Equity | India

Diwali Picks 2018

October 31, 2018

Rohit Chavan +91-22- 6614 2694 | rohitchavan@geplcapital.com 1

The System:

The Table 1 below depicts the percentage returns that each of the sectoral indices have given over two different

time frames. One is roughly around a year’s time (Between Last Diwali on 19.10.2017 to date of preparation of this

report 25.10.2018). The other is from the date the NIFTY hit an all-time HIGH (28.8.2018) to date of preparation

of this report 25.10.2018. The date of 28.8.2018 assumes significance as it is the time when the investor

confidence was the highest. On each of these percentages we have assigned the RANKS. A summation of these two

RANKINGS put together gives us the “Total Rank”.

The Hypothesis:

The sectors that have the TOP ranks have remained quiet stable even in uncertain times, after having

outperformed on the way UP. Hence one would be into much SAFER sectors being into the scrips listed within the

purview. As a corollary, RISK may only be taken on scrips within the sectors that have outperformed on the double

counts.

The Observations:

The benchmark NIFTY (marked in GREEN) stands on the 11th ranking on the overall scenario. The next on

breadth, the NIFTY 100 stands on the 13th rank. The broader indices like NIFTY 200 & NIFTY 500 stand

much LOWER on the ranks. This is an indication that on the way UP as well as the way DOWN, the safety

remains with large-caps (By the new nomenclature norms, the top 100 companies by market capitalization

are marked as large caps; the next 101 to 250 are mid-caps while the remainder are all small-caps).

Further to substantiate the turmoil in the smallcaps & midcaps, the two indices that encompass them stand

on the second last & fifth last positions. This also puts the emphasis on the SAFETY angle.

The NIFTY QUALITY 30 has scored equal marks as the benchmark NIFTY itself, indicating to the need for

QUALITY in the portfolio. The recent FALL in stock markets has “Taught us Quality & nothing but QUALITY”.

Sectorally, the bets still remain with the defensives with the likes of NIFTY IT, NIFTY FMCG, NIFTY PHARMA

forming the list of sectors that have outperformed the benchmark on the rankings part.

Sectorally, although the FINANCIAL SERVICES sector has been going through upheavals in recent time, has

remained in a SWEET spot.

The Inferences:

The stock selection in current scenario calls for a more “STRATEGIC” approach rather than just the simple

“LOGISTIC” approach.

The risks thus should be taken in sectors wherein there is a clear OUTPERFORMANCE.

Equity | India

Diwali Picks 2018 October 31, 2018

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Diwali Picks 2018 2

The Actionables:

Based on the above hypothesis, we have short listed a list of 5 stocks for the new SAMVAT 2075,that would embark

on the pillars of SAFETY & OUTPERFORMANCE. The list includes the bellwethers like HDFC Ltd and KOTAKBANK on

the largecap section, EXIDEIND within the midcap section and TATAELXSI within the smallcap section. Diwali is a

festival of lights, and hence we have also included the CRACKERS in the form of FINEORGANICS.

Table 1: Ranking System For Sectoral, Thematic & Market Capitalization Based Indices

Ticker From Val

Date(19/10/2017) To Val

Date(25/10/2018) % return Rank I

From Val date(28/08/2018)

