSL) added 30 lakh investor accounts at an average of ~10 lakh
accounts per month (versus 3 lakh per month in Q2FY20).
Investor Accounts of
CDSL (in crore) Monthly SIP contribution
Month Number Rs bn FY21 FY20 FY19 FY18 FY17
Jan-20 2.01
Total 1,001 927 672 439
Feb-20 2.06
Mar-20 2.12
March 86.4 80.6 71.2 43.4
Apr-20 2.18 February 85.1 81.0 64.3 40.5
May-20 2.23 January 85.3 80.6 66.4 41.0
Jun-20 2.31
December 85.2 80.2 62.2 39.7
Jul-20 2.41
Aug-20 2.52
November 82.7 79.9 58.9 38.8
Sep-20 2.61 October 82.5 79.9 56.2 34.3
Source: CDSL September 77.9 82.6 77.3 55.2 37.0
August 77.9 82.3 76.6 52.1 35.0
July 78.3 83.2 75.5 49.5 33.3
Jun 79.2 81.2 75.5 47.4 33.1
May 81.2 81.8 73.0 45.8 31.9
April 83.7 82.4 66.9 42.7 31.2
Source: AMFI

Q2FY21 numbers encouraging so far

Covid19 and consequent lockdown impacted the net sales of companies which announced
results till 30th October 2020. However, benign raw material environment and structural efforts
by corporates to save cost supported the gross margins and earnings. Out of the 480
companies which announced results as per moneycontrol.com till 30th October, there was
marginal YoY decrease in revenue of -5.3%, but healthy improvement in gross margins and
earnings.

Quarterly results announced by 480 companies (of 4248 companies) till 30th October, 2020
(Rs Crore) Q2FY21 Q2FY20 YoY (%)

Sales 6,89,225 7,25,828 -5.3

Other Income 3,779 3,165 16.2
Gross Profit 83,661 61,783 26.2
Depreciation 31,122 29,744 4.4
Interest 99,334 1,02,446 -3.1
Tax 26,763 18,890 29.4
Net Profit 75,348 -11,427 LtoP
Source: Moneycontrol.com

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Market Strategy
November 2020

We expect earnings of the Nifty-50 Index to grow 3.7% in FY21, 33.2% in FY22 and 19.9% in
FY23. We estimate Automobiles, banks, consumer staples, electric utilities and telecom
sectors to drive incremental profits of the Nifty-50 Index in FY22E and FY23E.

EPS growth for Nifty 50 constituents over FY21E to FY23E

Sector FY21E FY22E FY23E

Automobiles & Components -23 184 32

Banks 35 19 21
Capital Goods -47 84 20
Commodity Chemicals -19 65 17
Construction Materials -9 67 29
Consumer Staples 4 20 14
Diversified Financials -26 38 29
Electric Utilities 12 17 8
Fertilizers & Agricultural Chemical 38 14 10
Gas Utilities -42 45 12
IT Services 5 12 12
Insurance -38 8 7
Metals & Mining -37 204 23
Oil, Gas & Consumable Fuels 0 37 19
Pharmaceuticals 25 21 28
Retailing -47 128 30
Telecommunication Services 172 188 79
Transportation -28 16 9
Nifty-50 Index 3.7 33.2 19.9
Nifty-50 Index (ex-energy) 4.6 32.2 20.0
Source: Kotak Institutional Equities estimates; Bloomberg

Covid19 Update in India as on 30th October, 2020, improving but long way to go
We continue to see improvements in the high-frequency indicators we track, as the number of
active Covid-19 cases continues to fall. Daily e-waybills generated over the past week were the
highest weekly numbers since the start of pandemic. Railway freight volume is up 14% yoy in
October Month to Date (MTD). Digital payments (UPI and IMPS) data continues to show
strength. However, cars and two-wheeler registrations dipped slightly in the first few days of
October.

