Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<div>The Indian mutual fund industry has assets of almost INR 6.6 trillion across Multi cap, Large Cap, Large and Mid Cap, Mid Cap, Small Cap and Flexi Cap equity schemes. Equity schemes classified as large cap need to have at least 80% of their assets invested in large cap stocks, large and mid cap schemes need to have at least 35% of their assets in large cap stocks and at least 35% in mid cap stocks, mid cap funds need to hold at least 65% of their assets in mid cap stocks, and small cap funds need to hold at least 65% of their assets in small cap stocks. Flexi cap funds can invest across market caps.</div><div>
The Association of Mutual Funds in India (AMFI) publishes the list of the stocks in each market cap segment in January and July each year and mutual funds have one month to rebalance their portfolios to adhere to the new categorization.
At the next recategorization in July 2021, we see 7 stocks moving from the mid cap segment to the large cap segment with an equal number of stocks moving the other way, and 13 stocks are expected to move from the small cap segment to the mid cap segment with the 16 stocks moving from the mid cap to the small cap segment. There are 3 recent listings that will enter the mid cap segment with over 18 joining the small cap segment.
Historically, the stocks migrating upward to a higher market cap segment have outperformed stocks that migrate to a lower market cap segment over the 1 month and 2 month period post the publishing of the AMFI list. This can be attributed to fund managers realigning their portfolios to meet the new categorization. This provides opportunities to pre-position for the move and unwind post the announcement of the reclassification.
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The Indian mutual fund industry has assets of almost INR 6.6 trillion across Multi cap, Large Cap, Large and Mid Cap, Mid Cap, Small Cap and Flexi Cap equity schemes. Equity schemes classified as large cap need to have at least 80% of their assets invested in large cap stocks, large and mid cap schemes need to have at least 35% of their assets in large cap stocks and at least 35% in mid cap stocks, mid cap funds need to hold at least 65% of their assets in mid cap stocks, and small cap funds need to hold at least 65% of their assets in small cap stocks. Flexi cap funds can invest across market caps.
The Association of Mutual Funds in India (AMFI) publishes the list of the stocks in each market cap segment in January and July each year and mutual funds have one month to rebalance their portfolios to adhere to the new categorization.
At the next recategorization in July 2021, we see 7 stocks moving from the mid cap segment to the large cap segment with an equal number of stocks moving the other way, and 13 stocks are expected to move from the small cap segment to the mid cap segment with the 16 stocks moving from the mid cap to the small cap segment. There are 3 recent listings that will enter the mid cap segment with over 18 joining the small cap segment.
Historically, the stocks migrating upward to a higher market cap segment have outperformed stocks that migrate to a lower market cap segment over the 1 month and 2 month period post the publishing of the AMFI list. This can be attributed to fund managers realigning their portfolios to meet the new categorization. This provides opportunities to pre-position for the move and unwind post the announcement of the reclassification.


India: Stock Reclassification & Active Portfolio Management

India - Politics, Industrials, IT and Large Caps, EMAlpha

Pankaj Sharma

India - Politics, Industrials, IT and Large Caps

Thematic (Sector/Industry)

It is a norm that in a pre-election year, the democratically elected Governments become much more populist in their decisions and spend a lot more than they can afford. There are other headwinds as well such as higher oil prices and this implies that NDA Government will try to raise money from wherever possible and State owned enterprises could see a more aggressive disinvestment in 2H FY19. There are already reports that <a href="https://www.smartkarma.com/entities/9117" target="_blank" data-smartkarma-citation="entities:9117:1">Coal India Ltd (COAL IN)</a>, <a href="https://www.smartkarma.com/entities/460" target="_blank" data-smartkarma-citation="entities:460:1">Bharat Heavy Electricals (BHEL IN)</a> and <a href="https://www.smartkarma.com/entities/11842" target="_blank" data-smartkarma-citation="entities:11842:1">NTPC Ltd (NTPC IN)</a> will be among the key targets for stake sale by the Central Government and we think this is a risk for these stocks.

It is a norm that in a pre-election year, the democratically elected Governments become much more populist in their decisions and spend a lot more than they can afford. There are other headwinds as well such as higher oil prices and this implies that NDA Government will try to raise money from wherever possible and State owned enterprises could see a more aggressive disinvestment in 2H FY19. There are already reports that Coal India Ltd (COAL IN), Bharat Heavy Electricals (BHEL IN) and NTPC Ltd (NTPC IN) will be among the key targets for stake sale by the Central Government and we think this is a risk for these stocks.

Disinvestment Is Major Risk for PSUs in Pre-Election Year: Negative For Coal India, NTPC and BHEL

Asia focused research insights & advisory, Asia Advisors

Vinay Patel

Asia focused research insights & advisory

Asia Advisors

Asia Advisors is an independent financial advisory and research firm working closely with corporates and institutions to provide consulting solutions & research insights. We provide advisory services including capital solutions, business strategy and investment insights.
Firm is headed by Vinay Patel who has close to two decades of experience in research and business development at large, international investment banks such as HSBC and ICICI Securities. Led research efforts in areas of Macroeconomics, Asset Allocation & Investment Strategy for close to a decade in global & domestic research teams. As a business head in Singapore, advised top global investment management firms & Portfolio managers in Asia for India related investments.
Vinay was recently joined by Swapnil Manish, an investment banker and ex-ecommerce entrepreneur with more than 12 years of experience. Swapnil was the TMT banker at BNP Paribas and was part of several large M&A and ECM transactions (Bharti-Zain, Bharti Infratel IPO, Schneider-Zicom among several others). He's also had a stint as an ecommerce entrepreneur having launched & led Mumbai's first online grocery player.

