INSTITUTIONAL EQUITY RESEARCH PhillipCapital Market ...

INSTITUTIONAL EQUITY RESEARCH

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PhillipCapital – Market Intelligence Structural positives emerging in times of stretched valuations

INDIA | STRATEGY | Monthly Update

10 August 2017

Market commentary – macro support: The Nifty moved up 4% in one month, amid concerns of GST implementation, driven by liquidity and solid earnings from key large caps (Reliance Industries, HDFC Bank, Hindustan Unilever) and strong performance from commodity plays. While valuations concerns are increasing as the Nifty trades at 19x FY18 consensus earnings, visibility of an earnings revival is also improving. Also, structural positives – of long-term benefits of GST implementation and a stable lower interest-rate scenario translating into lower cost of funds – are becoming more evident. Rate cut by 25bps, but there is room for more: While the Reserve Bank of India (RBI) has cut repo rate by 25bps, we believe that there is room for a further rate cut. In fact, one MPC member voted for a 50bps cut. However, RBI’s policy stance continues to remain neutral and the benign inflation base ahead is likely to hinder rate cuts. GST advantage for larger companies playing out: The FMCG companies results and their commentary indicates that larger companies were well prepared for GST implementation. Most companies have passed on GST benefits to customers but the shrinking of wholesale channel has become a concern. Automobile companies have cut prices because of the initial benefits of a non-cascading tax structure. Similarly, FMCG companies in

categories like toothpaste, soaps, and hair oils have reacted proactively in passing on benefits. HUL has clearly stated that it would pass on the advantages arising from input-tax credits to its consumers. ITC initially saw windfall benefits of lower taxation, but these were rescinded when the government introduced higher cess on cigarettes. After this, the stock fell considerably, but consistent price hikes will lead to a recovery. Focus on unloved and mispriced stocks: The current market conditions indicate that risk appetite has increased, which means unloved and mispriced stocks (that have the potential to turnaround with time) are likely to see increased allocation. In keeping with this theme, we present five key ideas that fit – Bajaj Electricals, Divis Labs, Indo Count Industries, Shriram Transport Finance, and Castrol India. Sector strategy and top ideas: We recommend being overweight on metals, telecom, financials, infrastructure and cement. We are underweight on IT and pharmaceuticals, and equal weight on Consumer, capital goods and oil and gas. Our top ideas are: ICICI Bank, Tata Steel, Reliance Industries, ITC, Bharti Airtel, Idea, BEL, ZEEL, NCC, and India Cements.

Naveen Kulkarni, CFA, FRM (+91 22 6246 4122) [email protected]

mailto:[email protected]


MARKET INTELLIGENCE MONTHLY UPDATE

INDEX

Sector strategy and top picks

Unloved and mispriced plays ................................................................................................................ 5-6

PC top stock ideas ................................................................................................................................. 7-10

Market performance and valuations

Global indices performance ................................................................................................................. 11

NIFTY valuations .................................................................................................................................. 12

Global valuations ................................................................................................................................. 13

Sector performance ............................................................................................................................. 14-15

Sector valuations ................................................................................................................................. 16-17

BSE200 top gainers & losers ................................................................................................................ 18-19

Styles performance .............................................................................................................................. 20

Styles valuations .................................................................................................................................. 21

FII and DII analysis

Flows update ........................................................................................................................................ 23

Macro and market indicators

Macro indicators – global .................................................................................................................... 25

Macro indicators – India ...................................................................................................................... 26

Market indicators ................................................................................................................................ 27

Commodities tracker ............................................................................................................................ 28

Model portfolio .................................................................................................................................... 29



PHILLIPCAPITAL – MARKET INTELLEGENCE

Sector Strategy & Top Picks



Unloved and mispriced plays

Bajaj Electricals: TOC and RREP are coming into play – rerating soon BJE IN| RATING: BUY | CMP: Rs 327| TARGET: Rs 440| UPSIDE: 35%

Bajaj is one of the oldest brands in consumer durables with a pan-India presence. It is a market leader in products such as irons, water heaters, mixers, and juicers.

It implemented TOC (Theory of Constraints) and RREP (Range and Reach Expansion Program) about two years ago, which started yielding results. The schemes covered more than 50% of the targeted market by 1QFY18 and it expects to complete them by FY18.

Increasing touch points and product mix under RREP has resulted in improving revenue visibility and margin improvement for its consumer durable (CD) business.

In E&P, it became more selective about projects, and increased execution. It also improved margins and reduced WC through lower inventory (order book at Rs 33.8bn).

Tight control on working capital and channel financing under TOC is resulting in lower working capital needs. We expect its WC days to fall to 48 by FY19 from 80 in FY15, which will lead to FCF of Rs 6.5bn over FY17‐19 – its highest in the last seven years.

We expect the valuation gap between BJE and its peers to narrow as: (1) BJE focuses on leveraging its distribution network through geographical and product expansion, and (2) its working capital could improve because of TOC and as BJE adopts channel financing, resulting in higher FCF and improving return ratios.

At CMP, the stock trades at an FY19 PE of 15x. We assign BJE’s CD segment with a PE of 26x (on FY19 CD-EPS) and EV/EBITDA of 7x to its E&P business to arrive at a per share value of Rs 440 (Rs 310 + Rs 130).

Divis Laboratories: Expects rerating followed by earnings upgrade soon DIVI IN | RATING: BUY | CMP: Rs 668| TARGET: Rs 770+| UPSIDE: 15%+

Leading Indian CRAMS player and an established partner of choice for many leading global innovators.

Robust chemistry skill set in scaling up (from labs to commercial supply) of products at an optimal cost remains its key strength.

USFDA recently lifted the clause 99-32 of its import alert, which is a clear indication about progress on plant clearance soon.

Remediation expenses seem much lower than our expectations of US$ 30mn (equally over FY18-19) as it does not expect any major changes in plant/equipment. This will lead to an earning upgrade soon..

Capex worth Rs 4bn (including Rs 1.5bn for brown field expansion in an FDA-approved site and Rs 2.5bn for a greenfield plant) with planned commercialisation in FY19 provides visibility for growth.

Strong outlook on global pharmaceutical outsourcing over the next decade will help DIVI to maintain stable growth momentum.

Trading at 16x FY19 earnings, DIVI is a lucrative play on a visible earning upgrade and subsequent rerating.

