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

The <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a> is the flagship index of the National Stock Exchange of India (NSE). The index has 50 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 29 September 2021 and the announcement of the changes will be made four weeks prior to the effective date.More than a third of the way through the review period that runs from February to July, we see one possible change to the index with <a href="https://www.smartkarma.com/entities/info-edge-india-ltd" target="_blank" data-smartkarma-citation="entities:14461:1" rel="noopener">Info Edge India (INFOE IN)</a> replacing <a href="https://www.smartkarma.com/entities/indian-oil-corp-ltd" target="_blank" data-smartkarma-citation="entities:7781:1" rel="noopener">Indian Oil Corp (IOCL IN)</a>. There could be more changes if some large stocks like <a href="https://www.smartkarma.com/entities/adani-green-energy-ltd" target="_blank" data-smartkarma-citation="entities:29012:1" rel="noopener">Adani Green Energy Ltd (ADANIGR IN)</a> and <a href="https://www.smartkarma.com/entities/dmart" target="_blank" data-smartkarma-citation="entities:23656:1" rel="noopener">Avenue Supermarts Ltd (DMART IN)</a> are included in the Futures &amp; Options (F&amp;O) segment of the market.<a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> does not make the cut for index inclusion following the 10% reduction in its free float following the open offer.Passive funds benchmarked to the <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a> will need to trade around 3 days of ADV on <a href="https://www.smartkarma.com/entities/info-edge-india-ltd" target="_blank" data-smartkarma-citation="entities:14461:1" rel="noopener">Info Edge India (INFOE IN)</a> and <a href="https://www.smartkarma.com/entities/indian-oil-corp-ltd" target="_blank" data-smartkarma-citation="entities:7781:1" rel="noopener">Indian Oil Corp (IOCL IN)</a>. Plus there will be flow from active funds and from cash and carry baskets on the index.<a href="https://www.smartkarma.com/entities/info-edge-india-ltd" target="_blank" data-smartkarma-citation="entities:14461:1" rel="noopener">Info Edge India (INFOE IN)</a> trades at a valuation premium to its regional peers, while <a href="https://www.smartkarma.com/entities/indian-oil-corp-ltd" target="_blank" data-smartkarma-citation="entities:7781:1" rel="noopener">Indian Oil Corp (IOCL IN)</a> trades at a discount to its domestic peers.The big event to watch for is the potential inclusion of <a href="https://www.smartkarma.com/entities/adani-green-energy-ltd" target="_blank" data-smartkarma-citation="entities:29012:1" rel="noopener">Adani Green Energy Ltd (ADANIGR IN)</a> and <a href="https://www.smartkarma.com/entities/dmart" target="_blank" data-smartkarma-citation="entities:23656:1" rel="noopener">Avenue Supermarts Ltd (DMART IN)</a> in the F&amp;O segment that will open the door for index inclusion.

The NIFTY Index (NIFTY INDEX) is the flagship index of the National Stock Exchange of India (NSE). The index has 50 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 29 September 2021 and the announcement of the changes will be made four weeks prior to the effective date.More than a third of the way through the review period that runs from February to July, we see one possible change to the index with Info Edge India (INFOE IN) replacing Indian Oil Corp (IOCL IN). There could be more changes if some large stocks like Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) are included in the Futures &amp; Options (F&amp;O) segment of the market.Vedanta Ltd (VEDL IN) does not make the cut for index inclusion following the 10% reduction in its free float following the open offer.Passive funds benchmarked to the NIFTY Index (NIFTY INDEX) will need to trade around 3 days of ADV on Info Edge India (INFOE IN) and Indian Oil Corp (IOCL IN). Plus there will be flow from active funds and from cash and carry baskets on the index.Info Edge India (INFOE IN) trades at a valuation premium to its regional peers, while Indian Oil Corp (IOCL IN) trades at a discount to its domestic peers.The big event to watch for is the potential inclusion of Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) in the F&amp;O segment that will open the door for index inclusion.

NIFTY50 Index Rebalance Preview: Info Edge Could Replace IOC

Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Quantitative Analysis

We have devised a few screens to identify long opportunities in the Indian markets. While there are different investment strategies out there, we have focused on catering to three key portfolio strategies: 1) Quality &amp; Growth 2) Income/Dividend Generation and 3) Value. These strategies resonate with our own investment approach and we regularly refer to these screens for our own idea generation.
Below we provide an overview of methodology used and backtest results for each of the screens followed by companies flagged by our screener for each strategy.
<h3>What's Unique?</h3>
Most screens tend to use a plethora of parameters whereas we have relied on 2-3 key parameters determined based on our back testing analysis that uses 7 years of historical data as of 2010. We originally started with multiple variables to devise our screen but eliminated variables that provided limited value addition as guided by back tested results. To filter out noise and any cyclical impact in determining trends, we have used averages across long periods ranging from 3 to 7 years, as appropriate.