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Market Strategy
November 2020

Corona Virus Update in India as on 30th October, 2020

Indicator Direction Comments
No of cases in India Downwards Number of cases continue to increase at a declining rate. Latest is 43000 cases per
day. Total number of active cases as on 30th October remain below 7 lakhs with
recovery rate of ~90 %.
State wise Mixed Some of the states are more heavily affected compared to other states. The mortality
rate of Covid-19 varies significantly in different states. Maharashtra most impacted.
Traffic data Downwards Road traffic remains lower than 2019 levels. While road traffic is up from the extreme
lows of April 2020, the week-on-week change in congestion level was divergent across
cities.
Civil Aviation Weak The number of departures and the number of people flying remain depressed. Per day
domestic departures is at 1,600 compared to pre-Covid daily average of 3,000.
Payment data. Strong Daily average UPI and IMPS transaction values have recorded an all-time high in
October.
Electricity consumption Strong Few states saw higher electricity consumption in October compared to a similar
period in the previous year. However the trend is volatile.
Real Estate Strong "Property sale registrations in Maharashtra were much higher in September as
compared to April 2020. They are also higher than March 2020 daily average."
New vehicle registration Low, but improving Cars and two-wheeler registrations are now close to two-thirds of pre-Covid level, but
the registrations growth has flattened.
Railway/Ports data Mixed Railway freight volume is down sequentially in October but higher on a yoy basis
Number of job postings Improved Most industries saw an increase in the number of new job postings.
Movement of people Lesser After plateauing for a while, we saw evidence of risk-averse behavior (people spending
more time at home and less time at workplace/grocery shops).
Import duty collection. Higher Daily average import duty collected was higher in September and continues to rise in
October.
Petroleum product consumption Improved The consumption of high-speed diesel in September/ October was above the March
consumption level. However, the consumption of petro-products is still well below
normal levels (FY20 average).
Source: Kotak Institutional Equities, Ministry of Health and Family Welfare

A SOMEWHAT DIFFERENT WORLD

We expect the post-Covid business landscape across sectors to be somewhat different due to
changes in consumer preferences and market dynamics led by further acceleration in the pre-
Covid forces of (4Ds) (1) de-globalization, (2) diversification of risk/supply chains, (3)
digitalization and (4) Darwinism or consolidation. India’s economic growth will take time to
recover given high fiscal deficit and public debt, which may drive the government to pivot to
an enabler for businesses versus a provider of services.

We see three major themes emerging from the ongoing Covid-19 pandemic—(1) changed
consumer preferences in many sectors driven by faster and forced adoption of digital models
by companies and consumers, (2) rapid corporate transformation due to acceleration in the 4D
forces; these forces were relevant even before the pandemic but will accelerate in the post-
Covid world and (3) diminished ‘direct’ role of government in the economy given its weakened
fiscal position; the government’s role may evolve to an enabler versus a provider of services.
The government has rightly focused on supply-side reforms over the past few months.

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Market Strategy
November 2020

FPIs remain net buyers in Indian equity markets in October, 2020

Foreign portfolio investors (FPI) remained net buyers in Indian markets in October 2020,
putting in net Rs 19541 crores in the month till 30th October on better than expected quarterly
results till date, the opening of the economy and resumption of business activities. In
September, FPIs were net sellers at Rs 7783 crores in the equity segment. The investment in
October 2020 in Indian equity markets is in contrast to other emerging markets like Brazil,
South Africa, Taiwan, and Thailand which have seen net outflows in 2020. We believe that the
future FPI investment would depend on outcome of US Presidential election, uncertainty over
a US stimulus deal, worries about rising COVID-19 infection in several parts of Europe,
changing opinion, accommodative stance by global central banks and other global trends.

Monthly FPI/FII Net Investments in CY20 (up till October 30th 2020)
Month Equity Debt Debt-VRR Hybrid Total

January 12,123 -11,648 529 -46 957

February 1,820 2,097 2,637 2,416 8,970
March -61,973 -60,376 4,165 -19 -1,18,203
April -6,884 -12,552 4,033 544 -14,859
May 14,569 -22,935 1,000 11 -7,356
June 21,832 -1,545 3,766 1,957 26,009
uly 7,563 -2,476 -1,786 1 3,301
August 47,080 -3,310 2,762 3,347 49,879
September -7,783 3,958 406 2,222 -1,196
October 19,541 1,641 851 -207 21,826
YTD CY20 47,887 -1,07,146 18,362 10,226 -30,670
Source: CDSL

Some improvement from the lows- Key growth indicators (YoY, %)