Shriram Transport Finance: Strong franchise at bottom-cycle valuations SHTF IN | RATING: BUY | CMP: Rs 1018| TARGET: Rs 1300| UPSIDE: 28%

Leading NBFC engaged in financing of commercial vehicles.

With 75% customers in the agri segment, buoyancy in the rural economy augurs well for SHTF. Moreover, as logistics fall into place (disrupted due to GST), utilisation levels will improve by September, driving further improvement in business.

GST has resulted in 25-30% savings on trip durations for truckers, driving significant improvement in productivity – positive from an asset-quality point of view. Asset quality has stabilised and is likely to



show consistent improvement over FY18/19. Expect GNPA ratio to moderate to 6.3% in FY19 (on 90dpd) from 8.2% (on 120dpd) currently.

Expect AUM growth to pick up from 9% currently, and reach 18% by FY19, aided by high government infra spending and good monsoon.

Merger with IDFC is not likely to have negative implications from the share-price point of view. For a merger with IDFC, 74% of all shareholders need to approve the deal. Promoter entities – Shriram Capital, Piramal, and Sanlam – together hold about 40%, which means the rest (34% approval) will be required from the minority. Considering it is at bottom-cycle valuations and that there is very little benefit for SHTF in the merger, minority shareholders are unlikely to approve the merger unless the swap ratio is significantly in their favour.

At CMP, the stock trades at attractive valuations of 1.5x FY19 BV, which is its bottom-cycle valuation and is at a 50% discount to peer companies’ valuations. With growth accelerating over FY18-19, the discount should narrow significantly. Earnings should see a CAGR of 31% over FY17-19, driving a 63bps improvement in RoA to 2.4% by FY19.

Indo Count Industries: Great transformation ICNT IN | RATING: BUY | CMP: Rs 142| TARGET: Rs 255| UPSIDE: 75%

Indo Count has evolved – from a pure cotton‐yarn spinning company to home textiles. Moving up the value chain, it is evolving towards specialised products and creating brands

Third‐largest global supplier of bed linen to the USA. Capitalising on India’s strong advantage in raw material and labour.

Proven virtuousness: Turned around to profitability, exited non‐core businesses. Expanding capacity and premium products to drive 13%/12% earnings/revenue CAGR over FY17‐19

Lean business mode. Asset turnover ratio twice the industry’s with RoCE of 25%+. Balance sheet has been improving, annual cash generation of Rs 3bn+

Short-term impact on stock due to currency appreciation (90% exports) and weakness in volume.

Available at 10x FY18 earnings of Rs 14 – should easily trade at 15x FY19. We believe India has a structural advantage in cotton and that Indocount can create significant value ahead.

Castrol India: Bad macros diminishing CSTRL IN | RATING: BUY | CMP: Rs 393| TARGET: Rs 500| UPSIDE: 27%

Castrol's stock witnessed pressure due to macroeconomic events like demonetisation followed by GST implementation, affecting volumes.

With these events over, we expect a recovery from September.

Being a semi-necessity, any postponement in primary and secondary sales (demand) will have to materialise over time.

Margin scenario remains steady with timely retail price hikes, range bound oil prices, and a stronger rupee – aided structurally by premiumisation.

Though the near term could be lumpy, as GST impact normalises in 1-2 months, we estimate a 3-4% volume and 5-6% margin CAGR during CY16-18.

The stock trades at 24x CY18 EPS of Rs 16.7, which is much lower than its historical valuation of 30x+. We set a target of Rs 500 (27% upside).



PC: Top stock ideas

METALS & MINING - Overweight Tata Steel: Strong core performance; pension resolution in focus TATA IN | RATING: Buy | CMP: Rs 605 | TARGET: Rs 770 | UPSIDE: 27%

China capacity cuts to drive steel pricing: China has shutdown around 240mn tonnes of steel capacity over the past two years, which has started driving steel prices globally. This has also driven steel spreads for various steel producers. Tata Steel is expected to benefit from the recent surge in China steel prices with India prices likely to move up with a lag. Anti-dumping duties in India protect the company’s realisations on the downside, in the event of a sharp fall in the Chinese prices.

Kalinganagar ramp up to drive volumes, bring more efficiency: Ramp up in volumes from Kalinganagar will not only drive profitability, but are also likely to improve blended margins. FY17 margins were impacted due to initial ramp-up costs, which are not likely to recur in FY18, thereby boosting profitability. Increased Kalinganagar output will help Tata Steel ramp up volumes to 12.3/12.7mn tonnes in FY18/19 from 11mn tonnes in FY17.

Europe – spread expansion, annual contract re-pricing, and anti-dumping duties will improve profitability: Sharp jump in gross steel spreads and sale of its long steel business saw Tata Steel report a sharp improvement in profitability in FY17. EBIDTA/tonne improved to US$ 71 in FY17 from negative US$ 7 in FY16. Annual contract repricing (~35% of shipments) has helped the profitability surge from Q4FY17 onwards. The company will also benefit from anti-dumping duties levied on imports from China and proposed duties on four other countries – this will help it to improve its volumes, in addition to pricing benefits.

Europe business restructuring: More sooner than later - Tata Steel’s long-awaited plan of merging its European operations with

ThyssenKrupp is likely to conclude sooner than later, after more than a year of waiting. With the BSPS issue resolved, we expect the merger to be announced in FY18. The merger will not only help both companies earn sizeable synergy benefits, but will also see a large quantum of debt moving out of the balance sheet. Stock price will depend on the terms of the merger, but should be a directional positive.

India Cements: Improved efficiencies and realigned management focus on core business will drive rerating – Maintain Buy ICEM IN| BUY| CMP: Rs 190 | TARGET: Rs 290 | UPSIDE: 52%

Amongst the most undervalued stock, trading at ~US$ 75/tonne. Improved its cost efficiency structurally by ~Rs 100-150/tonne, bridging a gap with peers (worked on parameters such as power and fuel cost over the past 12-18 months).

Has consistently sacrificed volume growth over the past 4-5 fiscals (0-4% volume growth) to establish price stability – which has worked well. Now we see volumes in South India reviving (especially Karnataka, Telangana, and AP). Therefore, its volume growth could be much higher than the industry. Increased penetration into eastern and central markets will also help. ICEM’s target is to deliver 10% yoy volume growth in FY18. We estimate 5-6% volume growth long-term.

Focused on branding (recall, positioning, and premium). Evaluating newer product categories – such as white cement and wall putty – to ensure that its product offering remains wide and that its distribution network remains intact in the long run (as distributors / dealers will have more products at their counters). We see strong commitment for developing its special cement product portfolio (sleeper grade cement, oil-well cement) and exports.

