COVID-19 Research Repor ts Sharekhan Special › MediaGalary › Common › 5_Research_R… · The current market correction offers a great opportunity for long-term investors as

Sharekhan Special COVID-19 Research Reports

Explore Sharekhan research team’s set of special Covid-19 reports

Investment Strategy – 3 Mutual Fund

portfolios to build in this market :

A COVID-19 Mutual Fund special report identifying schemes

basis one’s risk appetite

READ REPORT

Covid-19: India Inc's health report :

Our team takes a deep dive into the sectoral analysis of India Inc and emerges with

actionable investment suggestions

READ REPORT

Opportunity in Adversity :

A Sharekhan special report that identifies

quality companies with low valuations to add to

your portfolio

READ REPORT

2020, A Virus Story - Anatomy of a Bear

Market : A look at previous

market crashes and guidance on possible

portfolios to build basis one’s risk appetite

READ REPORT

Sharekhan Technical Research

Special : This Technical

Research report delves deep and emerges with a lucid technical update

on the indices and trading ideas

READ REPORT

#SafeTodayStrongerTomorrow Package

Phir teri kahani yaad aayi....

We have seen it earlier too. In the years 2000 and 2008, the equity market corrected sharply across the globe.

Source: Bloomberg, Sharekhan Research

Indian stock markets retracted by 60-70% in previous severe global corrections. The carnage in the broader markets was all the more severe!

Kal Aaj aur Kal…

Kal... the Great Fall of 2008 – Where Are We Now?

NIFTY trailing P/E (Dec 2007 – Dec 2008)

22.5

17.2 14.2 14.1

11.4 8.0

12.0

16.0

20.0

24.0 De

c-07

Jan-

08

Feb-

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Jul-0

8

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Nifty P/E (TTM)

25.3 24.8 24.8 25.6

20.0 18.0

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22.0

24.0

26.0

28.0

Mar

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9

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Mar

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Nifty P/E (TTM)

NIFTY trailing P/E (Mar 2019 – Mar 2020)

NIFTY trailing P/BV (Mar 2019 – Mar 2020)

3.0 2.9 2.7

3.0

2.3 2.0 2.2 2.4 2.6 2.8 3.0 3.2

Mar

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Mar

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Nifty P/BV …

NIFTY trailing P/BV (Dec 2007 – Dec 2008)

5.7

3.6 3.1 2.9 2.2

2.0

3.0

4.0

5.0

6.0

Dec-

07

Jan-

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8

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Nifty P/BV (TTM)


NIFTY finds bottom at PE of 11-12x trailing earnings and we are still at 20x now. But the valuations are close to the bottom at 2.3x on a PBV basis!

NIFTY forward P/E (Mar 2019 – Mar 2020) NIFTY forward P/E (Dec 2007 – Dec 2008)

NIFTY forward P/BV (Mar 2019 – Mar 2020) NIFTY forward P/BV (Dec 2007 – Dec 2008)

18.2 16.3 16.3

17.4

13.8 10.0

12.0

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20.0

Mar

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Nifty P/E (1-yr …

2.7 2.4 2.4

2.6

2.0 1.5

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2.5

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Nifty P/BV (1-yr FWD)

19.0

14.5

10.1 10.6 9.7

8.0 10.0 12.0 14.0 16.0 18.0 20.0

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Jan-

08

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Mar

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May

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Nifty P/E (1-yr …

3.9

2.9

2.1 2.0 1.6 1.0

2.0

3.0

4.0

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07

Jan-

08

Feb-

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Mar

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Nifty P/BV (1-yr FWD)

Kal... the Great Fall of 2008 – Where Are We Now on Forward Earnings?


On a forward earnings basis, the NIFTY is still 15-18% higher than the bottom in 2008, both in terms of PE and PBV valuatio

50.0

66.4 70.7

90.2

64.9 72.3

84.0

65.0

83.5 78.4

85.4 80.6

45.6

149.7

77.6

60.5 49.0

40.5

Mar

-20

Dec-

19

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Market Cap to GDP Ratio (%)

Aaj... Market Cap to GDP Ratio – We Are Not Far from the Bottom


The market cap to GDP ratio being at 50% is significantly lower than the long-term average of 80%. This is close to the ratio we witnessed during the 2008 global financial crisis.

0.5

1.0

1.5

2.0

2.5

Mar

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Mar

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-07

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Mar

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-16

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16

Mar

-17

Sep-

17

Mar

-18

Sep-

18

Mar

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Sep-

19

Mar

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NIFTY yield / G-Sec Yield (EY/BY) had spiked during the

Global Financial Crisis

NIFTY Earnings Yield (1-year forward) / G-Sec Yield at Multi-year High

EY/BY, which had spiked sharply during GFC, and has

risen again due to the present COVID-19 crisis, highest since

GFC (now at 1.3x)

LT average: 0.8x

Aaj... Earnings Yield Getting Attractive, but May Not Have Peaked!


•Due to recent market corrections, the relative attractiveness of equities vs bonds is increasing. The NIFTY’s earnings yield is now fairly close to the 10-year bond yield, which suggests the rising attractiveness of equity versus debt. •It remained below 1x for most of the period in the last six years (except during demonetisation). Historically, when the earnings yield is close to the 10-year bond yield, it has been a good indicator of a NIFTY bottom.

-1,00,000

-50,000

0

50,000

1,00,000

1,50,000

YTD FY20

FY19 FY18 FY17 FY16 FY15 FY14 FY13 FY12 FY11 FY10 FY09 FY08

Rs. c

r

FII flows (Rs. Cr) DII flows (Rs. Cr)

Aaj... FII Outflow in YTD FY20 Is Higher than FY19 and 80% of FY18


-37% -30% -60%

6% 20% 9% 14% 13% 7% 23% 11%

34%

79%

-4%

92% 103%

405% 387%

-100%

0%

100%

200%

300%

400%

500%

Asian Financial Crisis Dot Com Bubble Global Financial Crisis

Trough 1M post Trough 3M post Trough 6M post Trough 12M post Trough Peak

Phir Kal... Handsome Returns Post Sharp Corrections


0

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May 2016, Markets jump back 10% in 1mth

April 2011: Swift 13% recovery in next two months

Aug 2009: Sharp 83% jump from lows within 6 months

Sept 2013: Market bounce back 15% in next one month

Mega stimulus

Sept 2008: US Sub Prime Crisis, market falls steeply by 43%

Dec 2010: Euro Debt Crisis emerge, Markets correct 11% in next two months July 2013:

US Quantitative easing worries mount market corrects 10%

Dec 2016: DEMO effect Nov 2016, market fall 9% after that

Dec 2015: US First rate hike since 2006 markets down 10% in 2 months

Coronavirus Scare/ Oil Crises

Sino-US Trade war, domestic slowdown

Ultimately, Market Recovers, which Provides Multiple Attractive Opportunities


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50

100

150

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350 Ap

r-15

Sep-

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Nifty Top 20 Bottom 30

Bottom 30 Index : 5767, decline of 30%

Nifty 50 Index : 8967, Return of 10%

Top 20 Index: 10145, Return of 24%

NIFTY: Excluding the Top 20, the Next 30 Already at 5750 NIFTY Level


NIFTY Top 20 Delivered Consistent Outperformance

Surviving Market Corrections…

“Cash is King”

SABSE BADA RUPAIYA…

“Dynamic allocation”

“AAJ MERE PASS GAADI HAI, BANGLAA HAI, BANK BALANCE HAI…”

“SAHI TIME PAR SAHI JAGAH HONA, SAHI TIME PAR SAHI BAAT KARNA, AUR SAHI TIME PAR SAHI KAAM UTHANA, ISEE KO LUCK KEHTE HAI...”

“Sector rotation”

How to Survive in Tough Market Conditions – Do’s

The market is under pressure amid the ongoing global sell-off and some stocks are available at much lower levels. But because of a lack of clarity on how big this cut is going to be, it is not advisable to go all out and buy. We believe that depending on the risk appetite and patience for investment duration, it is better to hold a higher cash position and only deploy money if you are a long-term investor. So now, “Cash is King”.

Investors should have dynamic assets allocation plans to maximise return potential while at the same time minimizing the overall risks of the investment portfolio.

The top-performing sectors change in every bull market. It was banks and commodities that led the 1992 and 2008 rallies. Similarly, the FMCG, Pharma and IT sectors were running the show in the 2000 and 2015 rallies. Investors should look at portfolio churn from the potential underperforming sectors to relatively outperforming sectors in these tough market conditions. It’s important to place a bet on the right sector at the right time to get a strong outperforming portfolio.

“Take calculated risks”

“RISK TOH SPIDERMAN KO BHI LENA PADTA HAI…”

“Long-term wealth creation”

“NAZDIKI FAYDA DEKHNE SE PEHLE… DOOR KA NUKSAAN SOCHNA CHAHIYE...”

“BADE BADE DESHON MEIN CHOTI CHOTI BAATEIN HOTI REHTI HAI…”

“The BIG picture”

How to Survive in Tough Market Conditions – Do’s

Taking calculated risks based on individual risk appetite could deliver big returns in the long term. Investors should look to build a long-term super portfolio by accumulating quality stocks in current market weakness.

Investors should keep long-term wealth creation in mind without worrying about short-term pain. They should not break their long-term portfolios just because of short-term gains.

The events of the next couple of months are quite critical from the economic, healthcare and policy point of view. However, the outlook remains constructive for the Indian economy for the next decade, as we are already on road to becoming a USD 5 trillion economy. Notwithstanding near-term uncertainties, don’t miss the big picture and don’t let near-term issues cloud your investment decisions.

How to Survive in Tough Market Conditions – Don’ts

“TUMSE NA HO PAYEGA...”

“MERE KARAN ARJUN AYENGE…”

“MAIN APNI FAVOURITE HOON…”

“Don’t overleverage” “Keeping false hopes” “The BIG picture”

Taking overleveraged bets in a falling market could lead to huge losses. Overleveraged trading should be avoided in volatile market conditions, as there is a high degree of uncertainty in the market. It’s better to preserve capital.

Do not set a preconceived benchmark price for the shares you hold. In a falling market, holding on to stocks that do not have strong fundamentals and waiting for your buying price to come could result in heavy losses. Also, do not tend to average your investment in weak stocks. If the price drops owing to fundamental reasons, it is better to exit and book losses. Don’t keep false hopes…

Avoiding news flows and corporate developments in the company you have invested in and sticking to one’s Confirmation Bias could prove costly. Discuss with your investment advisors and figure out if anything has materially changed in the company’s fundamentals from the time you have invested in it. Sticking to one’s Confirmation Bias in a falling market will only result in mounting losses.

“Successful investing is about managing risk, not avoiding it.”

Where to Invest Now…

– Benjamin Graham

Investment strategies in tough market conditions are a lot more complicated, given the pain of draw-downs and an uncertain outlook. In a bear market, Cash is King, so ensure that you have ample liquidity to use opportunities to buy good quality stocks for the long term. Additionally, investors should use a staggered approach to invest in the market, as it would hardly show a V-shape recovery and tend to consolidate after a sharp fall over a long time. Our past experience suggests that investing in high-quality companies always pays in the long term and these would be the first to recover when the dust settles. Further, a bear market provides ample opportunities for first-time investors to build a long-term portfolio. Thus, we have created three distinctive portfolios keeping in mind the risk appetite of different sets of investors.