Industry Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20

Cement production (2.1) (7.7) 4.1 5.5 5.1 7.8 (25.1) (85.3) (21.4) (6.9) (13.5) (14.6)
Commerical vehicle sale (39.1) (23.3) (15.0) (12.3) (14.0) (32.9) (88.1)
Diesel consumption (3.1) (7.3) 9.1 0.0 (1.8) 6.2 (24.2) (55.6) (29.5) (15.5) (19.5) (20.7) (6.0)
IIP Manufacturing (4.0) (2.3) 2.7 (0.3) 1.8 3.8 (22.4) (67.1) (39.3) (16.0) (11.6) (8.6)
Rail freight traffic (11.2) (11.1) (2.8) (0.2) (2.7) 3.7 (18.9) (40.1) (28.1) (11.6) (7.7) 1.4 17.9
Steel production 2.5 1.0 0.5 0.6 0.2 1.9 0.3 (83.4) (49.2) (24.3) (6.2) 7.2 7.8
Airport passenger traffic 1.1 4.0 11.2 2.6 2.2 8.9 (33.3) (97.7) (83.5) (82.2) (75.9) (65.7)
Credit growth (services) 7.3 6.5 4.8 6.2 8.9 6.9 7.4 11.2 11.2 10.7 10.1 8.6
Passenger Vehicle sales (23.7) 0.3 (0.8) (1.2) (6.2) (7.6) (51.0) (85.2) (49.6) (3.9) 14.2 26.5
Two wheeler sales (22.1) (14.4) (14.3) (16.6) (16.1) (19.8) (39.8) (83.8) (38.6) (15.2) 3.0 11.6
Source: CEIC, Kotak Institutional Equities

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Market Strategy
November 2020

SECTORAL SNIPPETS
Automobiles
As per Society of Indian Automobile Manufacturers (SIAM), wholesale volumes in the auto
sector continued recovery in the month of September 2020 and the same was on account of
increasing dealer inventory by automobile manufacturers ahead of festive season and
supported by improving retail demand trend on pent-up demand. Amongst segments, tractor
demand remains robust amid strong farm sentiments. Passenger vehicle and two wheeler
reported double-digit dealer despatch growth over September 2019. Demand recovery
remained slow for the three wheeler and the medium and heavy commercial vehicle segments.

Banks
The moratorium scheme followed by restructuring relief has definitely pushed out the
recognition of stress in banks’ books. Hence, we do not expect the headline earnings number
in near term quarters to completely reflect actual business conditions. Core performance is
likely to be weak as loan growth has slowed down further to ~5% yoy. Robust growth in
treasury income, which supported earnings in the previous quarter, is likely to have moderated
due to hardening of G-sec yields. We expect private banks to be conservative when fortifying
their provision buffers.

We expect the focus of investor discussion to be around improvement in collection levels and
quantum of restructuring for each bank. Banks with significant unsecured retail exposures
(especially to self-employed borrowers) and MSME exposures are likely to see higher
challenges. However, recent capital issuances and further postponement in timeline for
adherence to BASEL capital requirements have ensured that the sector is well placed to absorb
stress in the short term. We expect some discussion around the judicial outcome on requests
for waiver of interest on interest, but do not expect material impact on banks if the costs are
borne by the government.

Building Material
Channel checks with cement dealers suggest pan-India prices increased 2% mom in October
after four consecutive months of correction. As per DIPP, demand declined 15% yoy in August
2020 and declined by 29% yoy YTD FY2021. However, our checks suggest that strong demand
in September 2020 (+10-12% yoy) more than offset the weakness in early 2QFY21. Spot
variable costs bottomed in June 2020 and continue to see an increase in October 2020. Both
thermal cost and pet coke prices saw a surge of 4%/8% mom in October 2020, respectively.
Pet coke prices have increased by 44% from June 2020 bottom and are up 18% yoy in INR
terms. Factoring consumption lag and inventory, costs inflation should hit cement companies
from end of 3QFY21E and mainly in 4QFY21E. Price strength, if sustained, would offset cost
headwinds and keep margins stable in 2HFY21.

Capital Goods
We expect investment demand to take longer to recover given the negative impact of the Covid-
19 pandemic on household and government income and corporate balance sheets. Capital
goods may benefit from potential higher duty on Chinese imports and other favourable
government policies. We expect domestic defense players to benefit from import substitution
and electrical equipment and automation companies from exports as the Indian government
and global MNCs attempt to diversify in order to reduce supply risks.

