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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<div>The S&amp;P BSE Sensex is the flagship index of the Bombay Stock Exchange (BSE). The index has 30 stocks and is a free float market cap weighted index. The next rebalance will be effective after the close of trading on 18 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.
<a href="https://www.smartkarma.com/entities/dr-reddy-s-laboratories-ltd" target="_blank" data-smartkarma-citation="entities:16406:1" rel="noopener">Dr. Reddy's Laboratories (DRRD IN)</a> continues to remain a high probability inclusion, and <a href="https://www.smartkarma.com/entities/oil-natural-gas-corp-ltd" target="_blank" data-smartkarma-citation="entities:3456:1" rel="noopener">Oil &amp; Natural Gas Corp (ONGC IN)</a> is the corresponding deletion candidate. There is a lower probability 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> being included in the Sensex, in which case <a href="https://www.smartkarma.com/entities/tata-steel-ltd" target="_blank" data-smartkarma-citation="entities:20934:1" rel="noopener">Tata Steel Ltd (TATA IN)</a> would be deleted.
Since we published our first Insight at the beginning of September, <a href="https://www.smartkarma.com/entities/dr-reddy-s-laboratories-ltd" target="_blank" data-smartkarma-citation="entities:16406:1" rel="noopener">Dr. Reddy's Laboratories (DRRD IN)</a> has outperformed <a href="https://www.smartkarma.com/entities/divi-s-laboratories-ltd" target="_blank" data-smartkarma-citation="entities:4871:1" rel="noopener">Divi'S Laboratories (DIVI IN)</a> by 20% and <a href="https://www.smartkarma.com/entities/torrent-pharmaceuticals-ltd" target="_blank" data-smartkarma-citation="entities:15762:1" rel="noopener">Torrent Pharmaceuticals (TRP IN)</a> by 24%. We would take off the positions and wait for a reversal before re-entering the trade.
The ratio of <a href="https://www.smartkarma.com/entities/oil-natural-gas-corp-ltd" target="_blank" data-smartkarma-citation="entities:3456:1" rel="noopener">Oil &amp; Natural Gas Corp (ONGC IN)</a> to <a href="https://www.smartkarma.com/entities/oil-india-ltd" target="_blank" data-smartkarma-citation="entities:20751:1" rel="noopener">Oil India Ltd (OINL IN)</a> is trading close to its lows providing an entry point into a long ONGC/ short Oil India trade.
This Insight is marked as bearish due to Dr Reddy's recent outperformance versus its peers that could revert in the near future.
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The S&amp;P BSE Sensex is the flagship index of the Bombay Stock Exchange (BSE). The index has 30 stocks and is a free float market cap weighted index. The next rebalance will be effective after the close of trading on 18 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.
Dr. Reddy's Laboratories (DRRD IN) continues to remain a high probability inclusion, and Oil &amp; Natural Gas Corp (ONGC IN) is the corresponding deletion candidate. There is a lower probability of Britannia Industries (BRIT IN) being included in the Sensex, in which case Tata Steel Ltd (TATA IN) would be deleted.
Since we published our first Insight at the beginning of September, Dr. Reddy's Laboratories (DRRD IN) has outperformed Divi'S Laboratories (DIVI IN) by 20% and Torrent Pharmaceuticals (TRP IN) by 24%. We would take off the positions and wait for a reversal before re-entering the trade.
The ratio of Oil &amp; Natural Gas Corp (ONGC IN) to Oil India Ltd (OINL IN) is trading close to its lows providing an entry point into a long ONGC/ short Oil India trade.
This Insight is marked as bearish due to Dr Reddy's recent outperformance versus its peers that could revert in the near future.