SAFETY FIRST APPROACH QUALITY FIRST APPROACH OPPORTUNISTIC APPROACH

INVESTMENT PORFOLIO

Where to Invest Now?

Conservative Approach – Limited Draw-down and Reasonable Gains

Allocation (%)

Conservative Hybrid Funds (Balanced Funds) 40%

1 Kotak Debt Hybrid Fund

2 ICICI Prudential Regular Savings Fund

3 IDFC Regular Savings Fund

Large -cap Fund (Do SIP or STP) 20%

1 HDFC Top 100 Fund

2 ICICI Pru Bluechip Fund

Alternate Asset (Debt/Gold) 25%

1 ICICI Pru Short Term Fund

2 IDFC Low Duration Fund

3 Gold ETF

Cash 15%

Total 100%

Safety First Portfolio

Defensive Portfolio with High-quality Companies – The Right Mix for Difficult Times

Allocation (%)

Consumer Staples 40%

Asian Paints

Hindustan Unilever

Dabur India

Nestle India

Pharma 15%

Abbott Ltd

Divi’s Labs

Others 15%

Mahanagar Gas

SRF

Bharti Airtel

Banking & Financials 15%

HDFC Bank

HDFC Life

Cash 15%

Total 100 %

Quality First Portfolio

Take advantage of the volatility to accumulate quality companies; for investors willing to take short-term pain for handsome long-term gains

Allocation (%) Banking and Financials 35% Kotak Bank ICICI Bank Bajaj Finance HDFC Life Consumers 25% Asian Paints Tata Consumer Bata India Hindustan Unilever Trent Speciality Chemicals + Gas 10% SRF Mahanagar Gas Others 15% Reliance Industries Bharti Airtel Cash 15% Total 100%

Opportunistic Portfolio

The Best Way to Beat Market Volatility

SIP Approach

Despite near-term uncertainties and huge market volatility, investors who would stick to the systematic investing plan approach over the next 12-18 months would be the biggest beneficiaries in the next 3-5 years. Investing in quality companies through the stock SIP mode as well as through the mutual fund (MF) route would create wealth in the long run. We have created two baskets for the same: one is for SIP in quality companies and the second one is for SIPs through the MF route.

Mutual Fund – Equity Portfolio Category

ICICI Pru Bluechip Fund Large-cap

HDFC Top 100 Large-cap

Kotak Standard Multi-cap Fund Multi-cap

Aditya Birla Sun Life Equity Fund Multi-cap

DSP Equity Opportunity Fund Large & Mid-cap

Stock SIP

Kotak Mahindra Bank

Asian Paints

Reliance Industries

Bajaj Finserv

Titan

SRF

SIP Approach – Beat Volatility and Create Long-term Wealth

Kaun Kitne Paani Mein…

What to Avoid…

In a bear market, the selling pressure can be relentless and will pull down even the best of stocks. However, it is important to understand which companies are more vulnerable in terms of an adverse impact on their business due to the COVID-19 outbreak and also other factors like balance sheet issues, negative free cash flows, promoter pledge and so on. We have carefully scanned through companies under our coverage. The following are the key conclusions of our study:

• Vulnerable market segments: Generally, it is prudent to avoid small-caps and stocks with relatively poor liquidity.

• Vulnerable sectors: Certain sectors are expected to see significant impact on their businesses over the next few quarters, resulting in a downgrade of earnings estimates and valuation multiples. Consequently, these sectors could see relatively much higher selling pressure and correction.

Vulnerable Sectors:

• Consumer Discretionary: Automobiles, Retail, Hotels and Travel, Aviation, Building Materials and Construction, Engineering, among others

• Export-driven Businesses: Textiles, IT Services and Auto Ancillaries

• Banks and Financials: Weak banks and NBFCs owing to rising risk of NPAs and weaker credit demand

What to Avoid... (Vulnerables)

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SENSEX Cap Goods Auto ConsumerDiscretionary

Sub Prime

COVID-19

Aviation and Travel Auto and Auto Ancillaries

Infra and Construction Hotels

What to Avoid... Kacche Dhaage


There are certain sectors that are expected to do better than ever in troubled times: • Consumer staples • Select Pharma and specialty chemicals companies • Life insurance companies • Multinationals with high return ratios and a dividend-paying track record

Saara Shehar mujhe Loin ke naam se jaanta hai…


Defensives Better Place than Others…

Everything will be okay in the end, and if it’s not okay, it’s not the end…

Kyunki picture abhi baaki hai mere dost!

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IndexOpportunity in adversity

Sharekhan SpecialMarch 25, 2020

For Private Circulation only

March 25, 2020 2

Opportunity in adversity

Shar

ekha

n Sp

ecia

l

“There are decades when nothing happens; and there are weeks when decades happen.” In the last two

weeks we have witnessed a once-in-a decade event, when the stock market went into a turmoil led by the

synchronised sell-off globally, amid the Coronavirus outbreak. The last time we saw such a sell-off was

during the 2008 Global Financial Crisis (GFC), but what has surprised market participants in 2020 is the pace

of sell-off as the market lost more than 20% in a month.

Governments across the world are putting their best efforts to restrict the spread of the pandemic, but

because of the lockdowns and demand-supply restrictions there would be a global economic impact and it

goes without saying that India will also face the brunt (and sting) of the Coronavirus. Nevertheless, we have

learnt from the GFC 2008 that the stock market will ultimately react to economic signals and recover. Thus,

it is important to stay invested to gain from market recovery over next 12-15 months, but the caveat here is to

invest in the right stocks, which have their long-term structural story intact and are strong enough to withstand

the crisis and emerge much stronger than before to ride the economic recovery.

It is difficult to predict a bottom for the market, but history suggest us that market correction always provides

an opportunity for long-term investors to create wealth by accumulating the right quality stocks at the right

valuation. In times of market turbulence, it’s advisable to use the accumulation route for investing in stocks to

beat volatility and have patience to invest for the long term, as the probability of negative returns decreases

as the investment horizon increases.

The current market correction offers a great opportunity for long-term investors as well as first-time investors

to start investing in high-quality stocks in a staggered manner. We have identified ten high-quality companies

across sectors, where investors could start a stock SIP and build a healthy long-term portfolio.

Happy Investing!

Build it SIP by SIP

Valuations

CompaniesCMP (Rs.)

Market Cap (Rs

cr.)

EPS (Rs.) P/E (x) P/BV (x) RoE (%)

FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E

Asian Paints 1,594 1,52,901 27.3 33.9 40.2 58.4 47.0 39.7 13.6 11.5 9.6 25.9 27.5 27.4

Bajaj Finserv* 4,824 76,777 285.2 381.9 492.8 16.9 12.6 9.8 2.7 2.2 1.8 18.5 19.6 19.7

Bata India 1,130 14,524 29.5 37.8 44.9 38.3 29.9 25.2 8.0 6.5 5.4 21.3 24.4 23.7

HDFC Bank 856 4,69,123 47.7 59.9 74.9 17.9 14.3 11.4 2.8 2.4 2.1 16.5 18.2 19.7

IPCA Labs 1,311 16,561 52.2 63.4 75.3 25.1 20.7 17.4 4.4 3.6 3.0 19.1 19.2 18.8

Kotak Mahindra Bank

1,294 246,737 33.5 40.0 50.4 38.6 32.4 25.7 4.9 4.3 3.7 12.8 13.3 14.4

Mahanagar Gas 745 7,360 75.9 81.8 86.5 9.8 9.1 8.6 2.6 2.3 2 28.9 27 24.9

Reliance Industries

1,081 6,85,433 75.4 81.8 105.8 14.3 13.2 10.2 1.7 1.5 1.3 11.7 11.4 12.8

SRF 2,668 15,337 163.1 176.4 212.2 16.4 15.1 12.6 3.2 2.7 2.3 20.9 18.8 19.0

TCS 1,752 6,57,493 87.0 92.8 102.1 20.1 18.9 17.2 6.7 6.1 5.5 34.6 33.7 33.7

Titan 884 78,436 17.0 18.5 26.3 52.0 47.8 33.6 10.4 8.9 7.3 23.3 21.9 26.1

Source: Company, Sharekhan Research; # The current estimates of companies are based on last update report and we will be reviewing the same going ahead* Bajaj Finserv target price as per SOTP method

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Asian Paints

� Asian Paints Limited (APL) is a market leader in the domestic paint industry with 55% market share. Unlike other paint majors, the company has de-risked its business model with more than 80% of its revenue coming from decorative paints. The company has a strong portfolio of brands straddling the pyramid.

� The spread of the Coronavirus would affect sales volumes of decorative paints due to deferment of spends on home refurbishing by consumers. However, the recent sharp correction in the crude oil prices would help in mitigating the impact to some extent as 30% of key inputs are crude link.

� Rising per capita income, growing urbanisation, a shift from organised players to branded players and infrastructure development are some of the key growth drivers for paint industry in the long run. This along with new product addition, distribution expansion (network of over 65,000 dealers and more than 6 lakh retailers) and gaining market share from small players would help APL to achieve consistent high to low double digit volume growth in the long run. The improvement in the profitability would be function of operating efficiencies and better revenue mix.

� The stock has corrected by 13% in last one month and is currently trading at discounted valuations of 39.7x (at a ~15% discount to its last five years’ average multiple). The company has sturdy balance sheet with strong return profile in the upwards of 20%. With consistent improvement in the cash flows it is one of the good dividend payers (last 4 years average dividend payout stood at 53%). In view of the long-term structural story of domestic paints industry, the recent correction provides for a good accumulation point in Asian Paints.

Bata India

� Bata India (Bata) is India’s largest retailer and manufacturer of footwear in India with a retail network of 1,400 stores selling ~ 47 million pairs of footwear every year. Its revenue and PAT grew at a CAGR of 6% and 26%, respectively over FY2016-19.

� The lockdown in India due to spread of the Coronavirus will affect the footfalls of Bata in Q4FY020 and Q1FY2021 due to the closure of retail stores as well as malls. Bata has wedding-related products in its portfolio and the postponement of weddings will also have an impact on sales in the near term.

� However, long-term growth prospects are intact as the company is focusing on re-branding itself from a conventional footwear player to a branded footwear player by reducing the pace of store addition and focusing more on growing into different segments. This, along with consistent store expansion, innovation, focus on the women’s footwear category (growing by 20-25%) and premiumisation strategies (about 50% product portfolio) would help Bata to achieve same-store-sales growth (SSSG) of 6-8% and low-double-digit revenue growth in the long run.

� The stock has corrected by ~34% from its recent high (in line with a correction in broader indices and is currently trading at 25x its FY2022E earnings (at a ~27% discount to its last five years historical average multiple of 34x). We believe Bata is one of the best plays in the domestic branded footwear space with a lean balance sheet and stable cash flows. We believe the recent correction provides good entry point for investors.

Bajaj Finserv

� Bajaj Finserv has consistently seen strong performance from its lending business over a period of time. Among its insurance subsidiaries, both its Life and General Insurance subsidiaries’ operating matrices continue to be healthy.

� The recent Covid-19 outbreak is an unprecedented global event which raises health and livelihood concerns. Initial signs indicate that the Coronavirus outbreak may result in higher delinquencies and lower credit offtake for BFSI players, including the lending subsidiary, which we believe may see slower credit offtake in Q4 and Q1 if the lockdown measures persist.

