Product Review (Sept.)

&

Market Outlook (Oct.)

• Top Picks folio

• Stock Ideas/Viewpoints

• Wealth Creator

Fundamental Research Offerings

Sharekhan’s Top Picks folio An all-weather balanced portfolio

Top Picks folio

Sharekhan’s Top Picks folio

• A well-balanced portfolio of thoroughly researched 10-12 companies • Prefers sustainable business model, focuses on near-term triggers without losing sight of long-term wealth creation

Key objectives

• Careful selection of stocks to deliver superior risk adjusted returns and outperform benchmark indices • To maximise shareholders’ returns with minimum risk and outperform the benchmark indices

How is our portfolio different?

• Only thoroughly researched and fundamentally strong stocks included, no place for market rumoured, lousy or grapevine stocks • Delivered superior returns consistently across equity cycles since inception

We religiously follow the process

• Actively tracked and reviewed every month without exception; generally in initial days of the month • Explains all changes/revisions in the folio for better understanding of investors

Superior returns across Market Cycles (on absolute as well as relative basis)

Beating the benchmark indices consistently (absolute returns in %; not annualised)

Sharekhan

(Top Picks) Sensex Nifty CNX MIDCAP

YTD CY2017 43.6 17.4 19.4 25.1

CY2016 8.8 1.8 3.2 7.1

CY2015 13.9 -5.1 -4.1 6.5

CY2014 63.6 29.9 30.9 55.1

CY2013 12.4 8.5 6.4 -5.6

CY2012 35.1 26.2 29.0 36.0

CY2011 -20.5 -21.2 -21.7 -25.0

CY2010 16.8 11.5 12.9 11.5

CY2009 116.1 76.1 72.0 114.0

Consistent outperformance (absolute returns in %; not annualised) %

1 mth 3 mth 6 mth 1 year 3 year 5 year

Top Picks -1.8 5.6 21.1 32.4 103.4 247.9

Sensex -1.4 1.2 5.5 12.2 17.0 66.7

Nifty -1.5 2.6 6.5 13.5 22.9 72.7

CNX MIDCAP -1.8 1.2 4.9 16.5 57.2 129.2

Note: The returns are based on the assumption that at the beginning of each month an equal amount was invested in each stock of the Top Picks basket

Cumulative returns (since April 2009)

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Sharekhan Top Picks Sensex Nifty

Well Balance Portfolio

Name CMP* PER (x) RoE (%) Price Upside

(Rs) FY17 FY18E FY19E FY17 FY18E FY19E target (Rs)#

(%)

Godrej Industries 578 67.1 - - 14.9 - - 685 19

HDFC Bank 1,795 31.6 26.4 22 17.9 18.4 19.5 1,950 9

IndusInd Bank 1,679 34.8 27.2 21.2 16.2 16.5 18.2 1,950 16

ITC 261 31.1 26.6 22.7 23.5 25.5 28 325 24

KEC International 306 25.8 17.9 14.1 21.2 24.3 24.9 330 8

LIC Housing Finance 624 16.2 13.5 11.4 19.1 19.3 19.6 825 32

Maruti Suzuki 7,897 32.5 29.7 23.4 23 20.9 21.8 8,500 8

Power Grid Corp 209 14.7 12.4 10.5 13.8 14.4 15.1 240 15

Reliance Industries## 787 15.6 15.5 12.5 11.2 10.1 11.2 875 11

Sundram Fasteners 437 27 22.5 19.6 27.6 27.4 26.2 485 11

UPL Limited 766 21.2 18.2 14.8 23.30 23.50 23.4 980 28

ZEE Entertainment 520 40.9 36.4 27.8 18.3 17.9 20.0 610 17

*CMP as on 28st September, 2017 # Price target for next 6-12 months, ## Price and target adjusted for 1:1 bonus issue

Easy to follow with revision done at the beginning of the month (usually changes in 2 stocks on an average); for simplicity, we recommend equal weightage in each stock and assume the same to calculate monthly performance. Please note the returns shown do not include transaction cost.

Top Picks performance for September 2017

Sharekhan’s top picks basket performed broadly in-line with the broader indices; one change in the portfolio

As highlighted in our September 2017 market outlook note, “Time for a breather”, markets have hit the pause button, after rallying by almost 20% in 2017. Valuations are stretched and any support from earnings revival is absent. Mounting geo-political tensions and a fear of further earnings downgrades amid prolonged GST-related disruptions are also adding to Street’s nervousness.