Sensex Index Rebalance Preview: Take Profit on Strong Outperformance

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Thematic (Sector/Industry)

The key takeaways, from the recent reporting season, was that 1) management teams seem more upbeat about growth going forward, driven by accelerated adoption of cloud services and investments in technology solutions, which they believe could drive a multiyear growth story, 2) the significant majority of deal momentum is driven by smaller engagements (apart from maybe Infosys), and 3) companies are reinstating salary increases given confidence on the growth outlook and significant margin recovery following steep discretionary cost cuts in reaction to the COVID-19 pandemic. The sector has significantly outperformed the local index over the past 3-months, delivering over 30% local currency share price return, on average. These companies are, however, currently trading at peak valuation multiples, based on sell-side estimates which, in most cases, are already well ahead of management guidance.Given the strong share price performance and peak valuation multiple levels, based on arguably elevated earnings, I am turning bearish on the sector despite the strong medium-term growth outlook. The numbers which are currently baked-in leave truly little room for disappointment at a time when we are going into a seasonally weaker quarter, impacted by employee furloughs and possible margin headwinds. These remain extremely high-quality companies which will benefit from accelerated technology investments in the wake of the COVID-19 pandemic, but I would wait for a better entry point.<div class="content-highlight">
 Please also see previous notes on the subject:
<a href="https://www.smartkarma.com/insights/smartkarma-webinar-indian-it-services-picks-and-pans" target="_blank" data-smartkarma-citation="insights:42241" rel="noopener">Smartkarma Webinar | Indian IT Services: Picks and Pans</a> 
<a href="https://www.smartkarma.com/insights/indian-it-services-covid-19-revenue-impact-troughed-recovery-already-priced-in" target="_blank" data-smartkarma-citation="insights:41387" rel="noopener">Indian IT Services: COVID-19 Revenue Impact Troughed, Recovery Already Priced In?</a> 
<a href="https://www.smartkarma.com/insights/wipro-net-cash-equal-to-24-of-its-market-cap-deep-value-or-a-value-trap" target="_blank" data-smartkarma-citation="insights:39663" rel="noopener">Wipro: Net Cash Equal to 24% of Its Market Cap, Deep Value or a Value Trap?</a> 
<a href="https://www.smartkarma.com/insights/tata-consultancy-services-premium-at-excessive-levels-pricing-in-overly-optimistic-relative-growth" target="_blank" data-smartkarma-citation="insights:38750" rel="noopener">Tata Consultancy Services: Premium at Excessive Levels, Pricing in Overly Optimistic Relative Growth</a> 
<a href="https://www.smartkarma.com/insights/hcl-technologies-doubts-over-organic-growth-eroding-returns-drives-undeserved-discount-rating" target="_blank" data-smartkarma-citation="insights:38545" rel="noopener">HCL Technologies: Doubts over Organic Growth, Eroding Returns, Drives Undeserved Discount Rating</a> 
</div>

The key takeaways, from the recent reporting season, was that 1) management teams seem more upbeat about growth going forward, driven by accelerated adoption of cloud services and investments in technology solutions, which they believe could drive a multiyear growth story, 2) the significant majority of deal momentum is driven by smaller engagements (apart from maybe Infosys), and 3) companies are reinstating salary increases given confidence on the growth outlook and significant margin recovery following steep discretionary cost cuts in reaction to the COVID-19 pandemic. The sector has significantly outperformed the local index over the past 3-months, delivering over 30% local currency share price return, on average. These companies are, however, currently trading at peak valuation multiples, based on sell-side estimates which, in most cases, are already well ahead of management guidance.Given the strong share price performance and peak valuation multiple levels, based on arguably elevated earnings, I am turning bearish on the sector despite the strong medium-term growth outlook. The numbers which are currently baked-in leave truly little room for disappointment at a time when we are going into a seasonally weaker quarter, impacted by employee furloughs and possible margin headwinds. These remain extremely high-quality companies which will benefit from accelerated technology investments in the wake of the COVID-19 pandemic, but I would wait for a better entry point.
 Please also see previous notes on the subject:
Smartkarma Webinar | Indian IT Services: Picks and Pans 
Indian IT Services: COVID-19 Revenue Impact Troughed, Recovery Already Priced In? 
Wipro: Net Cash Equal to 24% of Its Market Cap, Deep Value or a Value Trap? 
Tata Consultancy Services: Premium at Excessive Levels, Pricing in Overly Optimistic Relative Growth 
HCL Technologies: Doubts over Organic Growth, Eroding Returns, Drives Undeserved Discount Rating 


Indian IT Services: Valuation and Earnings Levels Suggest We Are Nearing the Point-Of-Peak-Optimism

