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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<div>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> is the flagship index of the Bombay Stock Exchange (BSE). The index has 30 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 17 December.</div><div>
The December review uses the market cap and turnover data from 1 May to 31 October to determine the stocks to be included and excluded from the index, and the announcement of the changes is done 4 weeks before the rebalance effective date.
With 6 days to go in the review period, we see <a href="https://www.smartkarma.com/entities/wipro-ltd" target="_blank" data-smartkarma-citation="entities:15360:1" rel="noopener">Wipro Ltd (WPRO IN)</a> as a high probability index addition. <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> is the lowest ranked index constituent and is a likely deletion from the index.
There is a (slim) possibility of <a href="https://www.smartkarma.com/entities/nestle-india-ltd" target="_blank" data-smartkarma-citation="entities:13101:1" rel="noopener">Nestle India (NEST IN)</a> being deleted from the index if it fails the annualised traded value test. As it stands, it is touch and go for the stock.
Passive trackers will need to buy over 2 days of ADV on <a href="https://www.smartkarma.com/entities/wipro-ltd" target="_blank" data-smartkarma-citation="entities:15360:1" rel="noopener">Wipro Ltd (WPRO IN)</a> and sell over 3.5 days of ADV on <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>. If <a href="https://www.smartkarma.com/entities/nestle-india-ltd" target="_blank" data-smartkarma-citation="entities:13101:1" rel="noopener">Nestle India (NEST IN)</a> is deleted instead, passive trackers will need to sell 7 days of ADV on the stock.
In terms of delivery volumes, the impact is much larger with passive trackers needing to buy 8.5 days on <a href="https://www.smartkarma.com/entities/wipro-ltd" target="_blank" data-smartkarma-citation="entities:15360:1" rel="noopener">Wipro Ltd (WPRO IN)</a>, while selling either 8.8 days on <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> or 13 days on <a href="https://www.smartkarma.com/entities/nestle-india-ltd" target="_blank" data-smartkarma-citation="entities:13101:1" rel="noopener">Nestle India (NEST IN)</a>.
</div>

The S&amp;P BSE SENSEX Index (SENSEX INDEX) is the flagship index of the Bombay Stock Exchange (BSE). The index has 30 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 17 December.
The December review uses the market cap and turnover data from 1 May to 31 October to determine the stocks to be included and excluded from the index, and the announcement of the changes is done 4 weeks before the rebalance effective date.
With 6 days to go in the review period, we see Wipro Ltd (WPRO IN) as a high probability index addition. Bajaj Auto Ltd (BJAUT IN) is the lowest ranked index constituent and is a likely deletion from the index.
There is a (slim) possibility of Nestle India (NEST IN) being deleted from the index if it fails the annualised traded value test. As it stands, it is touch and go for the stock.
Passive trackers will need to buy over 2 days of ADV on Wipro Ltd (WPRO IN) and sell over 3.5 days of ADV on Bajaj Auto Ltd (BJAUT IN). If Nestle India (NEST IN) is deleted instead, passive trackers will need to sell 7 days of ADV on the stock.
In terms of delivery volumes, the impact is much larger with passive trackers needing to buy 8.5 days on Wipro Ltd (WPRO IN), while selling either 8.8 days on Bajaj Auto Ltd (BJAUT IN) or 13 days on Nestle India (NEST IN).


Sensex Dec 2021 Index Rebalance Preview: Wipro Should Be Added, Deletion Has An Interesting Option

Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

Led by a powerful rebound in exports (+38.1% YoY in Jul-Sep 2021, and 43.4% YoY in Jan-Sep 2021) and stronger investment spending evident in capital goods output (+19.1% YoY in August, +60.1% YoY in Apr-Aug 2021) and machinery imports (+53.1% YoY in Apr-Sep 2021), we continue to expect at least 10.5% real GDP growth in FY2021/22 (well above the IMF's forecast of 9.5%). Private consumption has been relatively sluggish, but shows signs of a pickup since September. After likely growth of 15% YoY in 1H-FY2021/22, real GDP will comfortably exceed 6% YoY growth in the second half of the fiscal year. 
The external balances remain particularly robust, with a current account surplus of 1.25% of GDP in FY2020/21 followed by a surplus of 0.9% of GDP in 1Q-FY2021/22 (Apr-Jun 2021) despite a sharply wider merchandise-trade deficit. With robust capital inflows, India's foreign reserves have risen 16% YoY to US$639.5 billion as of 8 October 2021. The fiscal deficit will likely be much smaller than the officially-projected figure, as revenues have soared while expenditure has been restrained: in the first 5 months of FY2021/22 (Apr-Aug 2021), the fiscal deficit was just 31.1% of the projected estimate for the full fiscal year -- particularly helped by the 70.5% YoY rise in net tax revenues, led by corporate tax revenue rising 160% YoY and customs duties 136% YoY. Given the robust external liquidity position, and a sharp improvement in the fiscal balance, we expect the global rating agencies to be obliged to raise India's sovereign rating by a notch over the next year. 
The strong fiscal position allows the possibility of reductions in excise duties on petroleum products to keep those prices in check as global crude-oil prices rise. CPI inflation (the RBI's inflation target) has already moderated to 4.35% YoY in September, and will likely moderate to 4% by November as the near-normal monsoon results in a bountiful kharif harvest. We expect CPI inflation to remain below 5% YoY in Jan-Mar 2022 too (despite the low base, which leads the RBI to forecast 5.8% inflation during that quarter). With inflation surprising to the downside, we think the RBI will have room for a cut in the policy rate (or other easing measures such as reductions in CRR) after the next Budget is presented. Despite challenging valuations (which will improve as the economy strengthens further and EPS growth stays robust), we recommend staying Overweight India.

Led by a powerful rebound in exports (+38.1% YoY in Jul-Sep 2021, and 43.4% YoY in Jan-Sep 2021) and stronger investment spending evident in capital goods output (+19.1% YoY in August, +60.1% YoY in Apr-Aug 2021) and machinery imports (+53.1% YoY in Apr-Sep 2021), we continue to expect at least 10.5% real GDP growth in FY2021/22 (well above the IMF's forecast of 9.5%). Private consumption has been relatively sluggish, but shows signs of a pickup since September. After likely growth of 15% YoY in 1H-FY2021/22, real GDP will comfortably exceed 6% YoY growth in the second half of the fiscal year. 
The external balances remain particularly robust, with a current account surplus of 1.25% of GDP in FY2020/21 followed by a surplus of 0.9% of GDP in 1Q-FY2021/22 (Apr-Jun 2021) despite a sharply wider merchandise-trade deficit. With robust capital inflows, India's foreign reserves have risen 16% YoY to US$639.5 billion as of 8 October 2021. The fiscal deficit will likely be much smaller than the officially-projected figure, as revenues have soared while expenditure has been restrained: in the first 5 months of FY2021/22 (Apr-Aug 2021), the fiscal deficit was just 31.1% of the projected estimate for the full fiscal year -- particularly helped by the 70.5% YoY rise in net tax revenues, led by corporate tax revenue rising 160% YoY and customs duties 136% YoY. Given the robust external liquidity position, and a sharp improvement in the fiscal balance, we expect the global rating agencies to be obliged to raise India's sovereign rating by a notch over the next year. 
The strong fiscal position allows the possibility of reductions in excise duties on petroleum products to keep those prices in check as global crude-oil prices rise. CPI inflation (the RBI's inflation target) has already moderated to 4.35% YoY in September, and will likely moderate to 4% by November as the near-normal monsoon results in a bountiful kharif harvest. We expect CPI inflation to remain below 5% YoY in Jan-Mar 2022 too (despite the low base, which leads the RBI to forecast 5.8% inflation during that quarter). With inflation surprising to the downside, we think the RBI will have room for a cut in the policy rate (or other easing measures such as reductions in CRR) after the next Budget is presented. Despite challenging valuations (which will improve as the economy strengthens further and EPS growth stays robust), we recommend staying Overweight India.  

India: Capex- & Export-Led Rebound Likely to Receive Fiscal and Monetary Fillip Too

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

Taiwan Semiconductor (TSMC) / Technical Analysis

Emerging market equities have been one of the worst areas to invest in 2021, but we see early signs of positive change. With the US dollar failing to break above resistance at $93.50 and the MSCI EM ETF (EEM-US) displaying a false breakdown at $52, we believe now is an opportune time to add exposure to emerging market equities. To be clear, we are not getting overly bullish on EM; we have favored developed int’l (EAFE) over EM since May, and we are now shifting back to a neutral stance between the two. We see reason to believe the tide is shifting in EM’s favor. Below we highlight attractive and actionable themes within EM.