In this backdrop, Sharekhan’s Top Picks portfolio performed broadly in line with the benchmark indices during the month. Top Picks folio fell 1.8%, against a decline of 1.4% in Sensex and 1.5% in Nifty. The Nifty Midcap 100 index too declined by 1.8%. On YTD basis CY2017 (9 Months period), Sharekhan’s Top picks folio has delivered a superior return of 43.6%, handsomely outperforming benchmark indices Sensex and Nifty, which was up by 17.4% and 19.4% respectively. Further, Top Picks folio has also handily outperformed the CNX midcap index, which was up by 25.1% on a YTD basis.

Made one change in portfolio

This month we are suggesting only one change in the folio, we are exiting CESC with a 4% gain and replacing it with UPL Ltd, where the risk-reward ratio is better in the current volatile environment. UPL, a recent entry in the Nifty 50, is a leading agrochemicals player; it will be among the prime beneficiaries as global agrochemical products worth $4 billion go off-patent in next three years.

Stock Ideas / Viewpoints Make an informed decision

Sharekhan's Stock Ideas

Key objectives

• Identify right stocks across sectors through bottom-up approach • Focus on generating absolute returns with a time frame of 6-12 months and a favorable risk-reward ratio

Focussed approach

• Closely tracked stocks with regular interaction with companies’ management to stay abreast of the business outlook • Regular updates and news with view on stocks through Investor’s Eye and also Fundamental News & Analysis (FNA)

Risk and reward

• We put great emphasis on investor’s risk and reward, so in line with the upside potential of a stock and the associated risks, we review our rating regularly • This also allows investors to churn their portfolio by switching from one stock to another to optimise the overall return

Track record

• Our last 27 Stock Ideas generated 125% returns on an aggregate basis. • Some of the blockbuster Stock Ideas: Bajaj Finance (up 934%), TVS Motor (up 600%), Gabriel India (up 498%) Finolex Cables (up 346%), & LIC Housing Finance (up 169%)

Top 10 Stock Ideas delivered strong returns

Company Reco. Initiation Date Initiation Price (Rs) CMP* (Rs) Returns (%)

Bajaj Finance Buy 21-May-14 178 1,841 934

TVS Motor Company Buy 30-Apr-14 92 644 600

Gabriel India Buy 16-Apr-14 33 196 498

Finolex Cables Buy 22-Apr-14 119 531 346

LIC Housing Finance Buy 28-Mar-14 232 624 169

Supreme Industries Buy 09-Jan-14 420 1,084 158

Rico Auto Industries Buy 29-Oct-14 39 92 136

Skipper Buy 19-Jan-15 112 204 83

KEC International Buy 14-Mar-17 169 306 81

Firstsource Solutions Buy 03-Feb-14 24 42 74

-In last 42 months, we have initiated 27 new stock idea which have given average returns of 125% per new idea.

- Top Ten ideas have generated aggregate return of 308% on absolute basis.

*CMP as on Sept 28, 2017

Viewpoint

Sharekhan's Viewpoints

Key objectives • The idea is to arm investors with knowledge to help you take informed decisions in the market • Focus on generating absolute returns of 20-25% in a short time

Focussed approach

• Stocks with strong business fundamentals and adequate understanding through management interaction/meeting • Regular updates and news flow on stocks through updates and also FNA

Viewpoints performance snapshot

Date of initiation

Viewpoint Reco Price

Date of closure

Closure price

Total Returns

(%)