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

On the 4th of October, <a href="https://www.smartkarma.com/entities/tata-consultancy-svcs-ltd" target="_blank" data-smartkarma-citation="entities:18708:1" rel="noopener">Tata Consultancy Svcs (TCS IN)</a> made an <a href="https://www.tcs.com/content/dam/tcs/pdf/discover-tcs/investor-relations/corporate-actions/2020-21/proposal-buyback-equity-shares-company-october-2020.pdf" target="_blank" rel="noopener">announcement</a> to the Exchange to the effect that its Board would on the 7th of October consider a buyback. 
On the 7th, the Board duly considered the buyback and afterwards announced that it had approved a proposal to buy back up to 53,333,333 shares (five crore thirty three lakh thirty three thousand three hundred and thirty three shares only) for an aggregative amount of INR 16,000 crore or INR 160 billion (US$2.18bn), which is 1.42% of shares out. 
It looks small, but there have been two previous buybacks which were worth looking at when they came around. They were 1.99% and 2.85% and were done at similar premia. The structure of these buybacks was different than the structure of the <a href="https://www.smartkarma.com/entities/wipro-ltd" target="_blank" data-smartkarma-citation="entities:15360:1" rel="noopener">Wipro Ltd (WPRO IN)</a> buybacks discussed in <a href="https://www.smartkarma.com/insights/how-indian-buyback-offers-work-the-wipro-example" target="_blank" data-smartkarma-citation="insights:44215" rel="noopener">How Indian Buyback Offers Work - The Wipro Example</a>. 
That first insight is worth a read to know how they work. 
This one is potentially a much more interesting event.

On the 4th of October, Tata Consultancy Svcs (TCS IN) made an announcement to the Exchange to the effect that its Board would on the 7th of October consider a buyback. 
On the 7th, the Board duly considered the buyback and afterwards announced that it had approved a proposal to buy back up to 53,333,333 shares (five crore thirty three lakh thirty three thousand three hundred and thirty three shares only) for an aggregative amount of INR 16,000 crore or INR 160 billion (US$2.18bn), which is 1.42% of shares out. 
It looks small, but there have been two previous buybacks which were worth looking at when they came around. They were 1.99% and 2.85% and were done at similar premia. The structure of these buybacks was different than the structure of the Wipro Ltd (WPRO IN) buybacks discussed in How Indian Buyback Offers Work - The Wipro Example. 
That first insight is worth a read to know how they work. 
This one is potentially a much more interesting event. 

Tata Consultancy Share Buyback Offer - The Numbers Are Interesting

On October 7th after the close, <a href="https://www.smartkarma.com/entities/wipro-ltd" target="_blank" data-smartkarma-citation="entities:15360:1" rel="noopener">Wipro Ltd (WPRO IN)</a> released an announcement to the Stock Exchanges saying that the Board would shortly <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/f50204d7-3fa7-4a21-9bb4-f4dc579dfbe0.pdf" target="_blank" rel="noopener">consider</a> a buyback proposal. The stock popped 7% the next day to nearly INR 360 from INR 335, then rose to near INR 380 on the 13th when the Board announced its decision to go ahead with the buyback. This would be the fourth buyback in five years. The stock has fallen back more than 10% from the recent high (which was, admittedly, up 50%ytd), on some disappointment on size and price of the buyback and the shares trade less than 2% higher than before the original announcement and on slight disappointment with Q2 earnings which were announced at the same time.  The buyback announced is to buy up to 237.5mm shares at INR 400/share, spending up to INR 95 billion or ~US$1.3bn. That is 4.16% of shares out. This is a bit smaller than last year's record US$1.7bn buyback and as always, promoter Mr. Azim Premji and almost all of this related shares are expected to participate. The somewhat limited size and Mr Premji's participation means this event must be treated with some delicacy but there are certainly some interesting angles to think about, and understanding the process and how it works in all buyback offers gives you a leg up for other buyback offers.Much more below the fold.