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Market Strategy
November 2020

Construction
Construction sector is gearing up for recovery post monsoon with improved labour availability,
strong order backlog and pickup in project awarding activity in certain sectors like road,
railways, etc. from central government. Several construction companies were sitting on big
order book at the end of FY20, but due to Covid-19 led disruption (impacting labour availability
and raw material supply chain), the execution took a hit in Q1FY21. Strong monsoon season is
expected to impact execution in Q2FY21 as well, but outlook for Q3FY21 is strong based on
guidance given by companies under coverage. As per Ministry of Road Transport and
Highways, NHAI has awarded 1,330km of road projects in H1FY21 which is 1.6x higher on YoY
and has set a target of awarding 4500 km of projects in FY21. Hence project pipeline for
H2FY21 is strong in road space.

Consumer Staples
The Fear of loss of jobs and income has made people circumspect even as things have started
improving post unlock. Macro challenges continue to persist and companies are hopeful of a
demand pickup by the end of this year or early next year. While the months of April and May
continued to be weak, July/August/ September saw mid-single-digit growth. There is high
demand for personal wash products, household care and select food items. Margin outlook is
positive with benign crude and other raw material prices (except dairy). Furthermore, low
media intensity, strict control of overhead costs and Ind-AS 116 impact should help reported
EBITDA margins, even as operating leverage will be a drag for most names. Rural is now
growing faster than urban given (a) lower Covid-led disruption, (b) good harvest season and (c)
government initiatives. Companies are taking initiatives to support distribution network –
judicious deployment of credit to support trade and insurance for distributor partners, among
others. They have further accelerated steps to drive digital adoption in the trade.

HealthCare
Business updates from diagnostics companies indicate strong revenue growth in 2QFY21,
primarily on the back of Covid testing. Recovery in non-Covid segment is largely in line with
our estimates. We expect Covid testing to continue to drive robust revenue growth in the near
term. However, we caution against extrapolation of recent trends given Covid cases will peak
and decline at some point in the near future driving lower testing. We also expect further
reduction in RT-PCR pricing while rapid development in testing techniques will drive shift
towards point-of-care testing.

Information Technology (IT)

Despite Covid pandemic, IT spending remained largely immune as large companies
(accounting for 70% of IT spending) have fared relatively well, technology has emerged as the
key enabler of business continuity and companies expect a fast-paced recovery. IT services
spending is expected to grow at 5-8% CAGR over CY21-24 compared to an average 4.2% over
CY10-19 driven by higher cloud adoption, need to cater to changing customer preferences and
transformation in core business systems. Gartner’s forecasts point to significant acceleration
in spending in the medium term. We believe that the entire IT services sector will benefit from
this transformation exercise with TCS and Infosys being in the pole position. TCS and Infosys
will be at the forefront of this transformation courtesy a strong interactive practice, ability to
stitch together large integrated deals, strong process capability and comprehensive offerings.

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Market Strategy
November 2020

Oil and Gas

Global oil demand outlook will be subdued in the near term and muted over the next decade
with global oil demand stagnating around 98 mn b/d. This can decline further if governments
around the world were to pursue measures to undertake accelerated reduction in carbon
emissions over the next few years. Global energy mix can also see a faster shift towards gas
and renewables at the expense of coal and oil.

Energy Outlook 2020, BP posits three possible scenarios for global energy markets—(1) Rapid
Transition—adoption of targeted policy measures along with an increase in carbon prices,
which may reduce energy-related carbon emissions by 70% by CY2050, (2) Net Zero—Rapid
Transition scenario reinforced by significant shifts in societal behaviour and preferences,
which accelerates reduction in emissions by 95% by CY2050 and (3) Business As Usual
(BAU)—this scenario assumes that government policies, social preferences and technology
continue to evolve at a pace observed in the recent past, which may reduce emissions by 10%
only by CY50.

Metals
For ferrous companies, we expect further expansion in EBITDA/tonne in 3QFY21E led by
increase in steel prices in October 2020, lower exports with recovery in domestic demand,
improvement in operating leverage with higher volumes. Benefit of the same will partly impact
by increase in iron ore prices in domestic markets for non-integrated players.