Emerging market equities have been one of the worst areas to invest in 2021, but we see early signs of positive change. With the US dollar failing to break above resistance at $93.50 and the MSCI EM ETF (EEM-US) displaying a false breakdown at $52, we believe now is an opportune time to add exposure to emerging market equities. To be clear, we are not getting overly bullish on EM; we have favored developed int’l (EAFE) over EM since May, and we are now shifting back to a neutral stance between the two. We see reason to believe the tide is shifting in EM’s favor. Below we highlight attractive and actionable themes within EM.

Shifting Exposure To Emerging Markets; Buying TSMC/Taiwan Semi, ICICI Bank, Many Others

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> is the flagship index of the Bombay Stock Exchange (BSE). The index has 30 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 17 December.The December review uses the market cap and turnover data from 1 May to 31 October to determine the stocks to be included and excluded from the index, and the announcement of the changes is done 4 weeks before the rebalance effective date.After missing out on index inclusion at the June rebalance, <a href="https://www.smartkarma.com/entities/wipro-ltd" target="_blank" data-smartkarma-citation="entities:15360:1" rel="noopener">Wipro Ltd (WPRO IN)</a> has a high probability of being included at the upcoming review. <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> is the most likely deletion from the index.<a href="https://www.smartkarma.com/entities/wipro-ltd" target="_blank" data-smartkarma-citation="entities:15360:1" rel="noopener">Wipro Ltd (WPRO IN)</a> will have over 2 days of ADV (and 7 days of delivery volume) to buy from passive funds while <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> will have nearly 3.5 days of ADV (10 days of delivery volume) to sell.

The S&amp;P BSE SENSEX Index (SENSEX INDEX) is the flagship index of the Bombay Stock Exchange (BSE). The index has 30 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 17 December.The December review uses the market cap and turnover data from 1 May to 31 October to determine the stocks to be included and excluded from the index, and the announcement of the changes is done 4 weeks before the rebalance effective date.After missing out on index inclusion at the June rebalance, Wipro Ltd (WPRO IN) has a high probability of being included at the upcoming review. Bajaj Auto Ltd (BJAUT IN) is the most likely deletion from the index.Wipro Ltd (WPRO IN) will have over 2 days of ADV (and 7 days of delivery volume) to buy from passive funds while Bajaj Auto Ltd (BJAUT IN) will have nearly 3.5 days of ADV (10 days of delivery volume) to sell.

Sensex Dec 2021 Index Rebalance Preview: Wipro Could Be IN, Pushing Bajaj Auto OUT

India's exports grew 86% YoY in Apr-Jun 2021, and were 18.3% higher than in Apr-Jun 2019 (the pre-Covid times). The return to pre-Covid levels was clearest in June (+48.3% YoY, and 30% up from June 2019) and July (+47.9% YoY, and 34% above July 2019). The height of the second Covid wave did hurt industrial growth in May 2021 (up 29.3% YoY, but down 12.6% from May 2019), although industrial output surpassed 2019 levels in April; for April-May 2021, manufacturing output grew 88.8% YoY. And in 1H 2021, India's steel output (+31.3% YoY) was the fastest-growing among the world's top-10 steel producers. A real recovery is set to gather momentum in 2H 2021. The clearest evidence of a powerful economic rebound comes from the revival in net tax revenues, which were up 97% YoY in 1Q-FY2021/22, and were 26.7% of the full-year target in 1Q of this fiscal year, compared with reaching just 14.4% of the full year target in Apr-Jun 2019. However, while total government spending in Apr-Jun 2021 was 23.6% of the full-year target, it was 25.9% of full-year target in Apr-Jun 2019 -- the consequence being that the fiscal deficit in Apr-Jun 2021 was just 18.2% of the full-year target, while in Apr-Jun 2019 it had been a whopping 61.4% of the target. Fiscal prudence is helped by a surge in corporate tax revenue (+128% YoY, but also 75% higher than in Apr-Jun 2019) and soaring union excise duties (mainly on petrol and diesel, which are encouraging a shift to renewables across the energy spectrum). Remarkable fiscal prudence should ensure that deficits this year will be below target. With exports, industrial output and tax revenue soaring, the economy is set to accelerate, and comfortably achieved 11% real GDP growth this year, especially as the accelerated vaccination drive helps contain any third Covid wave.  That corporate tax revenues in Apr-Jun 2021 were 75% higher than in Apr-Jun 2019 suggests a powerful acceleration in corporate profitability. That pace of corporate profit acceleration will ensure that valuations will remain reasonable despite the steadily rising equity prices. We would recommend staying Overweight India.