On October 7th after the close, Wipro Ltd (WPRO IN) released an announcement to the Stock Exchanges saying that the Board would shortly consider a buyback proposal. The stock popped 7% the next day to nearly INR 360 from INR 335, then rose to near INR 380 on the 13th when the Board announced its decision to go ahead with the buyback. This would be the fourth buyback in five years. The stock has fallen back more than 10% from the recent high (which was, admittedly, up 50%ytd), on some disappointment on size and price of the buyback and the shares trade less than 2% higher than before the original announcement and on slight disappointment with Q2 earnings which were announced at the same time.  The buyback announced is to buy up to 237.5mm shares at INR 400/share, spending up to INR 95 billion or ~US$1.3bn. That is 4.16% of shares out. This is a bit smaller than last year's record US$1.7bn buyback and as always, promoter Mr. Azim Premji and almost all of this related shares are expected to participate. The somewhat limited size and Mr Premji's participation means this event must be treated with some delicacy but there are certainly some interesting angles to think about, and understanding the process and how it works in all buyback offers gives you a leg up for other buyback offers.Much more below the fold.

How Indian Buyback Offers Work - The Wipro Example

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

MSCI Emerging Markets Index / Technical Analysis

The MSCI EM index (local currency) remains in an uptrend and is testing all-time highs set in January 2018 near 65,800; as long as the index is above 60,000 we are constructive from a price perspective.  China (CSI 300, MSCI China) continues to offer many attractive setups and accounts for the vast majority of today’s recommendations. Taiwan (TAIEX) continues to be worthy of an overweight within the EM universe, while South Korea (KOSPI) and India (SENSEX) display improving price and RS trends -- add exposure.

The MSCI EM index (local currency) remains in an uptrend and is testing all-time highs set in January 2018 near 65,800; as long as the index is above 60,000 we are constructive from a price perspective.  China (CSI 300, MSCI China) continues to offer many attractive setups and accounts for the vast majority of today’s recommendations. Taiwan (TAIEX) continues to be worthy of an overweight within the EM universe, while South Korea (KOSPI) and India (SENSEX) display improving price and RS trends -- add exposure.

India

Wipro Limited specializes in IT and computer related technologies. The Group's services encompass a number of areas, including software architecture, business intelligence systems, e-commerce, data warehousing, Internet access devices, network management, system administration, messaging systems, IT consulting and design. Wipro also has a presence in niche markets of consumer products.

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Wipro Ltd Adr (WIT US)

Sensex Index Rebalance Preview: Take Profit on Strong Outperformance

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Brian Freitas

Indian IT Services: Valuation and Earnings Levels Suggest We Are Nearing the Point-Of-Peak-Optimism

Given the strong share price performance and peak valuation multiple levels, based on arguably elevated earnings, I am turning bearish on the...

Wium Malan, CFA

How Indian Buyback Offers Work - The Wipro Example

Wipro is conducting another buyback - fourth in five years - this time for $1.3bn or 4.16% of shares out. Small arb opportunities (especially for...

Travis Lundy

Remain Overweight EM Relative To EAFE

The MSCI EM index (local currency) remains in an uptrend and is testing all-time highs set in January 2018 near 65,800; as long as the index is...

Vermilion Research

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Sensex Index Rebalance Preview: Take Profit on Strong Outperformance

With the review period for the Sensex almost complete, we still see DRRD as a high probability inclusion and ONGC as a deletion. With DRRD...

Brian Freitas

Indian IT Services: Valuation and Earnings Levels Suggest We Are Nearing the Point-Of-Peak-Optimism

Given the strong share price performance and peak valuation multiple levels, based on arguably elevated earnings, I am turning bearish on the...

Wium Malan, CFA

Tata Consultancy Share Buyback Offer - The Numbers Are Interesting

The TCS buyback offer is interesting in a way that the Wipro buyback is not. There are many more good trades to do around this situation.

Travis Lundy

How Indian Buyback Offers Work - The Wipro Example

Wipro is conducting another buyback - fourth in five years - this time for $1.3bn or 4.16% of shares out. Small arb opportunities (especially for...

Travis Lundy

Remain Overweight EM Relative To EAFE

The MSCI EM index (local currency) remains in an uptrend and is testing all-time highs set in January 2018 near 65,800; as long as the index is...

Vermilion Research