25-Sep-14 Indo Count Industries 172 16-Feb-15 422 145.3

13-Jun-14 Dhanuka Agritech 380 19-May-17 831 118.7

26-Mar-14 FIEM Industries 409 7-Jan-15 886 116.6

25-Jun-14 JK Tyre 64 23-Dec-14 138 115.4

16-Oct-14 Dhanuka Agritech 428 19-May-17 831 94.2

4-Jan-17 Insecticides India 502 13-Sept-17 952 89.6

1-Sep-14 Salzer Electronics 136 11-Mar-15 257 89.0

14-Aug-14 Force Motors 687 23-Sep-14 1,281 86.5

5-Feb-14 Power Finance

Corporation 146 22-Aug-14 269 84.2

19-Mar-14 JK Lakshmi Cement 97 23-May-14 178 83.5

25-Aug-14 Marico Kaya 488 26-Nov-14 876 79.5

29-Jun-16 Chambal Fertilizer 69 19-Jun-17 121 75.4

3-Sep-14 Gulf Oil Lubricants 313 16-Dec-14 541 72.8

09-Aug-16 Star Cement 72# 09-Aug-17 123 70.6

9-Feb-17 Insecticides India 563 13-Sept-17 952 69.1

Total number of calls generated 274

Number of closed calls 155

Number of calls in profit 131

Number of calls in loss 22

No Profit No Loss 2

Converted to stock ideas 8

Success ratio 89.7%

Aggregate return 25%

Top 15 calls return 93%

# "Star Cement" Recommended price adjusted after reverse merger with " Star Ferro & Cement Ltd "

Viewpoint closed in Sept2017

Date of release Date of closure Viewpoint Reco. Price Call closure price Abs Returns (%)

04-Jan-17 13-Sep-17 Insecticides India 502 952 90

09-Feb-17 13-Sep-17 Insecticides India 563 952 69

29-May-17 13-Sep-17 Insecticides India 642 952 48

10-Aug-17 13-Sep-17 Insecticides India 740 952 29

New initiation – KNR Constructions Ltd

• Marquee road EPC player with distinct execution capabilities and track record: KNR Constructions (KNR) is a leading EPC service provider majorly operating in the roads and highways segment (85% of order book). The company is present in irrigation and urban water infrastructure management. KNR has exposure to two BOT projects. The company has over two decades of experience with execution of more than Rs.6,000km road projects across 12 states in India. KNR has in-house construction capabilities which insures on-schedule project completion.

• Expect order inflow to pick up from H2FY2018: KNR bagged projects worth over Rs.4,600 crore during FY2016-FY2017, taking its order book to Rs.3,339 crore (1.9x its TTM revenue). KNR expects tendering activity to pick up from H2FY2018 and targets Rs.2,000 crore/Rs.2,500 crore worth of orders for FY2018/FY2019. Management targets to achieve Rs.1,700 crore-1,800 crore revenue for FY2018 and around Rs.2,000 crore for FY2019 on conservative basis.

• Quality balance sheet – A distinct trait in the sector: KNR’s standalone net debt/equity for FY2017 stands at just 0.14x (adjusting for promoter’s loan of Rs.121 crore to the company, net debt/equity is almost nil). Tight working capital management, stable operating margins, capex financed through internal accruals and lower leverage have in aggregate helped in improving return ratios over the trailing two years.

• Valuation: We expect KNR to report a 15%+ CAGR for standalone revenue and EBITDA during FY2017-FY2019. Standalone net profit is expected to report a 4% CAGR on account of higher effective tax rate. However, free operating cash flows are likely to remain strong over the period. We have a positive view on the stock with 18-20% upside potential over the next 3-6 months.

• Risk: Inability to bag new projects in the near term can affect the company’s operational performance, resulting in lower valuation multiples.

Reco Price– Rs 203 CMP – Rs 206 View: Positive

Particulars (Rs. Cr.) FY15 FY16 FY17 FY18E FY19E Net sales 876.1 902.5 1541.1 1772.7 2051.4

EBITDA margin (%) 14.4 16.9 14.9 14.9 14.9

PAT 73.0 105.6 168.1 172.5 182.9

EPS 5.2 7.5 12.0 12.3 13.0

RoE (%) 13.1 15.4 19.7 17.4 15.7

PER (x) 39.7 27.4 17.2 16.8 15.8

New initiation – TV Today

• TV Vision Ltd. (TVV) is in the television broadcasting business from the staple of renowned Shri Adhikari Brothers (SAB Group). The company operates five TV channels, namely Mastiii, Dabangg, Dhamaal, Maiboli and Dillagiii.

• Among the channels, Mastiii is the undisputed leader in the music and youth channel category since the past two years and continues to command strong viewer loyalty. Further, Dabangg, the regional entertainment channel, is among the top three players in the genre and number one in reach in Bihar and Uttar Pradesh.

• The urban-rural split in terms of percentage of TV penetration has changed from 49:51 to 46:54. Incidentally, TVV is in the position to reap benefits going forward, with its strong reach in rural-semi urban India and focussed regional strategy.