Pharmaceuticals
Most of the pharma companies reported better performance, largely led by significant cost
savings and market share gains. However, the benefit was offset to some extent by subdued
performance in US. Also API sales showed strong growth trend, this was mainly due to a) less
inclination to buy from Chinese players, b) COVID led higher off take of medicines, c) restocking
to some extent and d) favourable pricing. As the lockdown eases, marketing spend in the
domestic formulation segment is expected to gradually increase. However, the pandemic has
led companies to re-evaluate their cost savings initiatives due to increased use of digital
mediums. Thus we expect improvement in profitability of domestic formulation segment. Also
Q2& Q3 are strong seasons for domestic pharma market. With reduced inclination of buying
from Chinese suppliers, we expect better growth prospects in API space for near term.

Real Estate
Q2FY21 pre-sales numbers reported by some of the real estate players under coverage showed
improved activity in the residential space. Oberoi Realty also showed rebound in residential
pre-sales in Q2FY21 which were back at pre-Covid levels. Even rental business saw recovery
in earnings for Oberoi Realty. Similarly, Sobha reported resilient quarter in light of the Covid hit
operations with gross sales values increasing 1% YoY. Industry is expected to see
consolidation as there is increased preference for branded developers as against standalone
developers. Several companies with large commercial assets (like Prestige Estates Projects)
portfolio are going for monetization through strategic stake sale/REIT in order to deleverage
balance sheet and unlock capital.

Telecommunication Services
We expect some improvement for the Indian wireless players post the Covid-led weakness in
the previous quarter. Likely trends for the near term will be (1) some normalization of offline
recharge activity (key for the low-end feature phone segment), (2) 4G adoption rate is likely to
improve sequentially but should still be below pre-Covid levels, and (3) continued weakness in
the international roaming revenues. Enterprise and home broadband businesses are expected
to do well.

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 Market Strategy
November 2020

VALUATIONS
MSCI World Index: Fw PE chart
The MSCI World
Index now trades at 22.0
18.7x on 1 Yr Fw 20.0 MSCI World Fw PE 10 Yr Avg-Fw PE
basis & 16x on 2 Yr 18.0
Fw basis. The 1 Yr
16.0
Fw PE already
14.0
captures 10 out of 12
months of earnings 12.0

recovery forecasted 10.0

for CY21 (i.e. 27%). 8.0
The previous multiple 6.0
peaks on Fw PE
Nov-07

Feb-09

Nov-12

Nov-17
Jul-09

Feb-14
Jul-14

Feb-19
Mar-06
Aug-06

Jun-07

Dec-09

Mar-11

Jun-12

Dec-14

Mar-16

Jun-17

Jul-19
Dec-19
Sep-18
May-05

Sep-08

Sep-13
May-10

Jan-12

May-15

May-20
Apr-18
Oct-05

Jan-07

Apr-08

Apr-13
Oct-10

Oct-15

Jan-17

Oct-20
Aug-11

Aug-16
basis has been at
17x.
Source: Bloomberg & Kotak Securities – Private Client Group

Nifty-50 Index: Fw PE chart

Based on our
estimates the 1 Yr Fw 22.0
Nifty-50 Fw PE 10 Yr Avg
PE works to 22x 20.0
whereas on Bloomberg 18.0
consensus estimates 16.0
it works to 20x.
14.0
Valuations look
12.0
attractive only on 2
10.0
year Fw basis that too
after building in FY22E 8.0

earnings growth of 6.0

Nov-17
Aug-05

Nov-10
Mar-06

Dec-07
Jul-08
Feb-09

Jun-11

Mar-13

Dec-14
Jul-15
Feb-16

Jun-18

Mar-20
Sep-16
May-07

Sep-09

Jan-12

May-14

Apr-17

Jan-19
Oct-06

Apr-10

Oct-13

Oct-20
Aug-12

Aug-19
33% on our estimates
and 40% on Bloomberg
consensus estimates.
Source: Bloomberg & Kotak Securities – Private Client Group

One Yr Fw PE chart: Nifty-50 Vs Mid Cap 100 Index

The Nifty Mid Cap 100
trades slightly above 28.0
the Nifty-50 on 1 Yr Nifty Mid Cap 100-Fw PE Nifty 50-Fw PE
24.0
Fw PE valuations. The
Nifty-50 trades at 20x 20.0
whereas the Nifty Mid
16.0
Cap 100 Index trades
at 20.6x on 1 Yr Fw PE 12.0
(both based on
8.0
Bloomberg consensus
estimates). 4.0
Oct-05
Apr-06
Oct-06
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Oct-20