Aims to become a pure cement company over the next 12-18 months by exiting all non-core businesses.



Debt reduction remains a key objectives; the company is not inclined towards capex where payback periods are long. Capex spends, if any are likely to be very judicious.

One of the key long term rerating trigger will also be the scope of its brownfields expansions. ICEM said that it has 2.4bn tonnes of limestone reserves and therefore it has the capability of brownfield expansions across all locations. However, we expect capex announcements to remain muted, so its net debt could fall substantially over the next 2-3 years (possibly by Rs 10bn).

At target (Rs 290) the stock will trade at US$100/tonne, which is nearly 20% discount to replacement. It is in a transition phase in terms of valuation – we will see rerating driven by the consistency of its operational performance and debt reduction. Its unique investment proposition remains its inexpensive valuations vs. peers. Fast-track divestment of non-core business lines and improvement in operating numbers will be key rerating triggers.

MEDIA - Overweight Zee Entertainment – Industry leading ad-revenue growth to continue Z IN | RATING: BUY| CMP: Rs 542 | TARGET: Rs 610 | UPSIDE: 13%

Ad revenue growth to revive from H2FY18, due to normalisation of trade channels in FMCG sector and improved market share in Hindi GEC genre.

New programming launches will prop-up its viewership share in the medium term in the Hindi GEC genre and also in Tamil Nadu market.

Digitisation of phase-3 and 4 markets to help achieve 15-16% subscription revenue CAGR in FY17-20.

Zee might use proceeds from the sale of its sports business for redeeming its preference shares in advance.

Zee, with its network strength and robust balance sheet, is well placed to benefit from digitisation of phase 3/4 markets and deliver 20% EPS CAGR over FY17-19.

Consumer- Equal weight ITC: Room for price hikes ahead ITC IN | RATING: BUY | CMP: Rs 272 | TARGET: Rs 345 | UPSIDE: 27%

Post the levy of additional cess on cigarettes after the implementation of GST, ITC has corrected by 18% as it has led to consensus earnings reduction and cut in target multiple. We believe the stock price correction is overdone and the market is ignoring the superior pricing power of the category.

ITC has judiciously managed its product portfolio by increasing the contribution of 64mm which now accounts for almost 35% of the portfolio. This provides a lot of room for the company to take price hikes as it has lowered the pricing table significantly and managed the inflation headwinds arising out of regulatory challenges. ITC can surprise positively on price hikes going ahead.

Its FMCG portfolio has started delivering and revenue growth has been consistent. GST provides further tailwinds to the portfolio.

ITC is trading at 25x FY19E earnings which is life time high discount of 40% to the FMCG sector. We believe the discount is not sustainable and ITC valuations are likely to pick up with consistent earnings growth and price hikes.

TELECOM - Overweight Bharti Airtel – Beneficiary of industry consolidation BHARTI IN | RATING: BUY | CMP: Rs 413 | TARGET: Rs 480 | UPSIDE: 16%

Bharti Airtel is a key beneficiary of consolidation in the telecom industry, as it will lead to improvement in return ratios and pricing in the long term.

Medium term will remain challenging because of the onslaught of Jio, but Bharti has executed well and will be able to defend its turf. Jio will start charging customers and its tariff plans indicate an ARPU not much



lower than Bharti’s current ARPU. While realisations will decline in the medium term, ARPU decline will be much slower.

In the long term, the telecom market will be supply constrained, which will provide significant pricing support. Bharti, with dominant market position and strong spectrum footprint, will see sharp EBIDTA growth.

Bharti currently trades at 8x FY18 EV/EBIDTA. As its India business is still undervalued at 6.5x EV/EBIDTA, the scope for further rerating is immense considering that Idea trades at 9x FY18 EV/EBIDTA.

Idea Cellular: Biggest Indian Telco in the making IDEA IN | RATING: BUY | CMP: Rs 92 | TARGET: Rs 130| UPSIDE: 41%

Idea Cellular and Vodafone merger is on fast track and it has managed to secure approvals of Competition Commission of India and SEBI in quick time. The merger is likely to be consummated soon (likely to beat expectations of taking 12-18 months). After the merger, Idea Vodafone combined will be the biggest telecom company in India on revenue market share terms.

The combined entity has synergistic benefits valued at more than US$ 10bn – significant considering the implied EV of the combined entity at the current market price is US$ 27bn. As visibility on synergy benefits increases, equity valuation will rise towards the fair value of the firm.

The tariff cycle is bottoming out and with increased value, the industry should start growing by H2FY18. Industry growth combined with consolidation benefits will mean that valuations are likely to sustain and earnings upgrades will follow.

Current valuations (9.2x/8.4x FY18/19 EV/EBITDA) do not reflect the business strengths of individual companies and are not capturing the synergy benefits that will come after the merger. We value the company on DCF with a target of Rs 130, only taking into consideration 25% of the synergy benefits.

ICICI Bank: Elevated stress to keep credit cost high – Maintain Buy ICICIBC IN | BUY| CMP: Rs 291 | TARGET: Rs 400 | UPSIDE: 37%

Corporate slippage will remain high but lower than FY17. However, resolution of some of the stressed exposure will provide cushion to asset-quality shocks.

Complete re-pricing of the floating-rate loan book to MCLR will impact NIM in FY18 by ~20bps.

Stable operating profit along with one-off gain from stake sale in general insurance business will provide a buffer to create provision for stressed assets.

Near-term challenge on credit cost will remain, but the bank is almost at the end of its NPA cycle, which will ease pressure on provision in FY19.

We expect earnings growth of 21%/+27% in FY18/19 translating into RoA to 1.04%/1.20%. At CMP, the bank trades at 1.5x FY19 core adjusted BVPS of Rs 130 (net of investment in subsidiaries and valuing subsidiaries at Rs 108 per share). Based on inexpensive valuation and a visible turnaround in the NPA cycle, we have Buy with price target of Rs 400, valuing the company at 2.25x our FY19 core adjusted BV.

INFRASTRUCTURE - Overweight NCC – All set to capture the huge infra opportunity NJCC IN | RATING: BUY | CMP: Rs 85 | TARGET: Rs 110 | UPSIDE: 29%

Second-largest player in the EPC space (after L&T) – remarkable balance sheet transformation over the last two years.

Strong diversified orderbook of Rs 220bn – 2.7x book-to-sales.