% return Rank II Total Rank

NIFTYIT 10890.75 14070.8 29.2 1 15583.05 -9.7 5 6

Nifty Serv Sector 13108.85 13765.05 5.01 4 15683.45 -12.23 9 13

BANKNIFTY 24009.75 24817.45 3.36 7 28269.65 -12.21 8 15

Nifty FMCG 25580 28413.6 11.08 2 32494.35 -12.56 13 15

Nifty Fin Service 9934.75 10341.7 4.1 5 11796.95 -12.34 11 16

Nifty50 Value 20 4360.15 4832.7 10.84 3 5547.3 -12.88 14 17

Nifty Pvt Bank 13557.4 14073.8 3.81 6 16088.9 -12.52 12 18

Nifty Pharma 9593.5 9142.7 -4.7 20 10050.1 -9.03 4 24

Nifty Div Opps 50 2553 2462.8 -3.53 19 2779.7 -11.4 6 25

Nifty Metal 3819.9 3306.8 -13.43 28 3597.2 -8.07 1 29

NIFTY 10146.55 10124.9 -0.21 13 11738.5 -13.75 17 30

NIFTY100 Qualty30 2395.5 2414.1 0.78 8 2845.6 -15.16 22 30

Nifty 100 10517.3 10307.7 -1.99 14 12028.3 -14.3 18 32

Nifty CPSE 2585.9 2152.95 -16.74 30 2359.1 -8.74 3 33

NIFTY100 EQL Wgt

12105.85

10 14370.85 -15.76 24 34

NIFTYPSE 4199.2 3359.95 -19.99 33 3677.25 -8.63 2 35

Nifty 200 5511 5327.8 -3.32 17 6244.4 -14.68 20 37

Nifty Mid Liq 15 3962.95 3693.4 -6.8 23 4240.4 -12.9 15 38

NIFTYINFRA 3405.65 2851.65 -16.27 29 3251.75 -12.3 10 39

Nifty GrowSect 15 6206.4 6071.6 -2.17 15 7309.75 -16.94 26 41

Nifty 500 8937.65 8473.5 -5.19 21 9985.9 -15.15 21 42

NIFTY Alpha 50

11668.65

9 14795.9 -21.14 33 42

Nifty Energy 13979.95 13491.35 -3.5 18 16241.65 -16.93 25 43

Nifty Consumption 4596.1 4476.25 -2.61 16 5390.6 -16.96 27 43

Nifty Commodities 3972.05 3301.25 -16.89 31 3826.5 -13.73 16 47

Nifty Midcap 50 4883.05 4462.35 -8.62 24 5272.55 -15.37 23 47

Nifty MNC 13422.45 12534.85 -6.61 22 15124.95 -17.12 28 50

Nifty Next 50 28588.3 25335.8 -11.38 25 30768.1 -17.66 31 56

NIFTY MIDCAP 100 18789.9 16276.05 -13.38 27 19718.4 -17.46 30 57

Nifty PSU Bank 2942.7 2582.25 -12.25 26 3234 -20.15 32 58

Nifty Media 2943.4 2367.05 -19.58 32 2865.25 -17.39 29 61

Nifty Auto 11107.7 8580.95 -22.75 34 11044.15 -22.3 34 68

NIFTY SMLCAP 100 8068 5784.2 -28.31 36 7597.7 -23.87 35 71

Nifty Realty 287.25 206 -28.29 35 271.2 -24.04 36 71

Equity | India

Diwali Picks 2018 October 31, 2018

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Diwali Picks 2018 3

Our Recommendations For Diwali 2018 (Samvat 2075)

Sr No Name Sector Reco Price Target Price Upside % Time Frame

1

Housing Development Finance Corporation Ltd. (HDFC Ltd.)

Finance 1,694.4 2,063 21.7% 1 Year

2

Kotak Mahindra Bank Ltd. (KOTAKBANK)

Bank 1,185.8 1420.0 19.7% 1 Year

3 Exide Industries Ltd.

(EXIDEIND)

Automobile &

Ancillaries 255.5 305.0 19.4% 1 Year

4 Tata Elxsi Ltd.

(TATAELXSI) IT 955.3 1,144.0 19.8% 1 Year

5 Fine Organic Industries

Ltd. (FINEORG) Chemicals 1,039.7 1,325.0 27.5% 1 Year

** CMP updated as on 25th October 2018

Gist of The Recommendations

HDFC Ltd: Higher Growth will drive the company for longer term:

Housing Development

Finance Corporation Ltd. BUY CMP(`):1,694.4 Target (`):2,063 Upside: 21.7%

Given its market leadership position, HDFC is envisaged to be a key beneficiary of

government’s/regulator’s thrust on the housing sector, lending growth visibility and India’s mortgage

market is attractive given favorable demographics. Low mortgage penetration at 10% of GDP is a positive

for company.

HDFC is taking a conservative approach and its benign asset quality is not only the function of its operating

segment, but also reflects its strong know-how (particularly in non-individual loan segment). As such, we

do not expect any major deviation in asset quality.