� All three of Bajaj Finserv’s businesses are strong franchises in their respective fields and are well-poised to deliver sustainable profitability going forward. Long-term outlook for the life insurance business has brightened with the large banking partner joining hands for distribution.

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� While there may be near-term headwinds, we believe that the long-term positives of a strong franchise (comprising a strong and consistent financing segment performance) and strong insurance subsidiaries form an attractive business franchise. Due to current market weakness, the stock has corrected by ~50% over the course of nearly two months and at present valuations, it is attractive for long-term investment.

HDFC Bank

� HDFC Bank stands out with its earnings visibility, consistent growth (10-yr CAGR growth in advances of 23.5%, networth of 26% and PAT of 25%) and robust quality of assets (GNPA/NPA% maintained at sub 2% / 0.8% levels respectively consistently) over a long period, which we believe still hold strong.

� The recent Coronavirus contagion has dragged down equity markets globally and India has been no exception. It is expected to impact growth as well as asset quality of banks and NBFCs, and result in higher delinquencies across sectors.

� HDFC Bank derives its strength from its retail loan portfolio (~48 % of total loan book), which despite tepid overall system-wide credit growth, has been growing well. Moreover, since 80% of its SME portfolio has additional collateral to cover the outstanding loans, 80% of wholesale is rated AA+ and above and, 80% of SME portfolio is self-funded indicates its book quality is more resilient to the risks of slowdown.

� HDFC Bank currently trades at reasonable valuations and the recent market weakness has dragged down the stock price by more than ~33% in the last three months, so much so that at present, the stock is available at below its long term average 1-yr forward PBV multiple of 3.7x. We opine any further weakness in the stock could be an opportunity for investors to add it to their long-term portfolio.

IPCA Labs

� IPCA is a fully-integrated Indian pharmaceutical company, manufacturing more than 350 formulations and 80 APIs for various therapeutic segments. IPCA is a therapy leader in India for anti-malaria with a market share of around 34% and has fast-growing presence in the international market as well.

� The outbreak of the novel Coronavirus (COVID-19) has led to a lockdown in countries across the globe, including India. There are various anti-viral drugs, immunotherapies and vaccines that are being tested and developed to treat COVID-19. However, HCQS (hydroxychloroquine sulphate) and chloroquine are among key drugs identified so far to fight COVID -19 and the results have shown efficacy.

� IPCA is one of the largest and vertically integrated manufacturers of HCQS and could potentially benefit from the opportunity. Though currently the company has not received any orders yet, an elevated level of enquiries for HCQS points at likely strong inflow of orders in the near to medium term.

� The stock price has corrected by almost 13% in the last three months. At CMP, the stock is trading at a valuation of 20.7x/17.4x its FY2021/FY2022 EPS, which is at a discount to its long term historical average multiple. We believe this is good opportunity for investors to accumulate the stock.

Kotak Mahindra Bank

� We believe Kotak Mahindra Bank (KMB) continues to be an attractive business franchise, with well-rounded products and services, shaping up well for the long term. Consistent performance across interest rate and asset cycles is a key differentiator and indicates the management’s quality and strength of the franchise. Its subsidiaries are shaping up well and while at present, the insurance subsidiary is comparatively small, we believe it is well on its way to be a significant value contributor to the consolidated business in medium to long term.

� The recent Coronavirus contagion has impacted the domestic economy as India was just barely able to emerge from its weak asset quality cycle phase. The pandemic has real implications, directly and indirectly for the financial services sector, including Kotak Mahindra Bank and is expected to impact growth as well as asset quality of banks and NBFCs, resulting in higher delinquencies across sectors.

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� We believe that a healthy retail asset base along with industry best margins and well-maintained asset quality provide the bank with a strong and latent margin lever and an opportunity to explore other assets with lower risks.

� Kotak Mahindra Bank has corrected to the tune of ~25% from its highs and we believe valuations are now reasonable considering the bank’s strong operating metrics as well as quality of its subsidiaries, which are formidable players in their own segments. We opine that at present valuations, the stock is attractive for long-term investment.

Mahanagar Gas

� Mahanagar Gas Ltd (MGL) is a dominant city-gas distribution (CGD) player in and around Mumbai with CNG/PNG sales volumes of 2.2 mmscmd/0.8 mmscmd in FY2019.

� MGL’s CNG sales volumes are expected to get impacted in the near term as most vehicles have gone off-road amid the lockdown in Mumbai given concerns of Coronavirus outbreak.

� We believe Q4FY2020E-Q1FY2021E gas sales volumes could remain weak but could recovery sharply to 6-7% led by a higher adoption of CNG-fitted four-wheelers and increased penetration of PNG. The margin outlook remains strong with anticipation of a further cut in domestic gas prices for H1FY2021E and already weak spot LNG prices.

� The sharp correction of 32% in MGL’s stock price makes its valuation attractive at 8.6x FY2022E EPS given industry leading EBITDA margin of Rs. 9-10/scm and a superior RoE of 24-25% as compared to peers.

Reliance Industries

� The recent sharp correction of 33% in Reliance Industries Limited’s stock price from recent highs, seems to be factoring in a prolonged weakness in refining & petrochemical margins, no improvement in the telecom business from potential hike in average revenue per user (ARPU) and low valuation for the retail business.

� Likely ARPU hike in telecom business and a weak Indian rupee could mitigate earnings volatility from decline in refining margin and petrochemical margins to some extent amid weak demand in times of the Coronavirus outbreak.

� Potential induction of a strategic partner for telecom and retail businesses could act as a key catalyst for value-unlocking from the consumer business.

� The company’s aim to increase the share of EBITDA from the consumer business to 50% (from ~37% in Q3FY2020) seems in the right direction to tide over margin volatility in cyclical business.

SRF

� Established in 1970, SRF is a chemical-based multi business entity engaged in businesses such as technical textiles, chemicals (Fluorochemicals and specialty chemicals) and packaging films. The company has delivered a revenue and earnings CAGR of 18.8% and 14.3% over FY2016-2019.

� The chemical business has been delivering healthy performance owing to robust growth in speciality chemicals however slowdown in automobiles industry has been impacting the performance in fluorochemicals and technical textiles. Further, the Coronavirus outbreak in China and its spread in the rest of the world resulting in lockdown in various countries is likely to lower the demand offtake and impact the company’s performance in short to medium term.

� We believe that though FY2021 performance would be impacted owing to COVID-19, the company’s long-term growth prospects remain intact as it has been making the right capital allocations in high sustainable growth areas (expanding capacities in chemicals, especially the speciality chemicals).

� The stock has corrected by 35% in the last month (in line with a correction in broader indices and is currently trading at 12.6x its FY2022E earnings. We believe that the stock can be considered for accumulation at current levels, as the company has been investing in the right areas and delivering a healthy and sustainable performance, which is likely to continue.

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Tata Consultancy Services

� Tata Consultancy Services (TCS) is among the pioneers of IT services outsourcing business in India and is the largest ($20,913 million revenue in FY2019) IT services firm in terms of export revenue. TCS is one of the preferred IT vendors for most Fortune 500/Global 1,000 companies.

� With the rapid spread of the Coronavirus in western countries, the potential impact on IT companies would be (1) a delay in allocation of funds owing to deterioration of performance of clients, (2) risk with service and delivery execution due to lockdowns, and (3) fewer deal wins and new account openings. In addition, TCS has higher exposure to BFSI vertical (30.4% of total revenues), which could impact the company’s growth owing to recent interest rate cut in the US.

� We understand the implications of the Coronavirus on the economy and near-term disruption to delivery from lockdowns, which reflects our downward revision of earnings estimates. However, we also believe that even though FY2021E is going to be a weak year for TCS owing to the Coronavirus and lower spending by BFSI clients, the growth for the sector would bounce back in FY2022E once recent issues get normalise.

� The stock has corrected by ~23% in last one month (outperformed with the correction in CNX IT index) and is currently trading at 17x its FY2022E earnings (`18% discounts to its last three years historical average multiples). We believe that recent correction in stock prices is partly factoring in a weak FY2021E and advice investors to start accumulating the stocks at current level given its strong business model, improving payouts and large deal wins.

Titan Company

� Titan Company (Titan) is one of the leading the brands in the domestic retail space with strong presence in the branded jewellery and watches segment with close to 1800 stores spread across 2.3+ million sq. ft of retail space. Its revenue and PAT grew at CAGR of 16% and 31% respectively over FY2016-19.

� The lockdown in India due to the spread of the Coronavirus will affect Titan’s Jewellery and Watches business in H1FY2021 as the company has shut down all its retail shops coupled with postponement of the wedding season due to curb on social gatherings.

� Though FY2021 will be affected by the Coronavirus, the long-term growth prospects are intact as a large shift happening from non-branded to branded jewellery players, sustained new innovation in jewellery and watches segment and the thrust on expanding into tier-II and tier-III towns due to improving demographics would help Titan to achieve consistent double-digit revenue growth and gradual improvement in margins in the long run.

� The stock has corrected by 30% in the last one month (in line with the correction in broader indices and is currently trading at 34x its FY2022E earnings (25% discounts to its last five-year historical average multiples). We believe this a good entry point in the large retail play like Titan, which has a lean balance sheet as compared to its peers.

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

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INVESTMENT STRATEGY3 MUTUAL FUND PORTFOLIOS TO BUILD IN THIS MARKET

April 2020

INDEX

EQUITY MARKET UPDATE AND OUTLOOKDeep Corrections Once AgainWhere We Are Now?Handsome Returns Follow Sharp CorrectionsTake Bigger Sips In Volatile Times

DEBT/ FIXED INCOME UPDATE & OUTLOOKMonetary Policy: RBI Gets Into Action

1.

2. Monetary Policy: RBI Gets Into ActionDebt Market WrapDebt Market Outlook

MUTUAL FUND PORTFOLIOSAggressive ModerateConservative

2.

3.

EQUITY MARKET UPDATE & OUTLOOKDEEP CORRECTION ONCE AGAIN

Deep corrections have happened earlier too. In the years 2000 and 2008 also, the equity market corrected sharply across theglobe.

Indian stock markets retracted by 60-70% in previous severe global corrections. The carnage in the broader markets was all themore severe!

EQUITY MARKET UPDATE & OUTLOOKWHERE ARE WE NOW?

Though there could be further 10-12% downside based on trough trailing price-earnings (PE) basis, the valuations seem to benear bottom level on Price-to-Book Value (PBV) and Market Cap-to-GDP ratio basis.

NIFTY trailing P/BV (Mar 2019 – Mar 2020)

3.0

3.2

149.7

Market Cap to GDP Ratio (%)

3.0 2.9

2.7

3.0

2.3

2.0

2.2

2.4

2.6

2.8

3.0

Mar

/19

Apr/

19

May

/19

Jun/

19

Jul/

19

Aug/

19

Sep/

19

Oct

/19

Nov

/19

Dec/

19

Jan/

20

Feb/

20

Mar

/20

Nifty P/BV (TTM)

50.0 66.4 70.7

90.2

64.9 72.3

84.0

65.0

83.5 78.4 85.4 80.6

45.6

77.6

60.5 49.0

40.5

Mar

-20

Dec-

19

Dec-

18

Dec-

17

Dec-

16

Dec-

15

Dec-

14

Dec-

13

Dec-

12

Dec-

11

Dec-

10

Dec-

09

Dec-

08

Dec-

07

Dec-

06

Dec-

05

Dec-

04

Dec-

03

EQUITY MARKET UPDATE & OUTLOOKHANDSOME RETURNS FOLLOW SHARP CORRECTIONS

405%387%

200%

300%

400%

500%

-37% -30%-60%

6% 20% 9%14% 13% 7%23% 11%

34%

79%

-4%

92%103%

-100%

0%

100%

200%

Asian Financial Crisis Dot Com Bubble Global Financial Crisis

Trough 1M post Trough 3M post Trough 6M post Trough 12M post Trough Peak

EQUITY MARKET UPDATE & OUTLOOKTAKE BIGGER SIPS IN VOLATILE TIMES

• Like many crisis this too will come to an end and it is extremely important to maintain asset allocation discipline.