• The company is currently working on the launch of its new comedy channel, HAPPii, and production of new shows has already started. With the group's successful track of creating long-run content, we believe HAPPii will create further value to the company's growth strategy.

• Among TVV’s five channels, Mastiii and Dabangg are already matured channels and profitable. Other channels such as Dhamaal, Maiboli and Dillagiii are going to come out of their breakeven period and expect to become profitable in the next two years, thereby positively contributing to the company's margins.

• TVV is the right stock to bet on India’s rural-semi urban consumption theme, as the company is on a high growth phase. The current valuation on a price earning multiple (PER) basis appears relatively high; however, given the 58% earnings CAGR over FY2017-FY2020E, PEG works out to be 0.4/0.3x based on FY2019E/FY2020E, which looks very attractive as compared to other media companies.

Reco Price– Rs 342 CMP – Rs 351 View: Positive

Particulars (Rs. Cr.) FY17 FY18E FY19E FY20E

Net sales 176.3 197.8 227.4 263.3

EBITDA margin (%) 28.6 29.5 30.5 32.0

PAT 8.3 13.4 21.5 32.6

EPS 2.4 3.8 6.1 9.3

RoE (%) 6.9 10.0 13.8 17.3

PER (x) 14.2 14.8 19.1 24.5

New initiation – Bata India

• Bata’s retail business (88% of overall revenue) grew by 15%, driven by 10% same-store-sales growth (SSSG) in Q1FY2018. We expect SSSG to sustain in the range of 7-9% as the upcoming festive season and marriage season will drive buying sentiments in the coming quarter. The shift from non-branded to branded products and expansion in reach (especially in tier II and III towns) will drive SSSG in the long run.

• To firm its footings in the women footwear space, the company has recently launched premium-end women footwear collection - Insolia (priced in the range of Rs.1,799-1,999). We expect contribution from the women footwear segment to increase to 30% from the current level of 26% over the next two years.

• Rental expenses are expected to come down by 100-200BPS as the company is re-negotiating rentals for existing stores and re-aligning some of the existing stores to reduce operational cost. This should help in adding to the company’s overall margins in the coming years. The OPM is expected to improve gradually improve from current levels of 13% in the coming years.

• Sustained store expansion, premiumisation and steady SSSG would aid the company’s revenue and PAT to grow at a CAGR of 11% and 22% over FY2017-FY2020, respectively. The stock is currently trading at 36.3x its FY2019E earnings. With better earnings growth and lean balance sheet, Bata is one of the better picks in the growing retail space. We have a positive view on the stock with a potential upside of 10-15% from the current level.

Reco Price– Rs717 CMP – Rs695 View: Positive

Particulars FY16 FY17 *FY18E *FY19E *FY20E

Net Sales (Rs. cr) 2455.9 2504.3 2740.8 3064.2 3425.6

OPM(%) 11.2 11.1 12.7 13 13.5

PAT (Rs. cr) 150.2 159 210.7 253.6 290.4

EPS (Rs) 11.7 12.4 16.4 19.7 22.6

PER (x) 61.4 58 43.7 36.3 31.7

RoCE (%) 19.9 20.4 22.1 23 22.5

RoE (%) 13.4 12.5 14.7 15.3 19.3

New initiation – NMDC Ltd

• A distinguished Indian PSU with a healthy dividend paying history: NMDC, one of India’s top profit making ‘Navratna’ PSU incorporated in 1958, is the largest iron ore mining company in India with a 25% market share. The company sells iron ore of average grade of 64% Fe which is considered one of the best globally. NMDC has a strong dividend paying record with over 75% average dividend payout over trailing five years (excluding share buyback) with current dividend yield of over 4%.

• Doubling capacity by FY2022 on the back of structural growth triggers in Indian Steel Industry: As per the strategic investment plan, NMDC envisages its iron ore mining capacity to increase from 34MTPA to 50 MTPA by FY2019 and 67MTPA by FY2022. NMDC’s expansion strategy takes into account India’s low per capita steel consumption (63kg/t as against world average of 208kg/t), government thrust on infrastructure development, rising urbanization, rail network expansion plans, improving power generation etc.