Source: Bloomberg & Kotak Securities – Private Client Group

Kotak Securities – Private Client Group Please see the Disclosure/Disclaimer on the last page For Private Circulation 20
Market Strategy
November 2020

RATING SCALE (KOTAK SECURITIES – PRIVATE CLIENT GROUP) / KOTAK INSTITUTIONAL EQUITIES
Definitions of ratings
BUY – We expect the stock to deliver more than 15% returns over the next 12 months
ADD – We expect the stock to deliver 5% - 15% returns over the next 12 months
REDUCE – We expect the stock to deliver -5% - +5% returns over the next 12 months
SELL – We expect the stock to deliver < -5% returns over the next 12 months
NR – Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for
information purposes only.
SUBSCRIBE – We advise investor to subscribe to the IPO.
RS – Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there
is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing,
an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock
and should not be relied upon.
NA – Not Available or Not Applicable. The information is not available for display or is not applicable
NM – Not Meaningful. The information is not meaningful and is therefore excluded.
NOTE – Our target prices are with a 12-month perspective. Returns stated in the rating scale are our internal benchmark.

FUNDAMENTAL RESEARCH TEAM (PRIVATE CLIENT GROUP)

Rusmik Oza Arun Agarwal Amit Agarwal, CFA Priyesh Babariya
Head of Research Auto & Auto Ancillary Transportation, Paints, FMCG Research Associate
rusmik.oza@kotak.com arun.agarwal@kotak.com agarwal.amit@kotak.com priyesh.babariya@kotak.com
+91 22 6218 6441 +91 22 6218 6443 +91 22 6218 6439 +91 22 6218 6433

Sanjeev Zarbade Jatin Damania Purvi Shah K. Kathirvelu

Cap. Goods & Cons. Durables Metals & Mining, Midcap Pharmaceuticals Support Executive
sanjeev.zarbade@kotak.com jatin.damania@kotak.com purvi.shah@kotak.com k.kathirvelu@kotak.com
+91 22 6218 6424 +91 22 6218 6440 +91 22 6218 6432 +91 22 6218 6427

Sumit Pokharna Pankaj Kumar Krishna Nain

Oil and Gas, Information Tech Midcap M&A, Corporate actions
sumit.pokharna@kotak.com pankajr.kumar@kotak.com krishna.nain@kotak.com
+91 22 6218 6438 +91 22 6218 6434 +91 22 6218 7907

TECHNICAL RESEARCH TEAM (PRIVATE CLIENT GROUP)

Shrikant Chouhan Amol Athawale Sayed Haider
shrikant.chouhan@kotak.com amol.athawale@kotak.com Research Associate
+91 22 6218 5408 +91 20 6620 3350 sayed.haider@kotak.com
+91 22 62185498

DERIVATIVES RESEARCH TEAM (PRIVATE CLIENT GROUP)

Sahaj Agrawal Malay Gandhi Prashanth Lalu Prasenjit Biswas, CMT, CFTe
sahaj.agrawal@kotak.com malay.gandhi@kotak.com prashanth.lalu@kotak.com prasenjit.biswas@kotak.com
+91 79 6607 2231 +91 22 6218 6420 +91 22 6218 5497 +91 33 6625 9810

Kotak Securities – Private Client Group Please see the Disclosure/Disclaimer on the last page For Private Circulation 21
Market Strategy
November 2020

Disclosure/Disclaimer (Private Client Group)

Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house.
Kotak Securities Limited is a corporate trading and clearing member of BSE Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange
of India Limited (MSE), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX). Our businesses include stock broking, services
rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio
Management.
Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance
Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). We are registered as a Research Analyst under SEBI (Research
Analyst) Regulations, 2014.
We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years.
However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise/warning/deficiency letters/ or
levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities;
nor has our certificate of registration been cancelled by SEBI at any point of time.
We offer our research services to clients as well as our prospects.
This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person.
Persons into whose possession this document may come are required to observe these restrictions.
This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer
to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients
of Kotak Securities Ltd. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of
individual clients.
We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completeness cannot be
guaranteed. Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material
should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past
performance is not a guide for future performance. Certain transactions -including those involving futures, options and other derivatives as well as non-investment
grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price
movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals.
Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed
in this material, there may be regulatory, compliance or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-
looking statements are not predictions and may be subject to change without notice. Our proprietary trading and investment businesses may make investment
decisions that are inconsistent with the recommendations expressed herein.
Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client
Group.
We and our affiliates/associates, officers, directors, and employees, Research Analyst(including relatives) worldwide may: (a) from time to time, have long or short
positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn
brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company (ies) discussed herein or act as advisor or
lender / borrower to such company (ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions
at the time of publication of Research Report or at the time of public appearance. Kotak Securities Limited (KSL) may have proprietary long/short position in the above
mentioned scrip(s) and therefore may be considered as interested. The views provided herein are general in nature and does not consider risk appetite or investment
objective of particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation
to do business with KSL. Kotak Securities Limited is also a Portfolio Manager. Portfolio Management Team (PMS) takes its investment decisions independent of the
PCG research and accordingly PMS may have positions contrary to the PCG research recommendation. Kotak Securities Limited does not provide any promise or
assurance of favourable view for a particular industry or sector or business group in any manner. The investor is requested to take into consideration all the risk factors
including their financial condition, suitability to risk return profile and take professional advice before investing.
The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies
and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this
report.
No part of this material may be duplicated in any form and/or redistributed without Kotak Securities' prior written consent.
Details of Associates are available on www.kotak.com
1. “Note that the research analysts contributing to the research report may not be registered/qualified as research analysts with FINRA; and
2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications
with a subject company, public appearances and trading securities held by a research analyst account
Any U.S. recipients of the research who wish to effect transactions in any security covered by the report should do so with or through Kotak Mahindra Inc. (Member
FINRA/SIPC) and (ii) any transactions in the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc. (Member
FINRA/SIPC) at 369 Lexington Avenue 28th Floor NY NY 10017 USA (Tel:+1 212-600-8850).
Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates
to non US issuers, prior to or immediately following its publication. This material should not be construed as an offer to sell or the solicitation of an offer to buy any
security in any jurisdiction where such an offer or solicitation would be illegal. This research report and its respective contents do not constitute an offer or invitation
to purchase or subscribe for any securities or solicitation of any investments or investment services. Accordingly, any brokerage and investment services including the
products and services described are not available to or intended for Canadian persons or US persons.”
Research Analyst has served as an officer, director or employee of subject company(ies): No
We or our associates may have received compensation from the subject company(ies) in the past 12 months.
We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months: No
We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past
12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage
services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies)
or third party in connection with the research report. Our associates may have financial interest in the subject company(ies).
Research Analyst or his/her relative's financial interest in the subject company(ies): No
Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report:
No
Nature of financial interest is holding of equity shares or derivatives of the subject company.
Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of
publication of Research Report.
Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately
preceding the date of publication of Research Report: No.

Kotak Securities – Private Client Group Please see the Disclosure/Disclaimer on the last page For Private Circulation 22
Market Strategy
November 2020

Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date
of publication of Research Report: No
Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report.
"A graph of daily closing prices of securities is available at https://www.nseindia.com/ChartApp/install/charts/mainpage.jsp and
http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the "three years" icon in the price
chart)."
Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone
No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com/www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City
Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: INZ000200137 (Member ID: NSE-08081; BSE-673; MSE-1024;
MCX-56285; NCDEX-1262), AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Our research should not be
considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial
condition, suitability to risk return profile and the like and take professional advice before investing. Investments in securities market are subject to market risks, read
all the related documents carefully before investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk
factors before actually trading in derivative contracts. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: ks.compliance@kotak.com.
In case you require any clarification or have any concern, kindly write to us at below email ids:
 Level 1: For Trading related queries, contact our customer service at 'service.securities@kotak.com' and for demat account related queries contact us at
ks.demat@kotak.com or call us on: Toll free numbers 18002099191 / 1860 266 9191
 Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at ks.escalation@kotak.com or call us on 022-42858445
and if you feel you are still unheard, write to our customer service HOD at ks.servicehead@kotak.com or call us on 022-42858208.
 Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Mr. Manoj Agarwal) at
ks.compliance@kotak.com or call on 91- (022) 4285 8484.
 Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach Managing Director / CEO (Mr. Jaideep Hansraj)
at ceo.ks@kotak.com or call on 91-(022) 4285 8301.

Kotak Securities – Private Client Group Please see the Disclosure/Disclaimer on the last page For Private Circulation 23