Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>On 6th May 2022, <a href="https://www.smartkarma.com/entities/larsen-toubro-ltd" target="_blank" data-smartkarma-citation="entities:2499:1" rel="noopener">Larsen &amp; Toubro (LT IN)</a>'s publicly-listed subsidiaries <a href="https://www.smartkarma.com/entities/mindtree-ltd" target="_blank" data-smartkarma-citation="entities:7297:1" rel="noopener">Mindtree Ltd (MTCL IN)</a> and <a href="https://www.smartkarma.com/entities/larsen-toubro-infotech-ltd" target="_blank" data-smartkarma-citation="entities:22778:1" rel="noopener">Larsen &amp; Toubro Infotech (LTI IN)</a> announced plans to merge.</li>
<li>I discussed this situation previously in <a href="https://www.smartkarma.com/insights/mindtree-lti-a-potential-us-20bn-indian-tech-merger-mindtree-could-outperform-lti" target="_blank" data-smartkarma-citation="insights:68634" rel="noopener">Mindtree-LTI: A Potential US$20bn+ Indian Tech Merger; Mindtree Could Outperform LTI</a> when the ratio was 0.66, expecting a scrip ratio north of 0.70.  </li>
<li>Below is a closer look at the details of the transaction and the outlook for the combined entity.</li>
</ul>


On 6th May 2022, Larsen &amp; Toubro (LT IN)'s publicly-listed subsidiaries Mindtree Ltd (MTCL IN) and Larsen &amp; Toubro Infotech (LTI IN) announced plans to merge.
I discussed this situation previously in Mindtree-LTI: A Potential US$20bn+ Indian Tech Merger; Mindtree Could Outperform LTI when the ratio was 0.66, expecting a scrip ratio north of 0.70.  
Below is a closer look at the details of the transaction and the outlook for the combined entity.


Mindtree-LTI: Merger Announced to Form India's 5th Largest IT Services Player

External broker reports(aggregated public sources), Nirmal Bang

Nirmal Bang

External broker reports(aggregated public sources)

A Relationship Beyond Broking

Nirmal Bang, one of the leading stock broking companies in India, caters to retail and institutional clients by offering them a range of financial products and services, including equities, derivatives, commodities, currency derivatives, mutual funds, IPOs, insurance, depository services and PMS.

Nirmal Bang is drawn from a diversity of professional backgrounds, and blend of experience, skill and dedication is shared with its clients. Nirmal Bang emphasizes adequate, thorough research local and world-wide developments, balancing these with the astute discovery of intrinsic values, synergies and growth. The aim is simply to help the investors to maximize their returns.

Equity Bottom-Up

<ul><li>While we have underweighted the IT sector (Report) HCL Technologies (HCLT) is a preferred pick due to (1) Significant narrowing of growth differential in FY23 despite disappointment on revenue guidance - vis-à-vis Indian Tier-1 growth leader Infosys.</li><li>We also see modest acceleration in FY23 while most Tier-1 peers will see deceleration</li><li>Our view that underlying growth in Products and Platforms (P&amp;P) business is positive...(continued).</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

While we have underweighted the IT sector (Report) HCL Technologies (HCLT) is a preferred pick due to (1) Significant narrowing of growth differential in FY23 despite disappointment on revenue guidance - vis-à-vis Indian Tier-1 growth leader Infosys.We also see modest acceleration in FY23 while most Tier-1 peers will see decelerationOur view that underlying growth in Products and Platforms (P&amp;P) business is positive...(continued).Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

HCL Technologies: P&P an Optical Drag but Services Strong

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>The difference in Indian exposures between Value and Aggressive Growth managers hits record wides of +10.5%.</li>
<li>Value managers are increasing underweights, with today’s level of -5.52% below benchmark the lowest on record.  Key underweights are Reliance Industries, Infosys, HDFC Limited, Bajaj Finance and Bharti Airtel</li>
<li>For Aggressive Growth funds, Infosys was a key driver behind the recent spike in exposure, with 8.6% of funds buying in to the stock and average weights increasing by +0.42%.</li>
</ul>


The difference in Indian exposures between Value and Aggressive Growth managers hits record wides of +10.5%.
Value managers are increasing underweights, with today’s level of -5.52% below benchmark the lowest on record.  Key underweights are Reliance Industries, Infosys, HDFC Limited, Bajaj Finance and Bharti Airtel
For Aggressive Growth funds, Infosys was a key driver behind the recent spike in exposure, with 8.6% of funds buying in to the stock and average weights increasing by +0.42%.