Best‐in‐class cost ratios and adequate provisioning buffer will ensure steady operational performance. High

value discovery via listing of HDFC Mutual Fund is a positive trigger.

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Diwali Picks 2018 October 31, 2018

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Kotak Mahindra Bank Ltd: Banking on Prudent Business:

Kotak Mahindra Bank

Ltd. BUY CMP(`):1,185.8 Target (`):1420.0 Upside: 19.7%

Kotak Mahindra Bank offers financial products across the board – credit, deposits, wealth management,

broking, life insurance, general insurance, investment banking, asset management, auto loans. With such a

vast array of products in its portfolio, there are large synergistic opportunities to cross-sell across the

group.

811 continues to be the bank’s strategy to acquire customers. Strategies at each of the subsidiaries too will

unfold gradually over time unlocking huge value for investors.

As a group, Kotak has enough management bandwidth and a highly qualified and skilled bench to execute

its evolution and ride the Indian financialization wave.

Exide Ltd: Adapting to the Growth Potential:

Exide Industries Ltd. BUY CMP(`):255.5 Target (`):305.0 Upside: 19.4%

Aggressive Expansion Plan: Company has done Rs. 1400 crore Capex to introduce high performance and

more durable automotive batteries in India. Out of total capex half of the amount has been invested in its

Haldia plant for producing batteries with a "punch grid technology" and balance Rs. 700 crore was invested

in Fy 2017-18 for automating some key functions through robotic technology to meet Global standards.

There are more than 1500 Exide care exclusive outlets ensuring best-in-class customer experience offered

with complete auto power solutions through wide range of products and is expanding.

Launch of Zero maintenance battery product line: Company has an ongoing technical assistance and

collaboration agreement with ‘Furukawa Battery Company Limited, Japan” for various automotive

applications which will improve efficiency and reduce costs.

The coming wave of electric vehicle is a big opportunity to organized player like Exide and Exide is working

very proactively to capture this market.

Equity | India

Diwali Picks 2018 October 31, 2018

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Diwali Picks 2018 5

Tata Elxsi Ltd: Growing with Technology:

Tata Elxsi Ltd. BUY CMP(`):955.3 Target (`): 1144.0 Upside: 19.8%

Going forward, given substantial growth being witnessed in digital portfolios of most IT firms, along with

investments into avenues like autonomous vehicles, AR/VR experience and automotive electronics, we

believe TEL will be one of the key beneficiaries of the same, given its presence in these emerging

businesses.

We expect its diversified portfolio including automotive, broadcast, medical and design expertise to enable

TEL to leverage these investments disproportionately. We would watch growth from IP-led engagements in

future given scope for margin expansion, with the Autonomic platform a critical driver.

We believe TEL is a good long-term investment bet, given its presence across fast-growing solutions, niche

area of operations, design expertise, marquee client base, pricing power, operating leverage, healthy cash

flow, and returns on capital and strong earnings growth.

Fine Organics Industries Ltd: Unique Products with Growing Scale:

Fine Organics Ind. Ltd. BUY CMP(`):1,039.7 Target (`):1,325.0 Upside: 27.5%

Company is the largest manufacture of oleo chemical-based additive in India and a strong global player.

These specialty chemical based products are widely used in Food, Plastics, Cosmetics, Paints, Ink, Coatings

and other specialty application in various industries.

Currently, the company is having a strong consumer based operations in 69 countries with ~631 direct

customers, ~127 distributors. It has three production facilities in (Ambernath, Badlapur and Dombivili)

Maharashtra with the combines installed capacity of 64,300 TPA and also having JV with (Olefin Organics, a

partnership firm and a promoter group entity) to manufacture the products with installed capacity of ~5000

TPA.

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Research Team:

Name Designation Email Id Contact

Pushkaraj Kanitkar AVP - Technical Research pushkaraj@geplcapital.com 022 - 6614 2686

Rohit Chavan Analyst - Fundamental Research rohitchavan@geplcapital.com 022 - 6614 2694

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