• The correction in stock prices owing to Corona virus have increased the margin of safety and investor should allocate investment in favor of equities after considering his risk appetite.

• Considering the current market correction, investor should rebalance their equity exposure. i.e. if an investor had asset allocation of 70:30 in equity-debt and in current scenario if it has come down to 50:50 due to under performance of equity then investor should rebalance it back to actual allocation by investing in equities based on risk profile in staggered then investor should rebalance it back to actual allocation by investing in equities based on risk profile in staggered manger.

• Current times remind us of famous quote by Warren Buffett “Be fearful when others are greedy, and be greedy when others are fearful”

• Investor should continue SIP in all market conditions.

DEBT/ FIXED INCOME UPDATE & OUTLOOKMONETARY POLICY: RBI GETS INTO ACTION

RBI announces slew of measures to support economy through rate cuts, infusion of additional liquidity and relief toborrowers.

• Policy rate cut sharply: Repo rate cut by 75 bps from 5.15% to 4.40% and reverse repo rate by 90bps from 4.90% to 4.00% with immediate effect.

• Liquidity infusion: Liquidity infusion of Rs 3.74 lakh crore (Rs 3.74 trillion) through cut in CRR by 100 bps (releases Rs 1.37 lakh crore for banks), marginal standing facility (MSF) rate (another Rs 1.37 lakh crore) and another Rs 1 lakh crore will be lakh crore for banks), marginal standing facility (MSF) rate (another Rs 1.37 lakh crore) and another Rs 1 lakh crore will be pumped through TLTRO mechanism.

• Relief to borrowers: Three months moratorium in respect on all term loans of commercial banks, all India financial institutions and NBFCs outstanding as on 1 March 2020.

Abnormal times require unconventional policy response and RBI has taken some measures along with the central government’s fiscal policy response.

• Liquidity – In surplus zoneDuring the week March 16-20, 2020 the weighted average call rate averaged to 4.92% and continued to remain below the RBI’s repo rate of 5.15% with comfortable level of liquidity in banking system

• Bond Prices & other UpdatesThe benchmark 10-year GSec yields till 23rd March 2020 averaged 6.25%, a 19 bps fall from previous month average andranged between 6% to 6.4% during the month till 23rd March 2020.

DEBT/ FIXED INCOME UPDATE & OUTLOOKDEBT MARKET WRAP

ranged between 6% to 6.4% during the month till 23rd March 2020.

For the month of Feb-2020, the retail inflation moderated to a 3-month low of 6.6% which is 1% lower than a month ago inflation of 7.6% but still more than RBI’s upper band inflation target. The WPI inflation also moderated.

Inflation to be in downward trajectory and attractive yields in quality debt instrumentsDownward inflation trajectory of CPI has been aided by the easing inflation witnessed in the food as well as non-food segments.We expect inflation to remain on a downward trajectory over the coming months because of expected slower growth, normalmonsoons and lower oil prices.

We had seen spike in bond yields from 2nd to 23rd Mar-2020 in short term/corporate bond space. It happened because of thelarge redemption from corporate and preference for liquidity in the current scenario. As on 27th Mar-2020, RBI cut repo rate by75bps, CRR by 100 bps and reverse repo by 90bps.

DEBT/ FIXED INCOME UPDATE & OUTLOOKDEBT MARKET OUTLOOK

75bps, CRR by 100 bps and reverse repo by 90bps.

In next few months, RBI may additionally cut repo rate and keep the liquidity in surplus which will help to bring down the currentyields. Currently the yields are attractive in high quality debt instruments.

Strategy: Prefer high credit quality Short duration and corporate bond fundsCurrently the yields are attractive in quality debt instruments and investor should invest in high quality short duration andcorporate bond category schemes. Considering the current market scenario, investor with short term tenure should prefer liquid category schemes than arbitrage schemes.

MUTUAL FUND PORTFOLIO | AGGRESSIVEAMC SCHEME NAMELARGE CAPAxis Axis Bluechip FundBNP Paribas BNP Paribas Large Cap FundCanara Robeco Canara Robeco Bluechip Equity FundHDFC HDFC Top 100 FundHSBC HSBC Large Cap Equity FundICICI Prudential ICICI Prudential Bluechip FundKotak Kotak Bluechip FundMirae Mirae Asset Large Cap FundNippon India Nippon India Large Cap FundUTI UTI Mastershare Unit SchemeMID CAPAxis Axis Midcap Fund

Multi Cap 20%

Mid Cap 15%

Large Cap 65%

Portfolio Composition

Minimum Time Horizon: 5 yearsReview Frequency: 6 monthsAxis Axis Midcap Fund

BNP Paribas BNP Paribas Mid Cap FundDSP DSP Midcap FundEdelweiss Edelweiss Mid Cap FundFranklin Templeton Franklin India Prima FundICICI Prudential ICICI Prudential MidCap FundKotak Kotak Emerging Equity SchemeNippon India Nippon India Growth FundPrincipal Principal Midcap FundMULTI CAPAditya Birla Sun Life Aditya Birla Sun Life Equity FundBNP Paribas BNP Paribas Multi Cap FundCanara Robeco Canara Robeco Equity Diversified FundHDFC HDFC Equity FundICICI Prudential ICICI Prudential Multicap FundKotak Kotak Standard Multicap FundNippon India Nippon India Multi Cap FundPrincipal Principal Multi Cap Growth FundSBI SBI Magnum Multi Cap Fund

Review Frequency: 6 months

Aggressive InvestorYou are ready to take high risks, and very easily adapt when things don't go as you had planned, financially. Your objective is to get the highest return possible in the long term, and you accept the ups and downs along the way

MUTUAL FUND PORTFOLIO | MODERATE

Large Cap30%

Dynamic Asset Allocation20%

Debt Corporate Bond / Short Duration 50%


Minimum Time Horizon: 3 yearsReview Frequency: 12 months

AMC SCHEME NAMEDEBT CORPORATE BOND / SHORT DURATIONICICI Prudential ICICI Prudential Corporate Bond FundAditya Birla Sun Life Aditya Birla Sun Life Corporate Bond FundIDFC IDFC Corporate Bond FundKotak Kotak Corporate Bond Fund ICICI Prudential ICICI Prudential Short Term Fund IDFC IDFC Bond Fund - Short Term PlanL&T L&T Short Term Bond FundSBI SBI Short Term Debt Fund

DYNAMIC ASSET ALLOCATIONIDFC IDFC Dynamic Equity FundAxis Axis Dynamic Equity FundDSP DSP Dynamic Asset Allocation Fund

Review Frequency: 12 monthsDSP DSP Dynamic Asset Allocation FundICICI Prudential ICICI Prudential Balanced Advantage FundICICI Prudential ICICI Prudential Asset Allocator Fund Nippon India Nippon India Balanced Advantage FundTata Tata Balanced Advantage Fund

LARGE CAPAxis Axis Bluechip FundBNP Paribas BNP Paribas Large Cap FundCanara Robeco Canara Robeco Bluechip Equity FundHDFC HDFC Top 100 FundHSBC HSBC Large Cap Equity FundICICI Prudential ICICI Prudential Bluechip FundKotak Kotak Bluechip FundMirae Mirae Asset Large Cap FundNippon India Nippon India Large Cap FundUTI UTI Mastershare Unit Scheme

Moderate InvestorYou are an average risk taker, and try to adapt when things don't go as you had planned, financially. Your long term objective is to get a better return than a Fixed Deposit, net of tax, even if the short term performance could sometime be below expectations

MUTUAL FUND PORTFOLIO | CONSERVATIVE

Low Duration20%

Short Duration30%

Corporate Bond50%


Minimum Time Horizon: 3 yearsReview Frequency: 12 months

AMC SCHEME NAME

CORPORATE BOND

Aditya Birla Sun Life Aditya Birla Sun Life Corporate Bond Fund

ICICI Prudential ICICI Prudential Corporate Bond Fund

IDFC IDFC Corporate Bond Fund

Kotak Kotak Corporate Bond Fund

SHORT DURATION

ICICI Prudentiial ICICI Prudential Short Term Fund

IDFC IDFC Bond Fund - Short Term Plan

L&T L&T Short Term Bond Fund

SBI SBI Short Term Debt Fund Review Frequency: 12 monthsSBI SBI Short Term Debt Fund

LOW DURATION

ICICI Prudential ICICI Prudential Savings Fund

IDFC IDFC Low Duration Fund Conservative InvestorYou are unwilling to take risks, and get very uneasy when things don't go as you had planned, financially. Your long term objective is to try to get a slightly better return than a fixed deposit, net of tax.

THANK YOUTHANK YOU

Covid-19: India Inc’s health report

The Covid-19 pandemic continues to impact the global economy since its outbreak. As for India, a 21-daylockdown and other prompt measures by the government have placed us in a still relatively better position, ascompared to the figures released by some developed countries, but economic activity has been disrupted atvaried levels across sectors and businesses. Now, as India heads for another nationwide shutdown until May 3,2020, the impact on economic activities will be deeper.

The most-impacted sectors are those that involve discretionary spending, which include multiplexes/theme-parks, automobiles, malls, travel/tourism, real-estate hotels, etc), while essentials such as staples (FMCG),healthcare/pharma, telecom and utilities would be relatively less impacted. Further, owing to low businessactivity and potential in unsecured books, the financials sector looks highly vulnerable to the Covid-19 crisis.

In this latest Covid-19 edition from Sharekhan, we have tried to broadly outline the sectoral impact and ourpreferred investment picks in respective sectors. However, we are still in the early days and looking at theseverity of the crisis, the impact could be bigger on economy and the recovery would be gradual.

