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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/power-finance-corporation" target="_blank" data-smartkarma-citation="entities:13579:1" rel="noopener">Power Finance</a>, <a href="https://www.smartkarma.com/entities/astral-poly-technik-ltd" target="_blank" data-smartkarma-citation="entities:7890:1" rel="noopener">Astral</a>, <a href="https://www.smartkarma.com/entities/idfc-first-bank-limited" target="_blank" data-smartkarma-citation="entities:26934:1" rel="noopener">IDFC First Bank</a>, <a href="https://www.smartkarma.com/entities/cummins-india-ltd" target="_blank" data-smartkarma-citation="entities:7365:1" rel="noopener">Cummins India</a>, <a href="https://www.smartkarma.com/entities/hdfc-asset-management-co-ltd" target="_blank" data-smartkarma-citation="entities:27027:1" rel="noopener">HDFC Asset Management</a>, <a href="https://www.smartkarma.com/entities/ashok-leyland-ltd" target="_blank" data-smartkarma-citation="entities:20104:1" rel="noopener">Ashok Leyland</a>, <a href="https://www.smartkarma.com/entities/polycab-india-ltd" target="_blank" data-smartkarma-citation="entities:27877:1" rel="noopener">Polycab India</a> and <a href="https://www.smartkarma.com/entities/supreme-industries-ltd" target="_blank" data-smartkarma-citation="entities:11443:1" rel="noopener">Supreme Industries</a> have all run up over the recent past and have investor attention.</li>
<li>The increase in market cap has put the stocks on active manager radars and could also result in the stocks being added to global indices in the near future.</li>
<li>We take a look at the positioning on the stocks and recommend pair trades to reduce market risk while trying to capture alpha.</li>
</ul>



Power Finance, Astral, IDFC First Bank, Cummins India, HDFC Asset Management, Ashok Leyland, Polycab India and Supreme Industries have all run up over the recent past and have investor attention.
The increase in market cap has put the stocks on active manager radars and could also result in the stocks being added to global indices in the near future.
We take a look at the positioning on the stocks and recommend pair trades to reduce market risk while trying to capture alpha.


India - Positioning on Some Interesting Names

<ul>
<li>As expected, the December review of the <a href="https://www.smartkarma.com/entities/s-p-bse-sensex-index" target="_blank" data-smartkarma-citation="entities:31494:1" rel="noopener">S&amp;P BSE SENSEX Index (SENSEX INDEX)</a> sees <a href="https://www.smartkarma.com/entities/wipro-ltd" target="_blank" data-smartkarma-citation="entities:15360:1" rel="noopener">Wipro Ltd (WPRO IN)</a> added and <a href="https://www.smartkarma.com/entities/bajaj-auto-ltd" target="_blank" data-smartkarma-citation="entities:3613:1" rel="noopener">Bajaj Auto Ltd (BJAUT IN)</a> deleted.</li>
<li>Buying on Wipro is 2.5 days of ADV and 8.2 days of delivery volume, while selling on Bajaj Auto is 4.5 days of ADV and 8.9 days of delivery volume.</li>
<li>The overweight of the Information Technology sector in the Sensex gets even bigger and the Consumer Discretionary sector gets even more underweighted vs the BSE All Cap Index.</li>
</ul>


As expected, the December review of the S&amp;P BSE SENSEX Index (SENSEX INDEX) sees Wipro Ltd (WPRO IN) added and Bajaj Auto Ltd (BJAUT IN) deleted.
Buying on Wipro is 2.5 days of ADV and 8.2 days of delivery volume, while selling on Bajaj Auto is 4.5 days of ADV and 8.9 days of delivery volume.
The overweight of the Information Technology sector in the Sensex gets even bigger and the Consumer Discretionary sector gets even more underweighted vs the BSE All Cap Index.


SENSEX Dec 21 Index Rebalance: Wipro Added, Bajaj Auto Deleted

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

Equity Bottom-Up

*Earnings Appear Overstated: Bajaj Finance (BAF.IN) [Bajaj] posted FY 1Q22 results of INR 10.2 bn, declining INR 3.4 bn (25.6%) linked quarter driven by weakness in Consumer Financing. The loss provision increase of INR 5.2 bn (42.2%), which - despite the growth - still did not keep up with the pace of stated NPA growth; and *Time To Man Up:  The day of reckoning is coming for Bajaj as net new NPLs amounted to INR 193 bn at FY 1Q22 – increasing at 281.3% on an annualized basis. By our calculation, reserves (much of the portfolio is weak consumer credits) need to increase INR 157 bn - representing nearly three years of PBT and over 50% of shareholder’s equity. In other words, Bajaj needs to man up and start reporting losses – this is a troubled financial institution.

