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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<div><p>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.</p></div><div>
<p>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.</p>
<p>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.</p>
<p>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.</p>
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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

Consumer Analyst / Channel Surveillance Specialist, Trudence Capital Advisors

Pranav Bhavsar

Consumer Analyst / Channel Surveillance Specialist

Trudence Capital Advisors

Trudence Capital Advisors Private Limited is a SEBI-registered Research Analyst, holding SEBI registration number INH000015747. Our firm is dedicated to providing independent and unbiased research on Indian mid to large-cap companies. Trudence Capital is known for its counter-consensus views, with a focus on forensic research and on-ground primary investigations. Our research approach is thorough, involving detailed analysis of accounting practices and governance, alongside extensive channel checks.

Independent & Unbiased Research

Equity Bottom-Up

<p>Across time horizons short positions or an underweight holding of <a href="https://www.smartkarma.com/entities/britannia-industries-ltd" target="_blank" data-smartkarma-citation="entities:16495:1" rel="noopener">Britannia Industries (BRIT IN)</a> has continued to pay off. BRIT's core issues have been highlighted in our earlier insights <a href="https://www.smartkarma.com/insights/the-biscuit-economy-key-takeaways-from-britannia-parle-distributor-interactions" target="_blank" data-smartkarma-citation="insights:31997" rel="noopener">The Biscuit Economy - Key Takeaways from Britannia &amp; Parle Distributor Interactions</a> and <a href="https://www.smartkarma.com/insights/britannia-brit-in-risk-of-underperformance-looms" target="_blank" data-smartkarma-citation="insights:32662" rel="noopener">Britannia (BRIT IN) | Risk of Underperformance Looms</a>.</p>
<p>Our recent channel interactions with distributors suggest that <a href="https://www.smartkarma.com/entities/britannia-industries-ltd" target="_blank" data-smartkarma-citation="entities:16495:1" rel="noopener">Britannia Industries (BRIT IN)</a> continues to remain a story of EPS rather than one of revenue.  As structural pain points in the industry continue to persist, revenue growth is likely to remain challenging in the near future. A short/underweight position on <a href="https://www.smartkarma.com/entities/britannia-industries-ltd" target="_blank" data-smartkarma-citation="entities:16495:1" rel="noopener">Britannia Industries (BRIT IN) </a>is expected to continue paying off.</p>

Across time horizons short positions or an underweight holding of Britannia Industries (BRIT IN) has continued to pay off. BRIT's core issues have been highlighted in our earlier insights The Biscuit Economy - Key Takeaways from Britannia &amp; Parle Distributor Interactions and Britannia (BRIT IN) | Risk of Underperformance Looms.
Our recent channel interactions with distributors suggest that Britannia Industries (BRIT IN) continues to remain a story of EPS rather than one of revenue.  As structural pain points in the industry continue to persist, revenue growth is likely to remain challenging in the near future. A short/underweight position on Britannia Industries (BRIT IN) is expected to continue paying off.

Britannia (BRIT IN) | Short / Underweight Position Is Likely to Continue Paying Off

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Our outlook on global equities (both the MSCI ACWI and ACWI ex-US) remains positive and we continue to expect higher equity prices going forward.  In additional to highlighting important technical levels across major markets, we reiterate our recommendation to add exposure to global financials, and highlight a number of attractive Financial stocks, with an emphasis on UK and European names. </p>

Our outlook on global equities (both the MSCI ACWI and ACWI ex-US) remains positive and we continue to expect higher equity prices going forward.  In additional to highlighting important technical levels across major markets, we reiterate our recommendation to add exposure to global financials, and highlight a number of attractive Financial stocks, with an emphasis on UK and European names. 

Global Equity Strategy: EU and UK Financial Stocks Are Attractive

Specialist in Indian Banking and Economic Research

Hemindra Hazari

Thematic (Sector/Industry)

<p><strong>Affordable housing finance has recently been in vogue, and dedicated housing finance companies were established to take part in this sunrise industry.  A recent interview by capital market veterans and savvy investors, Motilal Oswal and Raamdeo Agrawal, promoters of <a href="https://www.smartkarma.com/entities/2023" target="_blank" data-smartkarma-citation="entities:2023:1">Motilal Oswal Financial Services (MOFS IN)</a> (MOFS), revealed the pitfalls associated with Aspire Home Finance Corporation, a non-listed subsidiary, focusing on affordable housing finance. It brought to light the stunning naiveté of the promoters in setting up a lending company apparently lacking critically important functions such as credit appraisal, Know Your Customer (KYC), credit monitoring and collections. This is even more surprising since MOFS has a strong institutional equity research department, with an experienced team of sell-side banking analysts, and Raamdeo Agrawal himself publicly provides expert commentary on Indian banks and housing finance companies. Although AHFC is a relatively small, unlisted company, it suggests that investors should be cautious of the euphoria in housing finance companies. If AHFC is representative of the new firms entering the sector, it seems basic lending practices are ignored in the pursuit of growth.</strong></p>