India's exports grew 86% YoY in Apr-Jun 2021, and were 18.3% higher than in Apr-Jun 2019 (the pre-Covid times). The return to pre-Covid levels was clearest in June (+48.3% YoY, and 30% up from June 2019) and July (+47.9% YoY, and 34% above July 2019). The height of the second Covid wave did hurt industrial growth in May 2021 (up 29.3% YoY, but down 12.6% from May 2019), although industrial output surpassed 2019 levels in April; for April-May 2021, manufacturing output grew 88.8% YoY. And in 1H 2021, India's steel output (+31.3% YoY) was the fastest-growing among the world's top-10 steel producers. A real recovery is set to gather momentum in 2H 2021. The clearest evidence of a powerful economic rebound comes from the revival in net tax revenues, which were up 97% YoY in 1Q-FY2021/22, and were 26.7% of the full-year target in 1Q of this fiscal year, compared with reaching just 14.4% of the full year target in Apr-Jun 2019. However, while total government spending in Apr-Jun 2021 was 23.6% of the full-year target, it was 25.9% of full-year target in Apr-Jun 2019 -- the consequence being that the fiscal deficit in Apr-Jun 2021 was just 18.2% of the full-year target, while in Apr-Jun 2019 it had been a whopping 61.4% of the target. Fiscal prudence is helped by a surge in corporate tax revenue (+128% YoY, but also 75% higher than in Apr-Jun 2019) and soaring union excise duties (mainly on petrol and diesel, which are encouraging a shift to renewables across the energy spectrum). Remarkable fiscal prudence should ensure that deficits this year will be below target. With exports, industrial output and tax revenue soaring, the economy is set to accelerate, and comfortably achieved 11% real GDP growth this year, especially as the accelerated vaccination drive helps contain any third Covid wave.  That corporate tax revenues in Apr-Jun 2021 were 75% higher than in Apr-Jun 2019 suggests a powerful acceleration in corporate profitability. That pace of corporate profit acceleration will ensure that valuations will remain reasonable despite the steadily rising equity prices. We would recommend staying Overweight India.   

India: Exports Lead Industrial Rebound, While Fiscal Policy Remains Prudent

India

The S&P BSE Sensex Index is a cap-weighted index. The index members have been selected on the basis of liquidity, depth, and floating-stock-adjustment depth and industry representation. Sensex has a base date and value of 100 in 1978-1979. The Index shifted to free-float methodology since 09/01/03. Please see {SNSXOLD Index <GO>} for mid-month options.

S&P BSE SENSEX Index (SENSEX INDEX EQUITY)

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S&P BSE SENSEX Index (SENSEX INDEX EQUITY)

Sensex Dec 2021 Index Rebalance Preview: Wipro Should Be Added, Deletion Has An Interesting Option

Near the end of the review period, we see Wipro as a high probability add. Bajaj Auto could be deleted as the lowest ranked constituent, but Nestle...

Brian Freitas

India: Capex- & Export-Led Rebound Likely to Receive Fiscal and Monetary Fillip Too

After likely real GDP growth of 15%YoY in Apr-Sep21, the fiscal coffers are full; this will allow oil excise duty cuts. With inflation below 5%,...

Prasenjit K. Basu

Shifting Exposure To Emerging Markets; Buying TSMC/Taiwan Semi, ICICI Bank, Many Others

We see early signs of positive change within EM, and we present a strong case as to why we believe now is an opportune time to add exposure.

Vermilion Research

Sensex Dec 2021 Index Rebalance Preview: Wipro Could Be IN, Pushing Bajaj Auto OUT

Half way through the review period for the Sensex, we expect Wipro replaces Bajaj Auto at the December rebalance. Both stocks trade cheaper than...

Brian Freitas

India: Exports Lead Industrial Rebound, While Fiscal Policy Remains Prudent

Jan-Jul21 exports up 47% YoY, with Jun-Jul 32% higher than 2019. Corp tax revenue is up 128%YoY & 75% above 2019, so fiscal deficit in Apr-Jun21...

Prasenjit K. Basu

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