• Positive growth triggers for FY2018: The average iron ore price (62% Fe CFR China) has continued to see improving trend with 19% YoY growth during H1FY2018 (28% YoY growth during FY2017). Consequently, NMDC is likely to benefit from higher realizations along with ~4% volume growth during FY2018. NMDC is looking to divest 49% stake in its 3MTPA Nagarnar steel plant at Chhattisgarh. The divestment is likely to further strengthen its balance sheet along with improvement in return ratios.

• Outlook & Valuation: We believe the favourable iron ore prices, structural industry growth triggers and strategic divestment of steel unit will play out favourably for NMDC over the medium term. We have a positive view on the stock and expect a 20% return over the next 6-9 months.

• Risk: Stagnating/lowering Chinese steel production, competition from scrap as a feedstock for Steel Industry. MMDRA act allows NMDC’s customers to acquire captive mines. Delay or inability to divest 3mtpa steel plant can affect financial performance.

Reco Price– Rs 118 CMP – Rs 117 View: Positive

Particulars (Rs. Cr.) FY15 FY16 FY17 FY18E FY19E

Net sales 12,362.5 6,457.3 8,829.6 10,527.6 11,491.0

EBITDA margin (%) 62.8 42.5 40.7 48.2 49.9

PAT 6,460.2 2,731.4 2,544.4 3,263.1 3,564.6

EPS 20.4 8.6 8.0 10.3 11.3

RoE (%) 20.7 8.9 9.8 14.1 14.5

PER (x) 5.9 14.8 14.8 11.6 10.6

Re-initiate - Jamna Auto Industries

• Jamna Auto Industries (JAI) is the largest manufacturer of multi-leaf springs and parabolic springs for automobiles and is a pioneer of parabolic springs in India. JAI is a leader with a 70% market share. MHCV’s constitute 85% of the sales while LCV’s account for balance 15%.

• Green shoots of revival in the MHCV industry are apparent with a strong 7% and 28% growth reported in July and August 2017 respectively. Businesses are gradually adapting to GST and demand for CVs is set to improve as business cycles and consumption cycles pick up. Further low base of H2FY2017 provides growth visibility going ahead. MHCV industry is poised to grow in mid-single digits for Fy2018 translating in to an ask rate of 15-17% for 9MFY2018, which would significantly benefit JAI.

• JAI is aggressively targeting the aftermarkets segment and plans to increase the contribution from ~20% of revenue currently to 30% over the next 3-4 years . Successful rollout of GST is set to likely to result in demand shift in favour of organized players like JAI, which in turn would boost the topline.

• Demand outlook from the domestic MHCV industry is encouraging as key transitory concerns are beginning to settle down. The MHCV industry is expected to grow in strong double digits for 9MFY2018, thus translating into a sharp upsurge in revenue. We expect JAI to report a healthy 11% earnings CAGR over the next two years.

• We re-initiate our viewpoint coverage on JAI with a Positive View.

Reco Price– Rs258 CMP – Rs 255 View: Positive

Particulars (Rs. Cr.) FY15 FY16 FY17 FY18E FY19E

Net sales 1,095.1 1,255.8 1,299.5 1,390.4 1,543.4

EBITDA margin (%) 8.6 12.9 14.1 13.2 13.8

PAT 28.9 71.0 104.2 108.9 128.5

EPS 3.6 8.9 13.1 13.7 16.2

RoE (%) 14.7 29.3 31.3 27.0 26.4

PER (x) 71.0 28.9 19.7 18.8 16.0

Re-iterate – Gujarat Gas Limited

• Gujarat Gas Limited’s (GGAS) stock price has rallied sharply by 11% since our initiation of view point on 14th August 2017 on expectation of strong volume growth traction given favourable economics for LNG compared to alternative fuel. Going forward, we expect Asian spot LNG price to remain subdued at $5-6/mmbtu because of LNG supply glut. Thus, we believe imported LNG would remain affordable for industrial users. We remain optimistic of strong volume growth traction (expect a 15% volume CAGR over FY2017-FY2019E) for GGAS and retain our positive view on the stock with 12-15% upside from current level.

• The Finance Ministry had earlier suggested including natural gas under GST at 5% rate (vs. around 15% taxes currently), but the final decision is still pending with GST council. If natural gas is included under GST then industrial PNG would become cheaper than fuel oil due to likely lower tax rate of 5% on natural gas as compared 18% rate on fuel oil. We expect GGAS to benefit the most among city gas distribution players as industrial PNG accounts for 70% of overall gas volume (6.1mmscmd) of GGAS.