Having achieved ~80% of its annual order inflow target in first five months of FY18, the company has pacified the biggest concern with the stock – orderbook growth.

Expected to be the biggest beneficiary of the surge in order awards in buildings, roads, and metros. Huge opportunity in building segment, to be driven by govt impetus on ‘Housing for All’ under the PMAY



(Pradhan Mantri Awas Yojna) scheme – buildings has been the core domain for NCC, forming 455 of the orderbook.

The company is also gradually expanding its wings in the metro segment, with the recent order awards of Rs 10bn in Mumbai and Pune (it is now executing metro projects in five cities).

All along, the interest reduction story remains intact, and we expect that to further reduce by 10% (by Rs 413mn yoy) in FY18, after 22%/11% reduction in FY17/16 – due to recent revision in credit rating (from BBB+ to A-).

Monetisation of real estate and BOT projects to provide further cash and lower leverage.

Trading at FY19 P/E of 12x – discount to peers – we expect it to rerate to the sector average with a pickup in order inflow and reduction in interest expense.

CAPITAL GOODS – Equal Weight Bharat Electronics: High visibility on orders + robust FCF = premium valuations BHE IN | RATING: BUY | CMP: Rs 172 | TARGET: Rs 220 | UPSIDE: +28%

Our buy thesis on BEL is based on: o We expect Rs 687bn (US$ 11bn) of order opportunities over FY18-

20, mostly on nomination, with limited private-sector competition. o However, we conservatively build in Rs 500bn (US$ 7.5bn) orders

for FY18-20, to factor in delay due to election (in FY20) and paucity of funds, which still implies a strong 30% growth over Rs 385mn orders won in FY15-17.

o Expect revenue growth to accelerate to 13% CAGR (vs. 6% over FY11-16) driven by pick up in execution of large projects won in FY16-17.

o Consequently, we see 15% CAGR in earnings over FY18-20 and 3x increase in FCF (ex-customer advances).

Our target multiple, 25x FY20 earnings, is at a premium to its long-term two-year-forward average of 10x and +1SD of 16x.

BHE’s valuation has a 0.8x correlation to order inflows, which we expect to surprise on the upside. This, coupled with growth in FCF, should help support premium valuations.

OIL & GAS – Equal weight Reliance Industries – Another strong quarter; Jio feature phone unveiled RIL IN | RATING: BUY | CMP: Rs 1,585 | TARGET: Rs 1,750 | UPSIDE: 10%

Consolidated adjusted PAT was above our estimate on better GRM and petchem margins and lower depreciation. EBITDA was also higher.

GRM rose to US$ 11.9/bbl qoq from US$ 11.5/bbl on FCCU restart, shrinking Brent‐Dubai differential, and spread hedging. Unit opex was also up 6% qoq at US$ 2.9/bbl.

Petchem volumes rose 4% qoq due to commissioning of PX expansion. Margins grew 7% qoq despite rupee appreciation on robust PP deltas (up 68% qoq on lower feed prices).

Consolidated net debt + suppliers’ credit went up 10% qoq to Rs 2tn. RIL incurred Rs 252bn in capex in Q1 of which Rs 210bn was on Jio (Rs 2tn Jio cumulative capex as of Q1 end).

Jio feature phone will be launched in August at zero cost with a Rs 1,500 three-year refundable deposit. Base monthly plan of Rs 153. RIL is targeting 50% of this 530mn phone market.

We raise our GRM and petchem margin estimates slightly due to which we increase our FY19 EPS by 5%. We also raise target EV/EBITDA multiple for refining/petchem due to resilient performance and strong outlook. Maintain Buy with a revised TP of Rs 1,750.



PHILLIPCAPITAL – MARKET INTELLIGENCE

Market Performance & Valuations



Global Indices Performance NIFTY gained 4% mom with a busy Q1FY18 earnings season, further rupee strengthening, and positive government action of implementation of GST.

NIFTY gained about 23% YTD, in line with broader EM and Asian ex-Japan performance

Source: Bloomberg, PhillipCapital India Research, Prices as of July 31, 2017

8.5% 6.5% 6.5%

5.5% 4.4%

3.8% 2.7%

2.2% 2.0%

1.8% 1.7%

0.8% 0.4%

0.2% -0.1%

-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

Hong Kong Hang Seng China ENT INDX

MSCI EM Asia ex Japan

India Nifty US (NASDAQ)

MSCI World Singapore

US (SPX) CSI 300 Taiwan

STOXX50 Korea

Australia Japan

1m % performance

11.7% 10.7%

8.3% 8.1% 8.1%

6.9% 6.1%

5.7% 4.2%

4.0% 3.4%

2.2% 0.8%

-1.7% -3.8%

-6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

CSI 300 Hong Kong

Asia ex Japan Hang Seng China ENT INDX

MSCI EM India Nifty

Taiwan Korea

US (NASDAQ) MSCI World

US (SPX) Singapore

Japan Australia STOXX50

3m % performance

25.9% 24.7% 24.6%

22.9% 18.6%

18.4% 17.7%

15.3% 14.3%

12.6% 12.6%

10.8% 6.5%

4.9% 1.9%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Hong Kong MSCI EM

Asia ex Japan India Nifty

US (NASDAQ) Korea

Hang Seng China ENT INDX Singapore

Taiwan MSCI World

CSI 300 US (SPX)

STOXX50 Japan

Australia

YTD % performance

23.1% 22.5%

20.5% 20.1%

19.4% 19.2%

18.1% 17.5%

15.7% 15.6% 15.5%

15.2% 14.6%

13.8% 4.3%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Hong Kong US (NASDAQ)

Japan MSCI EM

Asia ex Japan Hang Seng China ENT INDX

Korea STOXX50

Singapore Taiwan

India Nifty CSI 300

MSCI World US (SPX) Australia

1 yr % performance



NIFTY Valuations Nifty one-year forward PE of 18x implies yoy growth of 20% in CY18 indicating earnings risks to valuations.