*Earnings Appear Overstated: Bajaj Finance (BAF.IN) [Bajaj] posted FY 1Q22 results of INR 10.2 bn, declining INR 3.4 bn (25.6%) linked quarter driven by weakness in Consumer Financing. The loss provision increase of INR 5.2 bn (42.2%), which - despite the growth - still did not keep up with the pace of stated NPA growth; and *Time To Man Up:  The day of reckoning is coming for Bajaj as net new NPLs amounted to INR 193 bn at FY 1Q22 – increasing at 281.3% on an annualized basis. By our calculation, reserves (much of the portfolio is weak consumer credits) need to increase INR 157 bn - representing nearly three years of PBT and over 50% of shareholder’s equity. In other words, Bajaj needs to man up and start reporting losses – this is a troubled financial institution.

*Results Down, Credibility Continues To Decrease: L&amp;T Finance Holdings (LTFH.IN) [LTFH] reported FY 1Q22 bottom-line results of 1.8 bn, declining INR 890 mn (33.3%) linked quarter. Results were weaker across the board;  and  *Accelerating Negative Credit Delta: Inclusive of NCOs of INR 8.5 bn or 3.62% annualized total loans, we note that net new NPLs skyrocketed INR 12.0 bn or increasing an eye popping 106.7% on an annualized basis during the period. By our calculation, if the large blip in credit continues, LTFH  management ought to think about adding another INR 69 bn plus to the reserve. A hit this large represents over seven years of PBT or 6.3x average equity.

*Results Down, Credibility Continues To Decrease: L&amp;T Finance Holdings (LTFH.IN) [LTFH] reported FY 1Q22 bottom-line results of 1.8 bn, declining INR 890 mn (33.3%) linked quarter. Results were weaker across the board;  and  *Accelerating Negative Credit Delta: Inclusive of NCOs of INR 8.5 bn or 3.62% annualized total loans, we note that net new NPLs skyrocketed INR 12.0 bn or increasing an eye popping 106.7% on an annualized basis during the period. By our calculation, if the large blip in credit continues, LTFH  management ought to think about adding another INR 69 bn plus to the reserve. A hit this large represents over seven years of PBT or 6.3x average equity.  

L&T Finance Holdings – Struggling To Survive

Thematic (Sector/Industry)

*Not So Stable: According to the Reserve Bank of India (RBI), gross NPLS are not anticipated to be as bad as originally believed. In addition, the RBI retains its cautious outlook on MSME credit risk; and
* Rose Colored Glasses: As we have highlighted in numerous individual Indian bank notes, credit quality continued to deteriorate at an accelerated pace prior to the second wave of COVID-19. While many financials are already considered technically insolvent, the reality is that there has been absolutely no let up in the breakdown of credit quality.

*Not So Stable: According to the Reserve Bank of India (RBI), gross NPLS are not anticipated to be as bad as originally believed. In addition, the RBI retains its cautious outlook on MSME credit risk; and
* Rose Colored Glasses: As we have highlighted in numerous individual Indian bank notes, credit quality continued to deteriorate at an accelerated pace prior to the second wave of COVID-19. While many financials are already considered technically insolvent, the reality is that there has been absolutely no let up in the breakdown of credit quality.

Reserve Bank Of India – FSR Is Very Unrealistic

India

Power Finance Corporation funds power projects in India.  The Company serves state power utilities, central power sector utilities, power departments, private power sector utilities, joint sector power utilities, power equipment manufacturers, and municipal power utilities.

Bajaj Holdings and Investment Ltd. is an investment company. The Company investments include strategic investments and investments in government securities, bonds, debentures and mutual funds.

Bajaj Finserv Ltd. is currently engaged in life insurance; general insurance and consumer finance businesses and has plans to expand its business by offering a wide array of financial products and services in India. The Company is also active in wind-energy generation.