As we are at the start of the Q4FY2020 earnings season, we will get further clarity on the quantum and durationof the impact on companies from the current crisis. We will keep you posted…

Stay Safe for a Stronger tomorrow…

Covid-19: India Inc’s health report

Covid-19 sectoral impact: The beaten and the brave

Aviation,Tourism

NBFCs,MFCs

Real Estate, Construction

Auto,Manufacturing(non-essential)

Cap Goods ConsumerDiscretionary

Oil & Gas

IT & ITeS

ConsumerStaples

Telecom and Utilities

Pharma/Healthcare

Severe impact Relatively

low impact

Banks,Insurance

SpecialtyChemical

Sector Impact lockdown Beyond one month lockdown

Business recovery timeline

Aviation/Travel Very High Very High Slower

NBFCs/MFCs Very High Very High Slower

Real Estate/Construction Very High Very High Slower

Auto/Capital Goods Very High High Slower

Discretionary High High In-line with GDP

Oil & Gas High High In-line with GDP

Information Technology Moderate High Slower

Banking & Insurance Moderate High In-line with GDP

Speciality Chemicals Limited Moderate Early

Consumer Staples Limited Moderate Early

Pharma Limited Moderate Early

Utilities Limited Moderate Early

Sectoral business impactSe

ctor

resi

lienc

e

Low

Med

ium

High

Business impact

Steering away: Recovery depends on multiple drivers

Surge in pent-up demand after the lockdown Seasonal demand Change in consumer behaviour on account of

public health measures and social distancing Demand recovery in exports

Supply-side drivers

Other drivers

Demand-side drivers1

2

3

Return of migrant labour and casuallabour

Access to capital and business loans Faster revival of industrial output Availability of imported raw materials Higher enquiries for sourcing from

alternative locations

Return of government spending Rolling out of large government stimulus

packages Duration of Covid-19 outbreak Ease of interest rate by central banks Monsoon intensity and duration

Sectoral analysis in current environment

Capital Goods Weak order inflows and lower production

Banks/NBFCs/MFCs

High credit cost , increasing NPAs and low credit offtake dent profitability

Construction Weak orders, stretchedworking capital cycle

Automobiles Weak automobile demand

Discretionary Shutdown of stores due to lockdown

Oil & Gas Global oil demand likely to

decline owing to low business activities

IT Supply disruption, but

work-from-home approvalfrom over 95% customers

SpecialtyChemical

Part of chain of essential products; moderate revenue pick-up

Consumer Staples

Limited volume impact,margins may surprisepositively

Pharma Demand remains strong,

plants operating at 25-50% capacity

Sector Remarks Sector Remarks

The New Normal - Life after Covid-19

Work from HomeMore machines and automation; videoconferencing

Spend on HealthcareTelemedicine; better hygiene, efficacy ofhealthcare system

Digital connectSpending on digital technologies; digital media consumption

Increase in outsourcingOpportunity for higher outsourcing intensity;small captives may shut their operation

India as manufacturing alternativeCompanies are on the lookout for analternative production hub.

Sector wise-Outlook and Picks

Consumer Goods COVID-19impact

Preferred picksOur stance: Neutral

Asian Paints1

Britannia Industries2

Hindustan Unilever3

Dabur India 4

Consumer staples companies will face a limitedimpact of the Covid-19 outbreak as compared tocompanies manufacturing discretionary/non-essential products due to rising demand forpersonal hygiene products and essential products.

Supply disruptions due to lockdown in domestic andkey international markets would result in anotheryear of muted sales in FY2021. However, benigninput prices and judicious advertisement spendswould provide some support to operating margins.

However, long-term growth prospects are intact inview of the low penetration of some key categoriesin rural market, growth of e-Commerce as achannel of distribution and innovation through newproducts launches and entry into the category.

We prefer companies with a strong portfolio ofbrands largely targeted towards essentials, strongcash flows and good dividend payout.

Cont’d…. COVID-19impact

Asian Paints

Asian Paints Limited (APL) is a market leader in thedomestic paints industry with 55% market share. Unlikepeers, the company has de-risked its business model,deriving more than 80% of revenue from decorativepaints. The company has a strong portfolio of brandsstraddling the pyramid. The Coronavirus outbreak would affect sales volumes of

decorative paints as consumers defer spends forrefurbishing homes. However, recent sharp correction incrude oil prices would help mitigate impact to someextent as 30% of key inputs are crude-linked. Rising middle-income group, rapid urbanisation, and shift

to organised from unorganised segments would help APLachieve steady volume growth of high-single to low-double digits in the domestic decorative paints businessin the long run. APL has a sturdy balance sheet with stable working

capital management and a low debt to equity ratio.Moreover, company has a strong return profile with RoEand RoCE remaining upwards of 20% at 22.5% and24.7%, respectively.

Britannia Industries

Britannia Industries (Britannia) will see a lesser impact ofthe Coronavirus as 75-80% of product portfoliocomprises essentials.

We expect demand for biscuits and allied essentialproducts to see better demand in the coming quarters.However, production and supply disruptions caused dueto a lock-down in the country might affect sales in thenear term.

Sustained innovation, focus on growing adjacencies(dairy & bakery), enhancing reach in the Hindi-speakingbelt and improving profitability through efficiencieswould drive earnings growth in the long run.

Operating efficiencies, cost-saving initiatives andpremiumisation strategy helped Britannia to see its OPMimproving to ~16% in FY2020 from a mere 7% in FY2013.The company has strong return profile with RoE andRoCE expected to stand at 30.3% and 38.2%, respectivelyin FY2020E.


Hindustan Unilever

Hindustan Unilever (HUL) is India's largest consumerstaples companies with market leadership in highly-penetrated categories such as soaps and detergents. Thecompany has strong direct distribution reach of threemillion outlets.

About 50-55% of HUL's product portfolio is in essentialcategories. The company would benefit from strongdemand for soaps, hand sanitisers, hand wash anddetergents in the near to medium term.

The company's long-term growth prospects are intact.With the merger of GSK Consumer's health food drinksbusiness, the company becomes one of the strongplayers in the package food segment. We expect morenew launches in the foods business in the coming years.

With negative working capital and strong cash flows, thecompany is one of the cheery dividend payers (averagedividend payout for last 4 years stood at ~99%). It hasstrong return profile with RoE and RoCE standing at84.2% and 113.2%, respectively.

Dabur India

Dabur India’s positioning as an Ayurvedic productscompany, with a focus on herbal and natural products inthe healthcare and personal care segments and a strongpresence in the branded juices segment make it aformidable play in the domestic market.

Despite a slowdown in the domestic market, Dabur wasresilient, clocking revenue growth of ~7% (driven by 5-6% volume growth) in the first nine months of FY2020,with OPM improving by 232 bps to 16.2%. This wasmainly on account of steady performance in some keycategories where it gains market share.

FY2021 performance will be affected by supplydisruption caused due to spread of coronavirus. Howeversustained innovation, investment behind brands andconsumer connect initiatives are some key growthdrivers for Dabur in the long run.

Dabur India has a well-diversified portfolio of brands(largely rural-centric) in the domestic market. We expectrevenue and PAT to grow at a CAGR of ~10% and 12.6%over FY2019-22.

Consumer Discretionary COVID-19impact


Bata India1

Titan2

Trent3

Consumer discretionary companies will see majorhit on revenues since the lock down from March 23,2020, as a result of the initial closure of malls,restaurants and cinemas by most stategovernments and the country entering a completelockdown.

H1FY2021 will see major disruption as shutdown ofstores, affects revenue and profitability. If pandemicsituation is under control by June-July, we expectdemand revival from H2FY2021 (largely driven bypent-up demand/festive season).

Long-term growth prospects of sector are intact asthe company's are focusing on expanding its reach(by targeting tier2/tier-3 towns); banking on e-commerce/online channels to drive the next leg ofgrowth; improving store fundamentals and drivingefficiencies to see better margins.

We prefer companies having a strong brandportfolio and a lean balance sheet with stronggrowth prospects.


Bata India Bata India (Bata) is India’s largest retailer and

manufacturer of footwear with a retail networkof 1,400 stores selling ~ 47 million pairs offootwear every year. Its revenue and PATclocked a CAGR of 6% and 26%, respectively overFY2016-19.

Coronavirus-led lockdown will affect footfalls inQ4FY020 and Q1FY2021 due to the closure ofretail stores as well as malls. Bata has wedding-related products in its portfolio and thepostponement of weddings will also have animpact on sales in the near term.

However, long-term growth prospects are intactas the company is focusing on re-branding itselffrom a conventional footwear player to abranded footwear player by slowing storeadditions and focusing more on growing intodifferent segments.

Consistent store expansion, innovation, focus onthe women’s footwear category (growing by 20-25%) and premiumisation strategies (about50% product portfolio) would help Bata toachieve same-store-sales growth (SSSG) of 6-8%and low-double-digit revenue growth in the longrun.

Titan Company Titan Company (Titan) is one of the leading the

brands in the domestic retail space with strongpresence in the branded jewellery and watchessegment with close to 1800 stores spread acrossmore than 2.3 million sq. ft of retail space.

The lockdown in India due to the spread of theCoronavirus will affect jewellery and watchesbusinesses in H1FY2021 as the company has shutdown all retail shops coupled withpostponement of the wedding season due tocurb on social gatherings.

Long-term growth prospects are, however,intact as a large shift happening from non-branded to branded jewellery players, sustainednew innovation in jewellery and watchessegment and the thrust on expanding into tier-IIand tier-III towns due to improvingdemographics would help Titan to achieveconsistent double-digit revenue growth andgradual improvement in margins in the long run.

With a strong retail presence and portfolio ofestablished brands, Titan is one of the bettercompanies in the discretionary space. It hasstrong return profile with RoE and RoCE standingat 27.2% and 37.2%, respectively.

Trent Trent is a leading branded retail company that

operates Westside, a chain of departmentalstores retailing apparel, footwear and otheraccessories. It also operates value fashion chainZudio and has a associations to operate Zara andMassimo Dutti stores in India. Closure of malls and retail stores due the spread

of Coronavirus will impact the performance atthe fag end of Q4FY2020 and in Q1FY2021.However, H2FY2021 is expected to be slightlybetter due to the festive season. Overall, FY2021is expected to remain soft but strong recovery isexpected in FY2022 as Trent will be one of keybeneficiary of lower supply constraints as 99% ofproducts sold are in-house. However, we expect same-store sales growth

(SSSG) trajectory to improve, backed by betterstore fundamentals in the medium term. Almost100% share of private labels will help thecompany improve its supply chain and maintainits OPM expansion momentum in the mediumterm. Trent has a lean balance sheet with working

capital cycle standing close to 30 days and adebt:equity ratio of less than 1x.

Oil & Gas COVID-19impact

Preferred picksOur stance: Positive

Oil & gas companies are expected to get impactedby the Coronavirus outbreak as global crude oildemand is estimated to decline in excess of 20mbpd due to a slowdown in economic activities.

Lockdown in India has dragged down fuel salesvolume by 30-40% at petrol pumps in India. Hence,refinery utilisation to fall below sub 60-70% levelwhile marketing volumes (especially of petrol,diesel and ATF) and CNG are also expected todecline by sharply. Additionally, fall in crude oil priceand the Indian rupee’s depreciation would resultinto inventory and forex losses for OMCs.

Non-revision of auto fuel prices have resulted intohigher marketing margin but the same would not beenough to offset fall in volumes.

Long-term volume and margin outlook for CGDcompanies remains intact, led by regulatory pushand low gas cost. Low crude oil prices benefitOMCs as refining and marketing margins improve.Lower oil prices would impact oil realisations ofupstream PSUs.

Reliance Industries1

Mahanagar Gas2

Gujarat Gas3


Reliance Industries

The sharp correction of 25% in RelianceIndustries Limited’s stock price from recenthighs, seems to be factoring in a prolongedweakness in refining & petrochemical marginsdue to Covid-19, no improvement in telecombusiness from potential hike in average revenueper user (ARPU) and low valuation for the retailbusiness.

Likely ARPU hike in telecom business and a weakIndian rupee could mitigate earnings volatilityfrom decline in refining & petrochemical marginsto some extent amid weak demand in times ofthe Coronavirus outbreak.

Potential induction of strategic partner fortelecom and retail businesses could act as a keycatalyst for value-unlocking from the consumerbusiness.

The company’s aim to increase the share ofEBITDA from the consumer business to 50%(from ~37% in Q3FY2020) seems a step in theright direction to tide over margin volatility incyclical business.