Nifty vs. other regions Nifty consensus FY18 earnings expectations have gone up 3% in a month Country/Region ____Earnings Growth (%)____ ____________P/E____________ CY 2016 CY 2017 CY 2018 CY 2016 CY 2017 CY 2018

S&P 500 1% 10% 11% 18.9 19.0 17.0 India 1% 13% 22% 18.1 19.6 16.0 Japan -1% 16% 8% 19.0 17.2 15.9 France 3% 8% 9% 15.5 15.4 14.1 Shanghai -10% 6% 12% 14.6 14.6 12.9 MSCI Asia ex Japan -9% 25% 11% 13.8 14.2 12.7 Germany -1% 12% 7% 14.2 13.5 12.6 Hong Kong -10% 16% 9% 12.1 13.2 12.1 MSCI EM -2% 25% 12% 13.5 13.4 11.9 Brazil 17% 31% 13% 15.1 12.9 11.4 South Korea 15% 33% 9% 11.4 10.2 9.3 Russia 17% 0% 13% 7.7 6.7 6.0

Nifty one-year forward PE Nifty one-year forward PB


300

400

500

600

700

Apr/11 Apr/12 Apr/13 Apr/14 Apr/15 Apr/16 Apr/17

FY12E FY13E FY14E FY15E FY16E FY17E FY18E

Avg + 1SD

10-yr Avg

Avg -1SD

5

7

9

11

13

15

17

19

21

Jun/07 Jun/08 Jun/09 Jun/10 Jun/11 Jun/12 Jun/13 Jun/14 Jun/15 Jun/16 Jun/17

1-yr Fwd Nifty PE

Avg + 1SD

10-yr Avg

Avg -1SD

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Aug/07 Aug/08 Aug/09 Aug/10 Aug/11 Aug/12 Aug/13 Aug/14 Aug/15 Aug/16

1-yr Fwd Nifty PB



Global Valuations US S&P 500 trading at a significant premium to its long-run average, while MSCI AEJ valuations look attractive

US S&P 500: One-year forward PE Emerging markets: One-year forward PE

MSCI Asia ex Japan: One-year forward PE trends Developed markets: One-year forward PE


Mean

Mean + 1SD

Mean -1SD

8

9

10

11

12

13

14

15

16

17

18

Jul/07 Jul/08 Jul/09 Jul/10 Jul/11 Jul/12 Jul/13 Jul/14 Jul/15 Jul/16 Jul/17

SPX 1-yr fwd PE

Mean

Mean + 1SD

Mean -1SD

5

7

9

11

13

15

17


MSCI EM 1-y fwd PE

Mean

Mean + 1SD

Mean -1SD

8

9

10

11

12

13

14

15

16

17

18


MSCI Asia ex Japan 1-y fwd PE

Mean

Mean + 1SD

Mean -1SD

7

8

9

10

11

12

13

14

15

16

17


MXWO Index 1-y fwd PE



Sector Performance Nifty’s gained 4% mom in July as energy, banks and commodities delivered


11.3%

10.4%

8.4%

8.2%

6.7%

6.5%

6.5%

6.0%

5.8%

5.6%

5.1%

4.4%

4.2%

4.2%

3.5%

2.9%

1.7%

-3.8%

-6.4%

-10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

NIFTY ENERGY

NIFTY PSU BANK

NIFTY METAL

NIFTY COMMODITIES

NIFTY BANK

NIFTY SERV SECTOR

NIFTY NEXT 50

NIFTY MNC

NIFTY INFRA

NIFTY REALTY

NIFTY IT

Nifty

NIFTY AUTO

NIFTY500

NIFTY Midcap 50

NIFTY Midcap 100

NIFTY MEDIA

NIFTY PHARMA

NIFTY FMCG

1m % sector price performance

15.2%

12.8%

9.5%

9.1%

8.3%

8.0%

6.9%

6.9%

6.7%

6.5%

6.3%

5.8%

4.5%

3.6%

2.2%

1.2%

-1.5%

-3.0%

-8.7%

-25.0% -15.0% -5.0% 5.0% 15.0% 25.0%

NIFTY METAL

NIFTY MNC

NIFTY ENERGY

NIFTY BANK

NIFTY AUTO

NIFTY SERV SECTOR

Nifty

NIFTY FMCG

NIFTY REALTY

NIFTY COMMODITIES

NIFTY NEXT 50

NIFTY500

NIFTY IT

NIFTY INFRA

NIFTY Midcap 50

NIFTY Midcap 100

NIFTY PSU BANK

NIFTY MEDIA

NIFTY PHARMA

3m % sector price performance



Sector Performance Top YTD leaders: Realty (+72%), metals (+26%), and banks (+37%). Notable yoy gains by PSU banks (+26%) on expectations of NPA resolution


72.3%

37.0%

35.7%

33.2%

31.0%

29.4%

29.2%

27.2%

26.1%

26.0%

25.9%

25.0%

23.4%

22.9%

22.6%

22.1%

17.8%

2.7%

-10.1%

-25.0% -5.0% 15.0% 35.0% 55.0% 75.0% 95.0%

NIFTY REALTY

NIFTY BANK

NIFTY MNC

NIFTY NEXT 50

NIFTY Midcap 50

NIFTY Midcap 100

NIFTY ENERGY

NIFTY SERV SECTOR

NIFTY500

NIFTY METAL

NIFTY INFRA

NIFTY COMMODITIES

NIFTY FMCG

Nifty

NIFTY PSU BANK

NIFTY AUTO

NIFTY MEDIA

NIFTY IT

NIFTY PHARMA

YTD % sector price performance

39.6%

33.4%

32.0%

31.5%

28.9%

26.4%

25.9%

25.5%

25.2%

24.5%

19.8%

19.0%

16.8%

15.5%

15.4%

13.9%

8.4%

-4.6%

-21.1%

-25.0% -15.0% -5.0% 5.0% 15.0% 25.0% 35.0% 45.0%

NIFTY ENERGY

NIFTY REALTY

NIFTY METAL

NIFTY BANK

NIFTY Midcap 50

NIFTY MNC

NIFTY PSU BANK

NIFTY COMMODITIES

NIFTY NEXT 50

NIFTY Midcap 100

NIFTY SERV SECTOR

NIFTY500

NIFTY INFRA

Nifty

NIFTY FMCG

NIFTY AUTO

NIFTY MEDIA

NIFTY IT

NIFTY PHARMA

1yr % sector price performance



Sector Valuations Most sectors are trading above their peak historic one-year forward PE multiples. Pharma and IT valuations are depressed due to pricing pressures


LPA

+ 1SD

-1SD

6

8

10

12

14

16

18

Nov/11 Nov/12 Nov/13 Nov/14 Nov/15 Nov/16

Autos 1-yr fwd PE

LPA

+ 1SD

-1SD

10

15

20

25

30

35 FMCG 1-y fwd PE

LPA

+ 1SD

-1SD

5

7

9

11

13

15

17

19

21 Banks 1-y fwd PE

LPA

+ 1SD

-1SD

5

7

9

11

13

15

17

19

21

23

25 IT 1-y fwd PE

LPA

+ 1SD

-1SD

5

10

15

20

25

30 Pharma 1-y fwd PE

LPA

+ 1SD

-1SD

0

2

4

6

8

10

12

14

16 PSU Banks 1-y fwd PE



Sector Valuations Commodities seem to be turning the corner again with announcements of capacity shutdowns in China.