• We expect GGAS to benefit from removal of ban on chemical plans in the Vapi-Valsad-Ankleshwar region and revival in gas demand from Morbi ceramic cluster. Moreover, entry into new geographical areas is likely to generate 5mmscmd-6mmscmd of incremental volumes over the next 4-5 years. Outlook on the margin front has also improved considerably given low imported LNG price and appreciation of Indian rupee. Considering the above-mentioned favourable business dynamics, we believe the recent recovery seen in volume growth and margins of GGAS are sustainable in the near to medium term.

• We expect GGAS’s earnings to post a CAGR of 62% over FY2017-FY2019E on back of volume growth due to improved competitiveness of LNG vs. alternative fuels. Moreover, we expect marked improvement in RoE to 25-26% in FY2018 vs. only 14% in FY2017. Thus, we maintain our positive view on GGAS with 12-15% upside from current level. At CMP, the stock is trading at 20x FY2019E EPS.

Reco Price– Rs 845 CMP – Rs 807 View: Positive

Particulars (Rs. Cr.) FY16 FY17 FY18E FY19E

Net sales 6,106 5,093 6,524 7,215

EBITDA margin (%) 11.9 14.6 17.5 17.8

PAT 190 221 488 580

EPS 13.8 16.0 35.4 42.1

RoE (%) 10.8 13.8 26.4 25.7

PER (x) 61.6 53.1 24.0 20.2

Re-iterate – Godrej Industries

• The recent correction of 11% in Godrej Industries Limited's (GIL) stock price provides good entry point for new investors in the advent of Godrej Agrovet’s (GAL) public issue.

• GAL, subsidiary of GIL (holds 63.7% stake), is in the last phase of preparations to get listed on the bourses. GIL’s stake is valued at Rs.4,000-4,100 in view of GAL's overall value of Rs.8,445 crore.

• GIL has a bouquet of good investment profile companies such as Godrej Consumer Products (holds 23.8% stake), Godrej Properties (holds 56.7% stake) along with Godrej Agrovet, which has strong growth prospects in the near future. Some of the businesses such as Nature’s Basket (holds 100% stake) is in the nascent stage but has immense growth prospects in the growing retail phenomena in India.

• Value unlocking in GAL is the near term trigger for the stock. We expect the company’s core value to improve in the long run on account of steady performance by some of the key investment companies and improvement in the performance of the chemical business. Hence, we maintain our positive view on the stock with a potential upside of 12-15% from current levels.

Reco Price– Rs 578 CMP – Rs 578 View: Positive

Particulars (Rs. Cr.) FY14 FY15 FY16 FY17

Total Revenue 7,917.9 9,230.5 7,453.6 8,365.1

Operating Profit 457.7 481.6 390.5 638.6

OPM (%) 5.8 5.2 5.2 7.6

Adjusted net profit 249.0 210.1 288.9 442.9

EPS (Rs) 7.5 6.3 8.6 13.2

P/E (x) 77.0 91.7 67.2 43.9

Re-iterate – IndusInd Bank

• Bank (IIB) has entered into an exclusivity agreement with Bharat Financial Inclusion Services (BFIN) to evaluate the possibility of a strategic deal (read takeover by IIB) between them. IIB's management indicated that the due diligence is presently on and a final decision is likely around a month’s time. We believe the swap ratio will be an important thing to look at. Since our earlier update on the same issue (published in March 2017), IIB's share price has increased and, hence, presently the probable valuation is likely to be more favourable to IIB's shareholders. As per media reports, IIB will be exploring a share swap deal, wherein BFIN could be valued at Rs.13,000 crore-14,500 crore. At this valuation, the additional issue of IIB's shares to existing shareholders of BFIN could result in 12%-13.5% expansion in the equity capital of IIB (the merged entity), which we believe is better suited for IIB's shareholders.

• The acquisition has several strategic benefits that will be positive for the combined entity. BFIN currently has NIM of 9.1% (Q1FY2018) and financial cost (CoF) of 7.5%, which compared to IIB’s CoF of 5.32% (for Q1FY2018) is significantly higher, and the reduction of which will aid to profitability as well as sustainable growth. Not only that, presently, BFIN is regulated under MFI rules, which put several restrictions on loan size, category of borrowers, size of cash transactions apart from a spread cap and disallowing more than two MFIs to lend to a single borrower simultaneously.