India: Value/Growth Divide Hits New Peak Among GEM Funds.

External broker reports(aggregated public sources), Axis Direct

Axis Direct

Axis Direct is the flagship brand under Axis Securities Limited, a subsidiary of Axis Bank in India. 

Content available is external broker reports authored by a third party outside the Smartkarma network and has been aggregated by an online aggregator through publicly available sources and is displayed by Smartkarma in this format for user's convenience and general informational purposes only. Content does not constitute investment or financial advice and Smartkarma makes no representation or warranty regarding its accuracy or contents. Original third party author retains all copyright and other proprietary rights in the content. Access or use of third party links not controlled by Smartkarma are at the user's own risk.

<ul><li>HCL Technologies Ltd (HCL Tech) Q4FY22 performance stood in line with our expectations.</li><li>The company reported revenues of Rs 22,597 Cr, up 1.1% QoQ and 15.1% YoY.</li><li>We recommend a BUY rating on the stock and assign a 20x P/E multiple to its FY24E earnings of Rs 67.4/share to arrive at a TP of Rs 1,345/share, indicating an upside of 22% from the CMP.</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

HCL Technologies Ltd (HCL Tech) Q4FY22 performance stood in line with our expectations.The company reported revenues of Rs 22,597 Cr, up 1.1% QoQ and 15.1% YoY.We recommend a BUY rating on the stock and assign a 20x P/E multiple to its FY24E earnings of Rs 67.4/share to arrive at a TP of Rs 1,345/share, indicating an upside of 22% from the CMP.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

HCL Technologies: Better Execution; Outlook Continues To Be Robust

Thematic (Sector/Industry)

<ul><li>We are downgrading Indian IT Services sector to underweight (UW) on a 12-month basis, though in the near term, there is relative earnings resilience against certain domestic sectors.</li><li>But, the likely 1HFY23 strength should be used to pare positions if overweight (OW), especially in expensive Tier-2 companies.</li><li>Nifty IT index is up ~144% from 1st Jan, 2020 till 31st March, 2022 while Nifty is up 44% (Nifty Bank up only 13%!)</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

We are downgrading Indian IT Services sector to underweight (UW) on a 12-month basis, though in the near term, there is relative earnings resilience against certain domestic sectors.But, the likely 1HFY23 strength should be used to pare positions if overweight (OW), especially in expensive Tier-2 companies.Nifty IT index is up ~144% from 1st Jan, 2020 till 31st March, 2022 while Nifty is up 44% (Nifty Bank up only 13%!)Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Information Technology Sector- Sector Update- Move to Underweight

India

HCL Technologies Limited provides software development and related engineering services.  The Group's technologies utilize a variety of technologies, including Internet and e-commerce, networking, internet telephony, embedded software, ASIC/VLSI design and testing, satellite and wireless communications, and component based object technologies, including COM, DCOM and COBRA.

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HCL Technologies (HCLT IN)

Mindtree-LTI: Merger Announced to Form India's 5th Largest IT Services Player

Larsen & Toubro (LT IN)'s public-listed subsidiaries Mindtree Ltd (MTCL IN) and Larsen & Toubro Infotech (LTI IN) announced plans to merge. The...

Janaghan Jeyakumar, CFA

HCL Technologies: P&P an Optical Drag but Services Strong

While we have underweighted the IT sector (Report) HCL Technologies (HCLT) is a preferred pick due to (1) Significant narrowing of growth...

Nirmal Bang

India: Value/Growth Divide Hits New Peak Among GEM Funds.

The difference in Indian exposures between Value and Aggressive Growth managers hits record wides of +10.5%. Value managers go max underweight,...

Steven Holden

HCL Technologies: Better Execution; Outlook Continues To Be Robust

We recommend a BUY rating on the stock and assign a 20x P/E multiple to its FY24E earnings of Rs 67.4/share to arrive at a TP of Rs 1,345/share,...

Axis Direct

Information Technology Sector- Sector Update- Move to Underweight

We are downgrading Indian IT Services sector to underweight (UW) on a 12-month basis, though in the near term, there is relative earnings...

Nirmal Bang

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