Mahanagar Gas

Mahanagar Gas Ltd (MGL) is a dominant CGDplayer in and around Mumbai with CNG/PNGsales volumes of 2.2 mmscmd/0.8 mmscmd inFY2019.

CNG sales volumes are expected to get impactedin the near term as most vehicles have gone off-road given Covid-19-led lockdown in Mumbai.

We expect MGL’s volume growth to recoverysharply to 6-7% in H2FY2021E led by a higheradoption of CNG-fitted four-wheelers andincreased penetration of PNG. Recent sharp cutin gas prices is positive for sustained highmargins of MGL given its ability to retain someportion of lower gas cost.

MGL’s steep valuation discount with peersmakes it the cheapest stock in the domestic CGDspace despite industry leading EBITDA margin ofRs. 9-9.5/scm and a superior RoE of 23-25%.

Gujarat Gas

Gujarat Gas (GGAS) is the largest gas distributionplayer in India with gas sales volume of 9.3mmscmd in Q3FY2020. Out of the total volume,industrial segment accounts for ~77% and theremaining comes from CNG and domestic PNG.

Although countrywide lockdown is likely toimpact volume during Q4FY20E-H1FY21E butlong term volume growth outlook remains intactsupported by regulatory push to curb pollutionand low LNG prices.

The sharp decline in crude oil prices is expectedto lower price of crude-linked LNG (30-35% oftotal gas sourcing mix), which would improvemargin of Gujarat Gas although with a lag of 3-6months.

GGAS is likely to be a key beneficiary ofgovernment’s aim to increase share of gas to15% by 2025 in India’s overall energy mix from6% currently. Furthermore, development of sixnew geographical areas would lead to the nextleg of volume growth. We expect PAT CAGR of12% over FY20E-FY22E with robust RoE of 27-29%.

Capital Goods COVID-19impact


L&T1

Dixon Technologies2

V-Guard3

Covid-19 has put pressure on production, orderinflows and Greenfield capex may take a back seatin near term. Large private sector capex is out ofsight as utilisation remains low.

Lower utilisation rate will affect industrial players inH1FY21, but we do expect companies with a higherservice revenue and product basket to see somepickup in H2FY21.

For consumer durables companies, extension oflockdown may affect the crucial summer season.Consumer durable companies with strong cashflows and better working capital remain betterequipped to wade through the crisis and reboundquickly when the current situation becomes better.

We prefer industry leaders with a strong diversifiedorder book, execution capabilities and healthybalance sheet for the project based companies. Inconsumer durable we prefer companies with strongcash flow position and better working capitalmanagement.


L&T L&T is a best-in-class EPC company, and

dominates domestic EPC market along withconsistent revenue growth, large room to growin absolute revenue terms, businessdiversification & operating profitability.

Amid current adverse macroeconomics,competition is weakening and large EPCcompanies like L&T have strong systems &contracting abilities.

Order inflows in recent years have beendiversified across different states and acrossdifferent infrastructure verticals. Further, a largediversified order book provides strong visibility.

The turnaround time to normalcy may be quickfor L&T, as a large part of the migrant labourforce is still at the site and reliance on globalsupply chain is limited.

Dixon Technologies Dixon Technologies (Dixon) has the first-mover

advantage as it operates both in OEMs (originalequipment manufacturers) and ODM (owndevelopment model). The company has adiversified business model with consumerelectronics (LED TV sets), lighting products,home appliances (washing machines) and mobilephones being the key segments.

The company has a strong relationship withclients across segments and focuses on addingnew ones across segment on a continuous basiscoupled with enhancing its product offerings inthe ODM space.

Dixon has expanded capacities across its keybusiness verticals by setting up a facility atTirupati to grab opportunities arising out of theenhanced demand requirement of the OEMs.

The company has a strong balance sheet (is netdebt free) with minimal working capitalrequirement and generates a return ratio of over20%. Hence, we believe that it will be able todeliver healthy performance in medium to longrun despite some hiccups in the near term owingto lockdown as a result of Covid-19.

V-Guard Covid-19 led restricted mobility with factory

lockdown is expected to impact sales, supplychain working capital and higher fixed costs untilnormalcy returns.

The company remains better equipped duringthe current environment owing to its strong cashposition and unutilised working capital limits andis expected to surface stronger as the currentsituation subsides.

V-Guard stock price provides favourable risk-reward ratio to investors (P/E of 29.5x/25x itsFY2021E/FY2022E earnings), which is at adiscount to five-year average one-year forwardP/E.

Company’s extended distribution networkcoupled with thrust on innovation, branding andpromotion to tap potential market share in thelong run.

Cement/Infrastructure/Building Materials COVID-19impact

Preferred picksOur stance (on cement sector): Positive

UltraTech1

Shree Cement2

KNR Constructions3

The Covid-19 outbreak is expected to hurt cementindustry during Q4FY2020 and Q1FY2021 with lossof production days from mid-March 2020. In caseshutdown of plants is extended, it would affect thechannel network of the industry and slash cementprices, which would affect net earnings negatively.

The Infrastructure sector is expected to get affectedthe most, owing to lower execution and contractionin operating margins.

The infrastructure sector is also likely to be affectedon the order tendering front as governmentprioritizes funds toward social causes. Delay inreceiving payments and claims may also drive upworking capital requirement.

Building materials space is expected to be affectedby loss of sales from mid-March 2020. Further,continued production and sales halt along withstoppage of work on real estate sector is expectedto affect demand environment. The sector may seehealthy rebound in demand post normalcy due topent-up demand.


Ultratech

UltraTech, being the domestic market leader inthe cement space, is well-positioned to reviveearnings growth trajectory once normalcyreturns.

Cement sector’s key parameters like pricingenvironment and lower input costs still remainfavourable, which can aid UltraTech inmaintaining healthy profitability post normalcy.

Covid-19 related disruptions may graduallyimprove during H1FY2021, post which H2FY2021may see strong revival on account of low baseeffect and pent-up demand.

Ultratech, prior to Covid-19, has prepared itselfwith both organic and inorganic expansionswhile it has also lowered its leverage positionwhich should aid faster recovery of earnings postnormalcy.

Shree Cement

Shree Cement had raised Rs. 2400 crore throughQIP prior to Covid-19 pandemic to increasecement capacity from 40 mtpa to 60 mtpa. Theexpansion plans may get delayed due toprevailing situation, however, availability ofrequisite funds with nil increase in leverageshould help in maintaining its long term growthtrajectory.

Although the cement industry is expected to beaffected by Covid-19 related disruptions,Northern India is better placed in terms ofcement price and utilisation levels benefittingcement players like Shree Cement.

Shree Cement is one of the efficient cementplayer which should also benefit from lower keyinput costs like power & fuel and freight costsmaintaining healthy OPM amidst weak demandin the near term.

The company has also been focusing onimproving upon its trade sales and premiumproducts which should help in supportingdemand while bulk demand remain subdued inthe near term.

KNR Constructions

KNR Constructions’ divestment of its hybridannuity model (HAM) projects along with onebuild-operate-transfer (BOT) project to CubeHighways is expected to help in loweringleverage and increased focus on EPC executionpost normalcy from Covid-19 relateddisruptions.

Strong order backlog as of Q3FY2020 end at2.6x TTM standalone revenue provides comforton earnings considering muted order tenderingexpectations in the infrastructure sector at leastduring H1FY2021.

The company’s experience of over two decadesin project execution along with a conservativemanagement profile adds credibility on sailingthrough the current tough environment in thesector.

The company can gear up execution at a fasterpace post normalcy as it has already receivedappointed dates for most of its HAM projects.

Specialty chemicals COVID-19impact


Aarti Industries 1

PI Industries2

SRF3

The Covid-19 outbreak’s impact on specialtychemical companies is expected to be lower as fewof the products have been classified as essentialproducts and the government has providedpermission to run the manufacturing facilities takingall relevant precautions.

Global players’ (MNCs and innovators) confidencein souring materials from China has been loweredas China-faced several issues one after anothersuch as i) environmental issues, ii) stringentregulatory issue, iii) US-China trade war issues andthe latest iv) epicentre of the Coronavirus outbreak.

The above factors have provided a significantopportunity for Indian players to move up its rankingin the vendors list of global players be it MNCs orinnovators.

The company in this space are well geared to tapthe opportunity as they have been scaling up therecapacity without relying much on externalborrowing.


Aarti Industries

Aarti Industries (Aarti) is a leading specialitychemicals company in benzene-basedderivatives with a global footprint havingintegrated operations and high level of costoptimisation.

The company has been investing in the rightareas for building capabilities and richer clientengagements, which would create a long-termmoat in a booming industry.

Multi-year growth levers are getting stronger, asthe company has signed third multi-yearcontracts worth $125 million with global playersfor 10 years, though small in size but brings innew capabilities for long-term growth.

The company expects significant growthprospects in sight, led by expansion anddiversification plans and concerns over suppliesfrom China. Though there could be some impactin Q4FY20 and Q1FY21, owing to lockdown dueto Covid-19, however we believe the company todeliver healthy performance once the lockdownis lifted and things normalise.

PI Industries PI Industries focuses on developing complex

chemistry solutions in agri-sciences with anintegrated approach. The company currentlyoperates a strong infrastructure setup,consisting of three formulation facilities and ninemulti-product plants under its threemanufacturing facilities.

A strong custom synthesis manufacturing CSMorder book of $1.4 billion at the end ofQ3FY2020 provides healthy revenue visibility.Management foresees encouraging outlook forthe CSM business as business sentimentsimprove globally for products, wherein thecompany operates.

The company had outlined capex of Rs. 600crore for FY2020 (Rs. 550 crore incurred till date)and Rs. 250-300 crore for FY2021E.

As things normalise post the lifting of lockdown,we expect the company to deliver robustperformance. With industry-leading return ratiosand a healthy balance sheet and strong earningsvisibility, we expect the stock to continue totrade at rich valuations.

SRF SRF is a chemical-based multi-business entity

engaged in the manufacturing of industrial andspecialty intermediates. The company’sdiversified business portfolio covers TechnicalTextiles, Chemicals (Fluorochemicals andSpecialty chemicals) and Packaging Films. The management sees significant growth

opportunities in agro chemicals and activepharma ingredients (developing two pharmamolecules in collaborations with innovators).Considering strong buoyancy in the chemical The company generates a healthy operating cash

flow and, hence, largely relies on internalaccruals to fund its capex programme. Improvedutilisation levels at expanded capacities wouldhelp in higher assets turnover as well as debtreduction. This augurs well for improved marginprofile and higher return ratio. Though weakness in technical textiles and

fluorochemicals exists currently owing to theslowdown in the automobiles sector, howeverwe believe that the company will be able deliverhealthy performance led by the specialitychemicals and packaging films.

Pharmaceuticals COVID-19impact


The Pharma sector is unlikely to be materiallyimpacted by the Coronavirus pandemic. Majorsuppliers of bulk drugs (APIs) have resumedproduction.

Recognising the potential risk of the supplydisruption of drug shortages within the country, thegovernment has quickly addressed all standingissues by ensuring movement of all essentials. Iffull manufacturing resumes by end of April,companies can recover a large portion of lost salesduring the remainder of the year

Covid-19 has disrupted manufacturing as well aspharma supply chains, creating drug shortagesworldwide. As India is a leading manufacturer ofgenerics, Indian Pharmaceutical companies arebest positioned to cater the visible unmet need ofglobal pharmaceutical industry, thus pointingtowards high growth in exports.