Affordable housing finance has recently been in vogue, and dedicated housing finance companies were established to take part in this sunrise industry.  A recent interview by capital market veterans and savvy investors, Motilal Oswal and Raamdeo Agrawal, promoters of Motilal Oswal Financial Services (MOFS IN) (MOFS), revealed the pitfalls associated with Aspire Home Finance Corporation, a non-listed subsidiary, focusing on affordable housing finance. It brought to light the stunning naiveté of the promoters in setting up a lending company apparently lacking critically important functions such as credit appraisal, Know Your Customer (KYC), credit monitoring and collections. This is even more surprising since MOFS has a strong institutional equity research department, with an experienced team of sell-side banking analysts, and Raamdeo Agrawal himself publicly provides expert commentary on Indian banks and housing finance companies. Although AHFC is a relatively small, unlisted company, it suggests that investors should be cautious of the euphoria in housing finance companies. If AHFC is representative of the new firms entering the sector, it seems basic lending practices are ignored in the pursuit of growth.

Finance Experts Present, ABCs of Lending Absent

Value investor- India mid & small caps

Bhaskar Chakraborty

Motilal Oswal Financial Services / Equity Bottom-Up

<ul><li><a href="https://www.smartkarma.com/entities/2023" target="_blank" data-smartkarma-citation="entities:2023:1">Motilal Oswal Financial Services Limited (MOFS IN)</a>’s affordable housing finance business- Aspire Home Finance- reports further deterioration in asset quality in 4QFY18. Overall slippages reach 6% of loan book in only its third year of operation.</li><li>The home loan book is unseasoned with more than 50% of the loans less than 2 years old. Company said asset quality will continue to deteriorate over 1HFY19 before stabilizing in 2HFY19.</li><li>Loan book declined QoQ for the first time, disbursements declined 40% YoY in FY18, costs are increasing and company reported losses for the first time in 4QFY18.</li><li>RBI’s recent report on Affordable Housing finance market noted that the segment is growing much faster than the overall home loan market and the segment has many-fold higher NPAs than the higher ticket segments. Aspire’s NNPA’s are the highest in the affordable housing category.</li></ul>

Motilal Oswal Financial Services Limited (MOFS IN)’s affordable housing finance business- Aspire Home Finance- reports further deterioration in asset quality in 4QFY18. Overall slippages reach 6% of loan book in only its third year of operation.The home loan book is unseasoned with more than 50% of the loans less than 2 years old. Company said asset quality will continue to deteriorate over 1HFY19 before stabilizing in 2HFY19.Loan book declined QoQ for the first time, disbursements declined 40% YoY in FY18, costs are increasing and company reported losses for the first time in 4QFY18.RBI’s recent report on Affordable Housing finance market noted that the segment is growing much faster than the overall home loan market and the segment has many-fold higher NPAs than the higher ticket segments. Aspire’s NNPA’s are the highest in the affordable housing category.

Motilal Oswal's Affordable Housing Finance Business Continues to Struggle

India

Motilal Oswal Financial Services Limited is a global, diversified financial services group. The Company offers services that include securities, commodities, investment banking and venture capital.

Motilal Oswal Financial Services (MOFS IN)

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Motilal Oswal Financial Services (MOFS 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

Britannia (BRIT IN) | Short / Underweight Position Is Likely to Continue Paying Off

Our recent channel interactions with distributors suggest that Britannia remains a story of EPS rather than one of revenue. The short/underweight...

Pranav Bhavsar

Global Equity Strategy: EU and UK Financial Stocks Are Attractive

Our outlook on global equities (both the MSCI ACWI and ACWI ex-US) remains positive and we continue to expect higher equity prices going forward. ...

Vermilion Research

Finance Experts Present, ABCs of Lending Absent

Affordable housing finance has recently been in vogue, and dedicated housing finance companies were established to take part in this sunrise...

Hemindra Hazari

Motilal Oswal's Affordable Housing Finance Business Continues to Struggle

Motilal Oswal Financial Services Limited (MOFS IN)’s affordable housing finance business- Aspire Home Finance- reports further deterioration in...

Bhaskar Chakraborty

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