Source: Bloomberg, PhillipCapital India Research, Prices as of July 31, 2017.

LPA

+ 1SD

-1SD

0

5

10

15

20

25

Feb/11 Feb/12 Feb/13 Feb/14 Feb/15 Feb/16 Feb/17

Realty 1-y fwd PE

LPA

+ 1SD

-1SD

4

6

8

10

12

14

16

18

20


Metals 1-y fwd PE

LPA

+ 1SD

-1SD

5

7

9

11

13

15

17

19

21

23 Infra 1-y fwd PE

LPA

+ 1SD

-1SD

5

10

15

20

25

30

35

40


Media 1-y fwd PE

LPA

+ 1SD

-1SD

6

7

8

9

10

11

12

13

14

15 Energy 1-y fwd PE

LPA

+ 1SD

-1SD

5

7

9

11

13

15

17

19

21

23

25 Service Sector 1-y fwd PE



BSE200: Top gainers and losers

BSE200: Top gainers and losers this month

Top Gainers Last Price % 1m Chg Top Losers Last Price % 1m Chg

Hindustan Petroleum Corp Ltd 458.1 37.3 Housing Development & Infrastructure Ltd 69.4 -18.7

Bajaj Finserv Ltd 5444.1 32.4 Dr Reddy's Laboratories Ltd 2210.3 -18.3

Bajaj Finance Ltd 1794.5 28.8 ITC Ltd 280.0 -16.2

Sun Pharma Advanced Research Co Ltd 383.1 26.1 Blue Dart Express Ltd 4155.7 -14.0

Bajaj Holdings & Investment Ltd 2546.5 19.9 Ajanta Pharma Ltd 1338.4 -13.6

Yes Bank Ltd 1801.2 19.8 Shriram City Union Finance Ltd 2154.6 -13.4

Bharat Petroleum Corp Ltd 527.5 19.2 Lupin Ltd 984.5 -11.8

L&T Finance Holdings Ltd 176.3 18.8 Supreme Industries Ltd 1089.1 -11.3

Reliance Capital Ltd 779.7 18.0 IDFC Bank Ltd 57.7 -11.0

Mahindra & Mahindra Financial Services Ltd 424.3 17.8 Mindtree Ltd 483.5 -10.3

BSE200: Top gainers and losers over the last three months

Top Gainers Last Price % 3m Chg Top Losers Last Price % 3m Chg

Bajaj Finance Ltd 1794.5 40.9 IDBI Bank Ltd 57.2 -26.9

Tata Steel Ltd 600.0 38.6 Reliance Communications Ltd 23.9 -23.6

United Spirits Ltd 2573.0 35.7 Union Bank of India 146.2 -21.8

Ashok Leyland Ltd 111.3 33.8 Lupin Ltd 984.5 -21.3

Jindal Steel & Power Ltd 143.4 32.5 Central Bank of India 87.0 -21.2

L&T Finance Holdings Ltd 176.3 32.5 Dish TV India Ltd 77.2 -19.8

Vakrangee Ltd 461.6 32.2 Sun Pharmaceutical Industries Ltd 506.0 -19.8

Hindustan Petroleum Corp Ltd 458.1 30.8 Housing Development & Infrastructure Ltd 69.4 -19.7

Mahindra & Mahindra Financial Services Ltd 424.3 29.3 Bharat Heavy Electricals Ltd 138.9 -19.5

Motherson Sumi Systems Ltd 340.3 29.1 Glenmark Pharmaceuticals Ltd 688.4 -18.7




BSE200: Top gainers and losers

BSE200: Top gainers and losers yoy

Top Gainers Last Price % yoy Chg Top Losers Last Price % yoy Chg

Vakrangee Ltd 461.6 151.7 Reliance Communications Ltd 23.9 -53.0

Jubilant Life Sciences Ltd 702.2 112.4 Divi's Laboratories Ltd 683.2 -42.3

Bajaj Finserv Ltd 5444.1 103.6 Lupin Ltd 984.5 -41.2

L&T Finance Holdings Ltd 176.3 102.8 Wockhardt Ltd 599.7 -41.0

TVS Motor Co Ltd 602.6 98.8 Sun Pharmaceutical Industries Ltd 506.0 -39.9

Piramal Enterprises Ltd 2964.8 88.2 Housing Development & Infrastructure Ltd 69.4 -30.0

Dewan Housing Finance Corp Ltd 456.8 85.0 Blue Dart Express Ltd 4155.7 -27.1

MRF Ltd 67776.2 82.3 Ajanta Pharma Ltd 1338.4 -26.7

Adani Enterprises Ltd 139.9 81.0 Dr Reddy's Laboratories Ltd 2210.3 -26.4

Indraprastha Gas Ltd 1197.1 80.0 Tata Motors Ltd 251.2 -24.2

BSE200: Top gainers and losers YTD

Top Gainers Last Price % YTD Chg Top Losers Last Price % YTD Chg

Bajaj Finance Ltd 1794.5 113.8 Lupin Ltd 984.5 -33.6

Jindal Steel & Power Ltd 143.4 107.5 Reliance Communications Ltd 23.9 -30.0

L&T Finance Holdings Ltd 176.3 101.6 Dr Reddy's Laboratories Ltd 2210.3 -27.7

Titan Co Ltd 613.7 88.4 Ajanta Pharma Ltd 1338.4 -25.0

Bajaj Finserv Ltd 5444.1 88.1 Glenmark Pharmaceuticals Ltd 688.4 -22.5

Dewan Housing Finance Corp Ltd 456.8 87.4 Sun Pharmaceutical Industries Ltd 506.0 -19.7

Indiabulls Housing Finance Ltd 1205.1 85.3 IDBI Bank Ltd 57.2 -17.6

Adani Enterprises Ltd 139.9 82.9 Tech Mahindra Ltd 406.8 -16.8

Piramal Enterprises Ltd 2964.8 82.9 CRISIL Ltd 1849.7 -16.3

Jet Airways India Ltd 633.5 82.4 Coal India Ltd 251.3 -16.2




Styles Performance Value has outperformed growth in July. Large caps have outperformed both mid caps and small caps by 1% and 3% respectively delivering a return of 5.6%.