Given the cost-conscious nature of various ofvarious exports markets, companies with a widerproduct portfolio and integrated value chain areexpected to benefit.

IPCA1

Divis Laboratories2

Biocon3

Laurus Labs4


IPCA

IPCA is a fully-integrated Indian pharmaceuticalcompany, manufacturing more than 350 formulationsand 80 APIs for various therapeutic segments.

There are various anti-viral drugs, immunotherapies andvaccines that are being tested and developed to treatCOVID-19. However, HCQS (HydroxychloroquineSulphate) and chloroquine are among key drugsidentified so far to fight COVID -19 and the results haveshown efficacy.

IPCA is one of the largest and vertically integratedmanufacturers of HCQS and could potentially benefitfrom the opportunity. Strong order inflows point atpotentially large order inflows.

IPCA’s balance sheet position with a liner debt equitylevels. IPCA also has a strong return ratios profile withROE of around 19%.

Divis Laboratories

Divis is the leading manufacturer of activepharmaceuticals ingredients (APIs), intermediates andregistered starting materials offering high-qualityproducts with the highest level of compliance andintegrity

The recent outbreak of Corona virus leading to supplydisruption from China has resulted in a hunt for analternative sourcing base and global players are lookingat India. Being a leading player in the API space withample headroom to ramp up the production, benefits ofbackward integration accruing makes Divis a keybeneficiary.

Measures taken by the government of India such assetting up bulk drug manufacturing parks and fasterenvironment clearance channel to boost API productionin the country, would benefit players like Divis, though inthe long term.

Divis has a strong financial muscle. Earnings are expectedto grow in strong double digits over the next 2 years. Thedebt:equity is quite low close to zero while the returnratios are also sturdy, with ROCE and ROE at 22.7% and17,6%, respectively as at FY2020.


Biocon

Biocon is a fully integrated API manufacturing facilities,strong capabilities in biologics, innovative drugdevelopment and a branded generics business in India.It has built a strong presence in lucrative high-growthsegments such as statins, immuno-suppressants andanti-diabetes drugs .

Biologics business is expected to grow impressively goingahead. Commercialization of Ogivri in the US and Europe,USFDA approval for the new Pegfilgrastim plant atBengaluru and expected launch of insulin glargine in theUS in H2CY2020 would be key growth drivers

The small molecules segment is also expected to grow bya healthy pace driven by new fillings in the activepharmaceutical ingredient (API) space, and traction inthe generic formulations.

Biocon’s earnings are expected to grow impressively byaround 30% CAGR over Fy20-FY22, which is on thehigher side as compared to other players. A liner Debtequity position and marked improvement in the ROEpoints towards strong financials.

Laurus Labs

Laurus is a leading research-driven pharmaceuticalcompany, working with major generic pharmaceuticalcompanies. The company’s major focus areas includeanti-retroviral, Hepatitis C, and Oncology drugs.

Laurus is a prominent player in the API space and thisaugurs well as it could benefit from increased demandglobally. Also the company is leveraging its strengths inthe API space to forward integrate in to formulations.

Robust growth in formulations business and a strongorder book for CRAMs business, which would unfold overthe near to medium term and provides ample growthvisibility.

A significant ramp up in the formulations would aid OPMexpansion. A toned down capex, healthy debt equitypoints at strong balance sheet position. Improvingprofitability would enhance ROEs to 15% by FY22 from11% in FY20.

BFSI COVID-19impact


Notwithstanding the RBI’s relief, the pandemic’simpact leading to higher credit cost couldsignificantly dent profitability. Loan growth to be inmid-single digits for FY21E on a low base; opexcurbs likely across players.

NBFCs are impacted by decline in collections;faces challenges on asset-liability mismatch, rise inprovisions and muted growth in FY21E. HousingLoans are relatively better off, but segments (ex.SME, Unsecured, affordable housing, etc) are likelyto be impacted.

For the insurance business, the renewal premiumsgrowth is expected to be weak due to cashflowissues and an overall weak sentiment. Also, marketlinked plans incremental sales growth may beimpacted.

We prefer strong institutions, which have comfort ofhigh capitalisation, strong balance sheets andcustomer segments, which are granular and arerelatively to be less impacted by the lockdown.

HDFC Bank1

Kotak Mahindra Bank2

HDFC Life3


HDFC Bank

HDFC Bank stands out with its earnings visibility,consistent growth (10-yr CAGR in advances of23.5%, networth of 26% and a PAT CAGR of 25%)and robust quality of assets (GNPA/NPA%maintained at sub 2% / 0.8% levels respectivelyconsistently) over a long period, which webelieve still hold strong.

The Coronavirus outbreak is expected to impactgrowth as well as asset quality of banks andNBFCs.

HDFC Bank derives its strength from its retailloan portfolio (~48 % of total loan book), whichdespite tepid overall system-wide credit growth,has been growing well. Moreover, since 80% ofits SME portfolio has additional collateral tocover the outstanding loans, 80% of wholesale israted AA+ and above and, 80% of SME portfoliois self-funded that indicates that the bank’s bookquality is more resilient to the risks of slowdown.

HDFC Bank currently trades at a reasonablevaluation and recent market weakness hasdragged down the stock price so much that atpresent, the stock is available at below its longterm average 1-yr forward PBV multiple of 3.7x.

Kotak Mahindra Bank We believe that the bank remains an attractive

business franchise, with well-rounded productsand services. Consistent performance acrossinterest rate and asset cycles is a keydifferentiator and indicates the management’squality and strength of the franchise. Itssubsidiaries are shaping up well, the insurancesubsidiary is expected to be a significant valuecontributor to the bank. The recent Coronavirus contagion is expected to

impact growth as well as asset quality of banksand NBFCs, resulting in higher delinquenciesacross sectors. We believe that a healthy retail asset base along

with industry best margins and well-maintainedasset quality provide the bank with a strong andlatent margin lever and an opportunity toexplore other assets with lower risks. Kotak Mahindra Bank has corrected sharply and

we believe valuations are now reasonable, andrisk-reward in favour of long-term investors.Considering the bank’s strong operating metricsas well as quality of its subsidiaries, we opinethat at present valuations, the stock is attractivefor long-term investment.

HDFC Life

HDFC Life Insurance stands out among peerswith its strong parent, robust brand recall alongwith sister concern bank which has an attractiveretail business which gives it with deep clientpenetration. We believe HDFC Life’s sustained product

leadership will help it sustain superior VNBmargins and operating Return on EmbeddedValue (RoEV), relative to peers, which providessupport to its valuations. Insurance companies would be sensitive to bond

downgrades, and if market volatility persists, theinvestment portfolios and investment earningstoo may be impacted as well. HDFC Life has awell-diversified product portfolio, which hasstrong components of protection as well assavings plans, which we believe is should enablethe company to see minimal impact due to shiftin customer preferences. We believe that the Insurance market has

significant growth opportunities and HLIC is wellplaced to capture them. HDFC Life, by virtue ofits bancassurance partnerships, digital strengthand industry leader status, should be able todeliver 18+% VNB and EVOP CAGR over the next2-3 years.

Automobiles COVID-19impact


Lower economic growth due to the Covid-19outbreak would impact discretionary purchasessuch as automobiles where demand is likely to bedeferred.

Rural areas would be relatively less impacted byCovid-19 as farming comes under essentialservices and would be relatively less impacted bythe lockdown.

We expect significant discounting in early phase byautomotive companies to bring back customers.Negative operating leverage and higher discountwould more than offset benefit of favourablecommodity prices, thus impacting margins.

We expect automotive sector recovery in FY22, aseconomic growth picks up post normalisation ofbusiness activity. We prefer companies which areless impacted by Covid-19 and companies havingleadership position in respective segments withstrong balance sheet, which would enable tocomeback strongly once demand recovers.

M&M1

Balkrishna Industries2


M&M M&M is the market leader in tractors with market share

of 40% and a leading player in utility vehicles and lightcommercial vehicles with market share of 20% and 40%,respectively.

M&M would be relatively less impacted by Covid-19 asabout 40% of revenues come from tractors (agriculturecomes under essential category).

While automotive demand would be impacted by Covid-19 in FY2021 in; M&M strategy of launching newproducts (all utility vehicles will have petrol variants)would drive volumes in FY22. Also, cash conservationstrategy (recently company held back investment in lossmaking Ssangyong Motor) would help bounce backstrongly when recovery happens.

M&M’s core business valuations at 8x FY22 are belowlong-term historical average of 14-15x and lower than10.4x witnessed during global financial crisis. M&M debt:equity at 0.15x indicates a strong balance sheet.

Balkrishna Industries Balkrishna Industries would be relatively less impacted

by Covid-19 as 67% of the revenues come from theagricultural segment which comes under essentialcategory and will not be impacted by lockdown.

Introduction of new products and enhancement ofdistribution network are key long-term drivers. Companyplans to double its global market share to 10% over thenext few years.

A steep drop in crude oil prices would benefit BalkrishnaIndustries as about 35-40% raw material is crude linkedand would boost margins

Balkrishna has a sturdy balance sheet with stableworking capital management and a debt to equity ratioof 0.3x (among the lowest debt in the tyres industry).Balkrishna also has strong return profile with a RoE andRoCE in the range of 18-20%.

IT Services COVID-19impact


The Covid-19 outbreak has caused supplydisruptions to some extent and will also likely resultin material deterioration in the demand environmentin H1FY2021E. However, most IT companies havebeen able to get approvals to work from home(WFM) from their clients (over 95%), both offshoreand onsite.

We believe IT companies could potentially facedelays in deal closures during next six monthsowing to travel restrictions, whose revenuecontributes 3-4% to total revenue of tier-I ITcompanies.

We expect a weak year in FY2021E owing toanticipated slowdown in global IT spending, thegrowth for the sector would bounce back inFY2022E once the situation get normalise.

We preferred company having strong businessmodel, long runway for growth, good dividendpayout and reasonable valuation.

TCS1

Infosys2

L&T Infotech3


TCS

TCS is among the pioneers of IT servicesoutsourcing business in India and is the largest($20,913 million revenue in FY2019) IT servicesfirm in terms of export revenue. TCS is one ofthe preferred IT vendors for most Fortune500/Global 1,000 companies.

TCS has very limited direct exposure to thetroubled vertical and regions (China, Italy) in thewake of COVID-19 outbreak. However, largebanks could also push back discretionary workowing to travel restrictions and lower interestregime, which would impact revenue growth inFY2021E.

Total consideration value (TCV) of deal wins isexpected to be strong in Q4FY2020 despitetravel restrictions in many countries, supportedby Walgreen Boots deal and Phoenix. The stocktrades at 17x FY2022E EPS, implies around 20%discount to valuations prevalent a month ago.

We continue to like TCS on account of strengthin its business model, consistency, solidexecution and strong FCF generation profile.

Infosys

Infosys’ digital revenue has reported stronggrowth momentum in the past few quarters andnow contributes more than 41% to totalrevenue.

Infosys had the best deal momentum and dealpipeline before the COVID-19 crisis. While thisprovides revenue visibility in the near-term, webelieve the revenue growth in FY2021E will beimpacted significantly owing to materialdeterioration in demand environment onaccount of business disruptions in the light ofCOVID-19 outbreak.

The investigation resulting from whistleblowercomplaints has largely cleared by the companyas well as the US SEC.