In a surprise move, the Central bank (RBI) today maintained the policy rate at the current level of 6.25% but changed the monetary policy stance to neutral. The 6 member Monetary Policy Committee (MPC) was unanimous in its decision to hold rates. The consensus was again caught on the wrong foot as majority expected a rate cut. Key rationale behind the move has been the adoption of 4% inflation target for the next financial year (ending March 2018). Even as current CPI inflation at 3.4% is well…

In a surprise move, the Central bank (RBI) today maintained the policy rate at the current level of 6.25% but changed the monetary policy stance to neutral. The 6 member Monetary Policy Committee (MPC) was unanimous in its decision to hold rates. The consensus was again caught on the wrong foot as majority expected a rate cut. Key rationale behind the move has been the adoption of 4% inflation target for the next financial year (ending March 2018). Even as current CPI inflation at 3.4% is well…

RBI Spoils the Bond Market Party - Prices Unlikely to Scale the Peaks Seen After Demonetization

Managing Partner, Ampersand Investment Advisors

Rahul Singh

Managing Partner

Ampersand Investment Advisors

We will soon hit the 1QFY17 results season in July and we expect earnings to hold ground in FY17 thus breaking the downward revision cycle.  Our preferences continue to be in domestic centric and bottom-up sectors like NBFCs, Cement &amp; Speciality Chemicals and themes such as structural spend on irrigation and roads.Cement has traditionally been viewed as a relatively safer proxy to the impending revival in Infrastructure capex. This also explained the valuation premium sector has commanded in recent years despite marginal earnings support. With earnings recovery, the sector is now beginning to justify that premium. Consensus forecasts a 25%+ EBITDA CAGR for FY16-18E for the large cement companies and we think that all the ingredients are in place for earnings to deliver. We prefer Shree Cement and Dalmia Bharat. The strong performance in NBFC universe over the past few weeks almost makes us say 'we told you so'. But clearly, the positive trends were evident for a while, and it was just that the participation became more broad based to include NBFCs offering micro finance, gold loans etc. We would therefore hold to existing positions and even use a correction to increase allocation to this space.

We will soon hit the 1QFY17 results season in July and we expect earnings to hold ground in FY17 thus breaking the downward revision cycle.  Our preferences continue to be in domestic centric and bottom-up sectors like NBFCs, Cement &amp; Speciality Chemicals and themes such as structural spend on irrigation and roads.Cement has traditionally been viewed as a relatively safer proxy to the impending revival in Infrastructure capex. This also explained the valuation premium sector has commanded in recent years despite marginal earnings support. With earnings recovery, the sector is now beginning to justify that premium. Consensus forecasts a 25%+ EBITDA CAGR for FY16-18E for the large cement companies and we think that all the ingredients are in place for earnings to deliver. We prefer Shree Cement and Dalmia Bharat. The strong performance in NBFC universe over the past few weeks almost makes us say 'we told you so'. But clearly, the positive trends were evident for a while, and it was just that the participation became more broad based to include NBFCs offering micro finance, gold loans etc. We would therefore hold to existing positions and even use a correction to increase allocation to this space. 

Concrete Gains - Buy Cement, Hold on to NBFCs

Information Technology Consultant

Ishita Jain

India's 29th state Telangana, was formed out of the previously existing state of Andhra Pradesh on June 2nd, 2014. It came into being after decades of battle by Telangana activists arguing that state resources in Andhra Pradesh are disproportionately allocated to more developed regions to the south. Risen among skepticism, India's newest baby is proving its mettle. It is trying to create a hub that is unlike others - eliminating bureaucracy, roadblocks and lethargy in business- a symbol of modern India. Attracting the attention of the world's largest enterprises and budding startups, Telangana is being called "California of the east". This insight attempts to understand why this state could open exciting avenues for investment.

India's 29th state Telangana, was formed out of the previously existing state of Andhra Pradesh on June 2nd, 2014. It came into being after decades of battle by Telangana activists arguing that state resources in Andhra Pradesh are disproportionately allocated to more developed regions to the south. Risen among skepticism, India's newest baby is proving its mettle. It is trying to create a hub that is unlike others - eliminating bureaucracy, roadblocks and lethargy in business- a symbol of modern India. Attracting the attention of the world's largest enterprises and budding startups, Telangana is being called "California of the east". This insight attempts to understand why this state could open exciting avenues for investment.

India

Hindustan Copper Limited is a vertically integrated multi-unit copper producer in India engaged in a wide spectrum of activities ranging from mining, beneficiation, smelting, refining and manufacturing of copper cathodes, continuous cast wire rods and wire bars. The Company was the first Indian Copper producer to get ISO-9002 certificate for its Continuous Cast Wire Rod Plant.

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Hindustan Copper (HCP IN)

India: Stock Reclassification & Active Portfolio Management

There are a lot of segment changes expected in July when AMFI recategorizes stocks and mutual funds start to rebalance their portfolios. We...

Brian Freitas

Disinvestment Is Major Risk for PSUs in Pre-Election Year: Negative For Coal India, NTPC and BHEL

It is a norm that in a pre-election year, the democratically elected Governments become much more populist in their decisions and spend a lot more...

Pankaj Sharma

RBI Spoils the Bond Market Party - Prices Unlikely to Scale the Peaks Seen After Demonetization

In a surprise move, the Central bank (RBI) today maintained the policy rate at the current level of 6.25% but changed the monetary policy stance to...

Asia Advisors

Concrete Gains - Buy Cement, Hold on to NBFCs

We will soon hit the 1QFY17 results season in July and we expect earnings to hold ground in FY17 thus breaking the downward revision cycle. Our...

Ampersand Investment Advisors

India's Rising Business Hub: Telangana

India's 29th state Telangana, was formed out of the previously existing state of Andhra Pradesh on June 2nd, 2014. It came into being after decades...

Ishita Jain

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