Value vs. growth Large-cap vs. small-cap

Large vs. mid-caps Mid-caps vs. small-caps


0.54

0.55

0.56

0.57

0.58

0.59

0.60

0.61

0.62 MSCI Value vs. Growth

Growth Outperforms

Value Outperforms

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

Jul/10 Jul/11 Jul/12 Jul/13 Jul/14 Jul/15 Jul/16 Jul/17

MSCI Large Cap vs. Small Cap

Large Caps outperform

Small Cap outperforms

0.5

0.6

0.7

0.8

0.9

1.0


MSCI Large vs Mid-Caps

Mid-Cap outperforms

Large Cap outperforms

1.0

1.2

1.4

1.6

1.8

2.0

2.2


MSCI Mid vs Small-Caps

Mid Cap outperforms

Smalll cap outperforms



Styles valuations Despite a recent rally, large caps continue to look more attractive as macroeconomic conditions are more favourable for large cap outperformance while valuations are reasonable.

Value vs. growth: One-year forward PE Value vs. growth: One-year forward PB

Large vs. mid-cap: One-year forward PE Large vs. mid-cap: One-year forward PB


-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

Jul/05 Jul/06 Jul/07 Jul/08 Jul/09 Jul/10 Jul/11 Jul/12 Jul/13 Jul/14 Jul/15 Jul/16 Jul/17

1-yr Fwd PE LPA PE discount (V/G)

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Jul/05 Jul/06 Jul/07 Jul/08 Jul/09 Jul/10 Jul/11 Jul/12 Jul/13 Jul/14 Jul/15 Jul/16 Jul/17

1-yr Fwd PB PB discount (V/G) LPA

0

5

10

15

20

25

Oct/05 Oct/06 Oct/07 Oct/08 Oct/09 Oct/10 Oct/11 Oct/12 Oct/13 Oct/14 Oct/15 Oct/16

1-yr Forward PE NIFTY Midcap PE NIFTY PE

0

1

2

3

4

5

Jan/06 Jan/07 Jan/08 Jan/09 Jan/10 Jan/11 Jan/12 Jan/13 Jan/14 Jan/15 Jan/16 Jan/17

1-yr Forward PB Nifty Mid-Cap PB NIFTY PB




FII & DII Analysis



Flows update FIIs turned net buyers at US$ 803mn, while DIIs added US$ 747 mn – with total post-demonetisation flows over US $13bn

FII, DII flows vs. NIFTY Index (in USD mn) Cumulative FII, DII flow trends

EM Asia flows (USD, mn) Sector-wise FII assets under management (USD, mn, as of July 30, 2017)

Net Foreign Flows ($,mn) Today MTD QTD YTD YTD YoY

S. Korea 91 -412 -793 8218 8

India 9 11 13 15 17

Taiwan 7 -3 19 9042 -28

Vietnam 4 21 134 540 1242

Sri Lanka 1 5 28 174 754

Phillipines 0 6 45 453 -118

Pakistan -9 -17 -55 -393 -2023

Indonesia -14 -58 -856 448 867

Thailand -28 -185 -385 8 -100

Source: Bloomberg, NSDL, PhillipCapital India Research, Prices as of July 31, 2017

5000

6000

7000

8000

9000

10000

11000

-1000

-500

0

500

1000

1500

Au

g/1

5

Sep

/15

Oct

/15

No

v/1

5

Dec

/15

Jan

/16

Feb

/16

Mar

/16

Ap

r/1

6

May

/16

Jun

/16

Jul/

16

Au

g/1

6

Sep

/16

Oct

/16

No

v/1

6

Dec

/16

Jan

/17

Feb

/17

Mar

/17

Ap

r/1

7

May

/17

Jun

/17

Jul/

17

in $

mn

)

INBTDINT Index FIINNET Index

-10000

0

10000

20000

30000

40000

May

/14

Jul/

14

Sep

/14

No

v/1

4

Jan

/15

Mar

/15

May

/15

Jul/

15

Sep

/15

No

v/1

5

Jan

/16

Mar

/16

May

/16

Jul/

16

Sep

/16

No

v/1

6

Jan

/17

Mar

/17

May

/17

Jul/

17

(in

$ m

n)

DII FII

95.8

72.5

39.7 35.1 31.8

27.9 27.1 22.6 19.8

13.4 6.0 3.6

0

20

40

60

80

100

120




Macro & Market Indicators



Macro Indicators – global – steady as she goes Global manufacturing PMI, inflation expectations, and exports have stabilised – still show healthy signs of recovery. Global Manufacturing PMI still in expansionary territory Global inflation expectations (5y5y Inflation Swap Forward)

Global exports continue to improve


48

49

50

51

52

53

54 JP Morgan Global Manufacturing PMI

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5 US Europe Japan

0

500

1000

1500

2000

2500

40

45

50

55

60

65

70

75

80

Sep

/12

Dec

/12

Mar

/13

Jun

/13

Sep

/13

Dec

/13

Mar

/14

Jun

/14

Sep

/14

Dec

/14

Mar

/15

Jun

/15

Sep

/15

Dec

/15

Mar

/16

Jun

/16

Sep

/16

Dec

/16

Mar

/17

Jun

/17

Nomura Asia Export Leading Index Baltic Dry Index



Macro Indicators - India June CPI dropped to an historic low of 1.5% yoy was below expectations. Core inflation at 4.2% yoy was also lower. May IIP growth at 1.7% yoy was below expectations with sluggishness in mining, consumer durables and capital goods.