Infosys is an industry leader with solid execution,available at reasonable valuations (14x FY2022EPS) and a fairly attractive yield.

L&T Infotech

Given L&T Infotech’s higher exposure to the BFSIand energy verticals (57% of total revenue), webelieve the company could face challenges in therevenue growth in the near-term owing tospending moderation by clients in theseverticals.

However, the company has been biggest growthperformer in the last three years and we expectit would outperform its peers in terms revenuegrowth during these challenging periods.

We like the company given its consistency inlarge deal wins, focused execution, prudentaccount mining and a dynamic leadership team.LTI has won 21 large deals with a combined TCVof $978+ million in the past 14 quarters(1QFY17-3QFY20).

We believe the recent 25%+ correction providesa good entry point to accumulate an efficientlymanaged scale player, however the relativelyhigher exposure to energy and BFSI verticalscould weigh on the growth trajectory inFY2021E.

Telecom COVID-19impact


Covid-19 outbreak has limited impact on telcos’revenue, as their services are considered anessential service during the lockdown.

With increased use of telecom services duringlockdown (due to work-from-home, which is a viablealternative for several companies), telecomcompanies have benefited from the surge in demandfor voice and data.

Given the complete lockdown in India due to Covid-19, we believe telecom companies may see lowernet subscriber additions in the next 2-3 months. Withphysical recharges being unavailable during thelockdown, there has been a shift to digital rechargesto 30-40% currently from 15% in last 1-2 years.

We believe there could be an industry-wide priceaction over the next 2-3 quarters as Vodafoneattempts to survive amid regulatory/financial burden.This could be through an increase in ARPU, higherdata bundle plans and minimum recharge plans.

Bharti Airtel1


Bharti Airtel

Covid-19 outbreak has limited impact on Bharti Airtel’searnings. Bharti Airtel has recently announced that thecompany has extended free incoming calls until 17th

April 2020 with additional Rs. 10 talk-time for its lowincome subscribers (80 million).

However, increased voice as well as data consumptiondue to nationwide lockdowns would benefit thecompany in terms of higher recharge value .

Bharti Airtel’s financial position is relatively stronger thanVodafone Idea, which would help the company from theweakening of Vodafone Idea in telecom market. Even ifVodafone Idea survives going ahead, its weak 7-8 circlescould benefit Airtel significantly over the coming 2-3quarters in terms subscriber additions.

Bharti Airtel has successfully retained/migrated its non-4G base to 4G despite intense competition from RelianceJIO. Given higher ARPU, subsiding competitive intensityand potential EBITDA growth over next 2-3 years, weremain positive on Bharti Airtel.

Disclaimer:This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This Document may contain confidential and/orprivileged material and is not for any type of circulation and any review, retransmission, or any other use is strictly prohibited. This Document is subject to changes without prior notice. This documentdoes not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all customers who are dueto receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report.

The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness ofthe said data and hence it should not be relied upon as such. While we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associatedcompanies, their directors and employees (“SHAREKHAN and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or otherreasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for aninvestment decision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The userassumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of aninvestment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such aninvestment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of Sharekhan may haveissued other reports that are inconsistent with and reach different conclusions from the information presented in this report.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where suchdistribution, publication, availability or use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction.The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to informthemselves of and to observe such restriction.

The analyst certifies that the analyst has not dealt or traded directly or indirectly in securities of the company and that all of the views expressed in this document accurately reflect his or her personalviews about the subject company or companies and its or their securities and do not necessarily reflect those of SHAREKHAN. The analyst further certifies that neither he or its associates or hisrelatives has any direct or indirect financial interest nor have actual or beneficial ownership of 1% or more in the securities of the company at the end of the month immediately preceding the date ofpublication of the research report nor have any material conflict of interest nor has served as officer, director or employee or engaged in market making activity of the company. Further, the analysthas also not been a part of the team which has managed or co-managed the public offerings of the company and no part of the analyst’s compensation was, is or will be, directly or indirectly relatedto specific recommendations or views expressed in this document. Sharekhan Limited or its associates or analysts have not received any compensation for investment banking, merchant banking,brokerage services or any compensation or other benefits from the subject company or from third party in the past twelve months in connection with the research report.

Either SHAREKHAN or its affiliates or its directors or employees / representatives / clients or their relatives may have position(s), make market, act as principal or engage in transactions of purchaseor sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth hereinbefore publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in noevent shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind.

Compliance Officer: Mr. Joby John Meledan; Tel: 022-61150000; email id: [email protected];For any queries or grievances kindly email [email protected] or contact: [email protected]

Registered Office: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai – 400042, Maharashtra. Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Regn. Nos.: BSE / NSE / MSEI (CASH / F&O / CD) / MCX - Commodity: INZ000171337; DP: NSDL/CDSL-IN-DP-365-2018; PMS: INP000005786; Mutual Fund: ARN 20669; Research Analyst: INH000006183;


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www.sharekhan.com

Technical ResearchCOVID CHART BOOK

April 13, 2020

NIFTY OUTLOOKIs it just a pullback rally?

Nifty Short Term Outlook: Daily Chart Suggests Strong Resistance Ahead

Short Term Outlook Based on Daily Chart

KEY OBSERVATIONS:- Nifty is witnessing pullback from the March low of 7511- Structurally it is forming a bearish Wedge pattern- Retraced less than 38.2% of the Jan – March fall- Resistance @ 9300-9400

EXPECTATIONS:- We are not expecting Nifty to cross 9300-9400 zone- Nifty is likely to start falling once again- Short Term Targets on the downside: 8500 & 8000

ALTERNATE (BULL) CASE SCENARIO:- If Nifty crosses 9400 then the bounce can extend higher- In that case, Nifty can go to 10500 i.e. 61.8% retracement of Jan – March fall

Nifty Medium Term Outlook: Monthly Chart – Weakness to Persist

Medium Term Outlook Based on Monthly Chart

KEY OBSERVATIONS:- Nifty formed multi month Ending Diagonal pattern (Distribution pattern)- Pattern broke out on the downside resulting in a sharp fall in March- Retraced 61.8% of the rally from 2011-2020- Had nearly 40% fall from Jan High (12430) to March low (7511)

EXPECTATIONS:- Once the bearish Wedge pattern on Daily chart is complete Nifty is expected

to resume medium term downtrend- As per the Wave Structure, Nifty is expected to test the 2016 low- Medium Term Target on the downside: 6825

ALTERNATE CASE SCENARIO:- Nifty can get into a base formation- It can trade in the range of 7500-9000 for next 3-4 months

BANK NIFTY OUTLOOK

Bank Nifty: Short Term Outlook Based on Daily Chart

Short Term Outlook Based on Daily Chart

KEY OBSERVATIONS:- Bank Nifty is witnessing bounce from the March low of 16116- Structurally it is forming a bearish Triangular pattern- Currently trading near upper end of the pattern- Retraced less than 38.2% of the Jan – March fall- Resistance @ 20000-21000

EXPECTATIONS:- We are not expecting Bank Nifty to cross 20000-21000 zone- Bank Nifty can start falling once again & can break down from the triangle - Short Term Targets on the downside: 17143 - 16116

ALTERNATE CASE SCENARIO:- If Bank Nifty crosses 21000 then the bounce can extend higher- In that case, index can go to 24400 i.e. 50% retracement of Jan – March fall

Bank Nifty: Medium Term Outlook Based on Monthly Chart

Medium Term Outlook Based on Monthly Chart

KEY OBSERVATIONS:- Bank Nifty witnessed bearish developments in Dec - Jan- The monthly momentum indicator was showing negative divergence- It led to a sharp fall in March- Retraced 61.8% of the rally from 2011-2020- Nearly 50% fall from Dec High (32613) to March low (16116)

EXPECTATIONS:- Once the bearish Triangular pattern on Daily chart is complete Bank Nifty is expected to resume medium term downtrend

- Bank Nifty is expected to retrace 61.8% of the rally from 2009-2020- Medium Term Target on the downside: 14500

ALTERNATE CASE SCENARIO:- Bank Nifty can get into a base formation- It can trade in the range of 16000-20000 for next 3-4 months

TRADING IDEAS

Trading Ideas At A Glance

STOCKS ACTION CMP REVERSAL TARGET

SUNPHARMA BUY ON DIPS NEAR 430 462 388 500-570

TORRENTPOWER

SELL ON RISE NEAR 300 291 315 265

BATA INDIA SELL @ CMPi.e. 1191 1191 1300 1000-970

SUNPHARMA

SUNPHARMA

Broken out from a large Ending Diagonal pattern

A medium term bottom in place at the low of 312

Momentum Indicators in support of the price breakout

Buy on Dips near 430

Reversal: 388 Target: 500-570

TORRENT POWER

TORRENT POWER

Bounce from the March low is showing corrective structure

Facing resistance near 61.8% retracement mark

Sell on rise near 300

Reversal: 315 Target: 265

BATA INDIA

BATA INDIA

Pullback faced resistance near the 38.2% retracement mark

Formed bearish triangle & broke out on the downside

Sell @ CMP i.e. 1191

Reversal: 1300 Target: 1000-970

Disclaimer:This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This Document may contain confidential and/or privileged material and is not forany type of circulation and any review, retransmission, or any other use is strictly prohibited. This Document is subject to changes without prior notice. This document does not constitute an offer to sell or solicitation for thepurchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all customers who are due to receive the same, not all customers may receive this report at the same time.SHAREKHAN will not treat recipients as customers by virtue of their receiving this report.

The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence itshould not be relied upon as such. While we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (“SHAREKHAN andaffiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared forassistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performanceand value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at anindependent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such aninvestment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that areinconsistent with and reach different conclusions from the information presented in this report.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availabilityor use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for salein all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

The analyst certifies that the analyst has not dealt or traded directly or indirectly in securities of the company and that all of the views expressed in this document accurately reflect his or her personal views about the subjectcompany or companies and its or their securities and do not necessarily reflect those of SHAREKHAN. The analyst further certifies that neither he or its associates or his relatives has any direct or indirect financial interest nor haveactual or beneficial ownership of 1% or more in the securities of the company at the end of the month immediately preceding the date of publication of the research report nor have any material conflict of interest nor has servedas officer, director or employee or engaged in market making activity of the company. Further, the analyst has also not been a part of the team which has managed or co-managed the public offerings of the company and no part ofthe analyst’s compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document. Sharekhan Limited or its associates or analysts have not received any compensation forinvestment banking, merchant banking, brokerage services or any compensation or other benefits from the subject company or from third party in the past twelve months in connection with the research report.

Either SHAREKHAN or its affiliates or its directors or employees / representatives / clients or their relatives may have position(s), make market, act as principal or engage in transactions of purchase or sell of securities, from time totime or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before publication. SHAREKHAN may from time to time solicitfrom, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to,computing or compiling the information have any liability for any damages of any kind.

Compliance Officer: Mr. Joby John Meledan; Tel: 022-61150000; email id: [email protected];For any queries or grievances kindly email [email protected] or contact: [email protected]

Registered Office: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai – 400042, Maharashtra. Tel: 022 - 61150000.Sharekhan Ltd.:SEBI Regn. Nos.: BSE / NSE / MSEI (CASH / F&O / CD) / MCX - Commodity: INZ000171337; DP: NSDL/CDSL-IN-DP-365-2018; PMS: INP000005786; Mutual Fund: ARN 20669; Research Analyst: INH000006183;


mailto:[email protected]

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