L&T Finance Holdings Limited is a financial holding company. The Company offers a diverse range of financial products and services across the corporate, retail, and infrastructure finance sectors, as well as fund products and investment services.

Aditya Birla Capital Limited (ABCL) provides financial services. The Company offers life and health insurance, private equity, corporate lending, structured finance, asset and wealth management, currency and commodity brokerage, online personal finance management, housing finance, pension funds, and other financial services. ABCL serves customers in India.

Indian Railway Finance Corporation Limited (IRFC) provides financial services. The Company raises money from the market through bonds and off-shores borrowings to finance the plan outlay of railways and other various developmental programs. IRFC serves customers in India. 

Indian Railway Finance Corporation (IRFC IN)

IDFC Limited offers infrastructure project financing services.  The Company primarily finances energy, telecommunications, and transportation projects.

Piramal Enterprises Limited provides diversified commercial services. The Company offers pharmaceutical production and distribution, real estate, healthcare insights and analysis, and financial services. Piramal Enterprises serves customers globally.

IFCI Limited provides medium and long-term credits to industrial concerns in India.

Aavas Financiers Limited provides consumer finance services. The Company offers home, land purchase, construction, home improvement, balance transfer, and business loans. Aavas Financiers serves customers in India.

EXOR N.V. is a diversified holding company. The Company brings in finance for the development of its companies, to improve their competitive position and profitability, and maintains a constant dialogue with the top management of the companies in which it invests, while fully respecting their operating autonomy.

Industrivarden AB is an investment company.  The Company's holdings consists of a portfolio of listed Nordic industrial companies.

FirstRand Limited is a portfolio of separately branded, integrated financial services businesses offering a universal set of transactional, lending, investment and insurance products and services in South Africa, certain markets in sub-Saharan Africa and the UK.

Mitsubishi HC Capital Inc. provides customer finance services. The Company leases machinery and equipment, aircraft and ships, office buildings, and more. Mitsubishi HC Capital serves clients across worldwide.

ORIX Corporation provides comprehensive financial services throughout the world. The Company's business lines include leasing, real estate loans, life insurance, banking, and consumer finance.  The Company also operates Environment related business and Private equity investment business. ORIX has a professional baseball team, the ORIX Buffalos.

Meritz Financial Group Inc is a holding company of Meritz Securities, Meritz Asset Management, Meritz Financial Information Service and et cetera. The Company manages and controls its financial subsidiaries.

L E Lundbergforetagen AB is a real estate and investment company.  The Company owns,  develops, rents out, and manages commercial and residential properties located in central Sweden.  Lundbergs is also a long term investor in mostly publicly traded Swedish companies.  The Company takes an active ownership role in the companies.  Moreover Lundbergs is engaged in securities trading.

Equitable Holdings, Inc. is an independent U.S.-based financial services company. The Company, through its subsidiaries, provides advice, protection, retirement strategies, and investment-management and research.

Chailease Holding Co Ltd provides financing services such as leasing, installment sale, import/export factoring and direct financing.

Rural Electrification Corporation Limited engages in the financing and promotion of transmission, distribution and generation projects in India. The Company provides funding to clients to assist them in formulating and implementing various types of power project-related schemes.

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Rural Electrification (RECL IN)

India - Positioning on Some Interesting Names

Quite a few Indian stocks have jumped in price recently and the increased market cap will put them on active investors radars and could get the...

Brian Freitas

SENSEX Dec 21 Index Rebalance: Wipro Added, Bajaj Auto Deleted

Wipro will be added to the Sensex in December while Bajaj Auto will be deleted. Impact on both stocks is over 8 days of delivery volume to trade....

Brian Freitas

Bajaj Finance – Just BAFfling

BAJAJ FINANCE: Bajaj posted a QOQ FY 1Q22 results decline 25.6% driven by credit weakness in Consumer. Net new NPLs increased at 281% annualized...

Thomas J. Monaco

L&T Finance Holdings – Struggling To Survive

L&T Finance Holdings: LTFH reported FY 1Q22 bottom-line declined 33.3% QOQ. Results were weak across the board. LTFH's reserve is short INR 69 bn...

Thomas J. Monaco

Reserve Bank Of India – FSR Is Very Unrealistic

RESERVE BANK OF INDIA: According to the RBI, NPLS are not anticipated to be as bad. This couldn't be further from the truth. NPLs continue to...

Thomas J. Monaco

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