Quarterly GDP growth rate (%) Inflation

IIP growth rate (%) Rates


5.0%

7.7%

5.4%

4.6%

6.7%

7.8%

6.4%

5.8%

7.5%

8.3%

6.6% 6.7%

7.8% 7.8%

6.5%

7.9%

7.2% 7.4% 7.0%

6.1%

3%

4%

5%

6%

7%

8%

9%

GD

P G

row

th Y

oY

%

Real GDP Growth (YoY %) Avg GDP (YoY %)

-6

-4

-2

0

2

4

6

8

10

12

14 WPI YoY (%) CPI YoY (%)

-10

-5

0

5

10

15

20

25

Ap

r/0

6

Sep

/06

Feb

/07

Jul/

07

Dec

/07

May

/08

Oct

/08

Mar

/09

Au

g/0

9

Jan

/10

Jun

/10

No

v/1

0

Ap

r/1

1

Sep

/11

Feb

/12

Jul/

12

Dec

/12

May

/13

Oct

/13

Mar

/14

Au

g/1

4

Jan

/15

Jun

/15

No

v/1

5

Ap

r/1

6

Sep

/16

Feb

/17

IIP Growth Rate (%)

3

4

5

6

7

8

9

10

%

CRR Repo Reverse Repo



Market Indicators INR continued its recent strength, gaining another 1% in July on continuing foreign fund inflows. Investor confidence is likely to be driven by macro and political stability. Brent crude grew 12% last month on Saudi Arabia commentary on cut in crude output and some decrease in US crude inventory

INR appreciated another 1% in April following a 3% jump in March 10-yr G-Sec yields

Brent crude (USD/bbl) India VIX


60

61

62

63

64

65

66

67

68

69

70 USD/INR

4

5

6

7

8

9

10

11

12 10yr GOI Yields

LTA

0

20

40

60

80

100

120

140

160

Jan

/01

Jul/

01

Jan

/02

Jul/

02

Jan

/03

Jul/

03

Jan

/04

Jul/

04

Jan

/05

Jul/

05

Jan

/06

Jul/

06

Jan

/07

Jul/

07

Jan

/08

Jul/

08

Jan

/09

Jul/

09

Jan

/10

Jul/

10

Dec

/10

Jul/

11

Dec

/11

Jun

/12

Dec

/12

Jun

/13

Dec

/13

Jun

/14

Dec

/14

Jun

/15

Dec

/15

Jun

/16

Dec

/16

Jun

/17

Brent Crude ($/bbl)

0

10

20

30

40

50

60

70

80

Nov/07 Nov/08 Nov/09 Nov/10 Nov/11 Nov/12 Nov/13 Nov/14 Nov/15 Nov/16

India VIX



Commodities Tracker In addition to oil, most other commodities also saw a sell off last month – led by zinc that was down ~6% in April


400

600

800

1000

1200

1400

1600

1800

2000 Gold ($/OZ)

0

20

40

60

80

100

120

140

160 Indonesian Coal Price ($/ton)

0

200

400

600

800

1000

1200 Steel ($/ton) - China HRC

0

500

1000

1500

2000

2500

3000

3500 LME Aluminium ($/ton)

0

2000

4000

6000

8000

10000

12000 LME Copper ($/ton)

0

500

1000

1500

2000

2500

3000

3500 LME Zinc ($/ton)



Model portfolio

_____________EPS (Rs)________________ ___________EPS Growth (%)____________ ______________P/E (x)______________

Company Weight FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FMCG 10.0%

HUL 2.0% 20 24 27 4% 21% 12% 59 49 44 Colgate Palmolive India Ltd 2.0% 21 23 29 -6% 9% 25% 49.2 45.0 36 ITC 6.0% 9 10 12 10% 13% 18% 31.3 27.8 23 Automobile 8.5%

Maruti 3.0% 243 265 312 61% 9% 18% 31.3 28.7 24 Tata motors 3.0% 19 27 53 -46% 43% 102% 21.2 14.8 7 Bajaj Auto 2.5% 132 143 166 5% 8% 16% 21.4 19.8 17 IT 6.0%

Infy 6.0% 63 64 70 7% 2% 9% 15.5 15.2 14 Pharmaceuticals 6.0%

Sun Pharma 4.0% 29 26 30 20% -11% 14% 16.5 18.5 16 Aurobindo 2.0% 39 43 49 12% 9% 14% 18.0 16.6 15 Cement 4.0%

Ultratech 3.0% 99 118 142 19% 20% 20% 39.9 33.3 28 Dalmia Bharat 1.0% 39 74 99 80% 92% 33% 9.7 5.1 4 Metals & Mining 12.3%

Tata Steel 3.0% 41 71 82 326% 74% 15% 14.9 8.5 7 JSW Steel 2.0% 20 21 26 244% 6% 25% 11 11 9 Hindalco 2.0% 8 15 18 114% 90% 16% 29.2 15.4 13 NTPC 3.3% 13 14 16 5% 5% 19% 13.2 12.5 10 Vedanta 2.0% 15 26 39 43% 71% 52% 19.6 11.4 8 Industrial 4.0%

L&T 2.0% 42 51 58 -5% 21% 13% 27.0 22.3 20 NCC 2.0% 5 6 7 2% 23% 24% 18.7 15.1 12 Finance 33.3%

Axis bank 4.0% 15 19 29 -55% 26% 51% 31.7 25.2 17 indusInd bank 3.0% 48 64 83 25% 34% 29% 33.8 25.2 20 SBI 4.5% 5 8 22 -67% 60% 169% 60.1 37.6 14 Cholamadalam Fin 2.5% 46 57 71 26% 23% 26% 25.3 20.6 16 HDFC Ltd 5.0% 47 49 55 4% 3% 13% 37.1 35.9 32 LIC Housing Finance 2.0% 38 40 45 16% 4% 12% 17.3 16.6 15 HDFC bank 6.0% 57 69 83 17% 22% 19% 31.0 25.4 21 ICICI Bank 6.3% 17 12 15 0% -28% 27% 17.1 23.7 19 Oil & Gas 5.0%

Reliance Industries 5.0% 101 78 96 17% -22% 22% 15.8 20.4 17 Telecom 9.5%

Bharti Infratel 2.0% 15 17 19 19% 12% 12% 25.7 22.9 20 Bharti Airtel 3.0% 13 10 23 37% -27% 132% 31.0 42.4 18 Dish TV 2.0% 1 2 3 -79% 7% 67% 53.7 50.1 30 Zee Entertainment 2.5% 10 15 19 17% 44% 27% 51.9 36.0 28 Others 1.5%

Tata Comm 1.5% 10 15 26 -11% 43% 79% 57.2 40.1 22



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Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the company (ies)covered in this report as of the end of the month immediately

preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in this

report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:

Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No

4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.



Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing.

Kindly note that past performance is not necessarily a guide to future performance.

For Detailed Disclaimer: Please visit our website www.phillipcapital.in

For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.-regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account.

This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has

entered into an agreement with a U.S. registered broker-dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer. If Distribution is to Australian Investors

This report is produced by PhillipCapital (India) Pvt Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services Licence No. 246827). This report contains general securities advice and does not take into account your personal objectives, situation and needs. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to

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