We have devised a few screens to identify long opportunities in the Indian markets. While there are different investment strategies out there, we have focused on catering to three key portfolio strategies: 1) Quality &amp; Growth 2) Income/Dividend Generation and 3) Value. These strategies resonate with our own investment approach and we regularly refer to these screens for our own idea generation.
Below we provide an overview of methodology used and backtest results for each of the screens followed by companies flagged by our screener for each strategy.
What's Unique?
Most screens tend to use a plethora of parameters whereas we have relied on 2-3 key parameters determined based on our back testing analysis that uses 7 years of historical data as of 2010. We originally started with multiple variables to devise our screen but eliminated variables that provided limited value addition as guided by back tested results. To filter out noise and any cyclical impact in determining trends, we have used averages across long periods ranging from 3 to 7 years, as appropriate.

Attractive Fishing Areas | India - What's Screening Well?

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Thematic (Sector/Industry)

<ul>
<li>Don't Count on BPCL Sale; Runway to Get Deal Done Is Short;</li>
<li>Plan B  - More of a Bait &amp; Switch  - is Highly Likely;  </li>
<li>Moody’s Rightly Cut India's Sovereign Outlook to Negative Amid Concerns Over Slowing Growth and Revenues Last Month; and </li>
<li>Market Downside Is Imminent.</li>
</ul>


Don't Count on BPCL Sale; Runway to Get Deal Done Is Short;
Plan B  - More of a Bait &amp; Switch  - is Highly Likely;  
Moody’s Rightly Cut India's Sovereign Outlook to Negative Amid Concerns Over Slowing Growth and Revenues Last Month; and 
Market Downside Is Imminent.


<a href="https://www.smartkarma.com/entities/bharat-petroleum-corp-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:10222:1">Bharat Petroleum Corp (BPCL IN)</a> is engaged in the business of refining crude oil and marketing of petroleum products. It is India's second largest Oil Marketing Company (OMC) and sixth largest company by turnover.The Government of India holds 53.29% of the company and is looking to sell its stake to raise funds to meet its divestment target for the fiscal year and bridge the fiscal deficit. In this Insight, we take a look at the company structure, the ways in which privatisation could be achieved, potential suitors for the stake and the price offered, implications for investors due to the open offer that would need to be made and due to changes in the free float weighting in the local/global indices.

Bharat Petroleum Corp (BPCL IN) is engaged in the business of refining crude oil and marketing of petroleum products. It is India's second largest Oil Marketing Company (OMC) and sixth largest company by turnover.The Government of India holds 53.29% of the company and is looking to sell its stake to raise funds to meet its divestment target for the fiscal year and bridge the fiscal deficit. In this Insight, we take a look at the company structure, the ways in which privatisation could be achieved, potential suitors for the stake and the price offered, implications for investors due to the open offer that would need to be made and due to changes in the free float weighting in the local/global indices.

BPCL - Thoughts on the Potential Government Stake Sale

India

Hindustan Petroleum Corporation Limited refines crude oil and manufactures petroleum and petroleum products. The Company's products, which are sold via outlets throughout India, include lube products, lubricating oil, aviation fuel, hydraulic brake fluid, greases, liquefied petroleum gas and insecticides. The Government of India is the majority shareholder in the company.

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Hindustan Petroleum (HPCL 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

NIFTY50 Index Rebalance Preview: Info Edge Could Replace IOC

We see one potential changes to the NIFTY50 index at the September review. Adani Green and Avenue Supermarts could join the index if listed F&O are...

Brian Freitas

Attractive Fishing Areas | India - What's Screening Well?

We have devised a few screens to identify long opportunities in the Indian markets. While there are different investment strategies out there, we...

Ankit Agrawal, CFA

India - Liquidity Sucks

Don't Count on BPCL Sale; Runway to Get Deal Done Is Short; Plan B - More of a Bait & Switch - is Highly Likely; Moody’s Rightly Cut...

Thomas J. Monaco

BPCL - Thoughts on the Potential Government Stake Sale

Bharat Petroleum Corp (BPCL IN) is engaged in the business of refining crude oil and marketing of petroleum products. It is India's second largest...

Brian Freitas

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