• We believe the possible merger with BFIN would bring synergy benefits for IIB, like acquisition of high-yielding loans, enhanced priority sector lending and capital release from BFS for the merged entity. However, these synergy benefits would accrue in the medium to long term. IB currently trades at 3.9x FY2019E Price-to-Book Value (P/BV), which we feel is reasonable for a bank in a high growth phase with high ROE, ROA and excellent asset quality. IIB’s resilient asset quality is a key positive and a distinct differentiator among peers. We maintain our Positive stance and expect a potential 10-12% upside from current levels.

Reco Price– Rs 1742 CMP – Rs 1679 View: Positive

Particulars (Rs. Cr.) FY15 FY16 FY17 FY18E FY19E Net Interest Income 3,420 4,517 6,063 7,986 10,354

PAT 1,794 2,286 2,868 3,674 4,708

Growth % 27% 27% 25% 28% 28%

EPS 33.9 38.4 48.2 61.8 79.1

BVPS 193.7 291.0 340.6 393.9 464.2

PE (x) 49.9 44.0 35.1 27.4 21.4

PBV (x) 8.7 5.8 5.0 4.3 3.6

RoE (%) 18.2 16.1 16.2 16.5 18.2

RoA (%) 1.6 1.6 1.6 1.7 1.8

Re-iterate - Indian Oil Corporation

• Indian Oil Corporation Limited’s (IOCL) stock price has corrected by 9% in the past one month on concerns of slowdown in demand for domestic auto fuels and increased debt level on account of high annual capex plan of Rs.20,162 crore. In our view, the above concerns are overstated as we expect recovery in domestic auto fuel consumption and IOCL generates operating cash flow of Rs.25,000 crore-30,000 crore annually, which is enough to fund FY2018 capex plan and dividend (including dividend tax) of Rs.10,000 crore-12,000 crore. The valuation at 7.9x FY2019E EPS also seems to factor in negative EPS impact of Rs.4.1 from GST implementation. Thus, we upgrade our view on IOCL to positive and expect 10-12% upside from the current level.

• The fire at Pernis refinery in Europe and hurricane Harvey in the U.S. have taken off around 3.5-4mbpd of global refinery capacity. Consequently, the crack spread on HSD/MS/jet kerosene has increased by $2.2/$1.5/$2.1 per barrel on sequential basis in Q2FY2018 QTD. Thus, we expect IOCL’s GRM to increase sharply by 96% YoY and QoQ to $8.5/bbl in the current quarter.

• We expect core GRM of $9/bbl for the Paradip refinery on sustainable basis with capex of $2/bbl, which could, thus, add Rs.5,000 crore to IOCL’s EBITDA in FY2019. The likely moderation in retail auto fuel prices is expected to boost HSD consumption coupled with gradual improvement in marketing margin on HSD/MS. For every Rs.0.5/litre rise in auto fuel marketing margin, we expect IOCL’s EBITDA to increase by around Rs.3,200 crore, which could negate the negative impact of around Rs.3,000 crore because of GST.

• Post the sharp correction in the stock price, the valuation of 7.9x FY2019E EPS seems attractive as compared to average one year forward PE multiple of 11x for global refining and marketing peers. Moreover, earnings outlook has also improved with higher refining margins and expectation of an increase in auto fuel marketing margins going forward. Thus, we upgrade our view on IOCL to positive and expect 10-12% upside from here.

Reco Price– Rs 399 CMP – Rs 397 View: Positive

Particulars (Rs. Cr.) FY16 FY17 FY18E FY19E

Net sales 346,045 355,310 406,306 420,454

EBITDA margin (%) 6.8 9.6 10.6 10.7

PAT 14,053 21,973 22,270 24,525

EPS 28.9 45.2 45.9 50.5

RoE (%) 17.5 22.5 20.1 19.6

PER (x) 13.8 8.8 8.7 7.9

L&T Finance Holdings

• L&T Finance Holding (LTFH) has been defocusing/winding down its myriad lending businesses to focus on selected high-margin business segments selected to optimise 1) profitability, 2) scalability and 3) visibility. Presently, the defocused (low ROE/highly competitive) businesses such as small and light commercial vehicles, finance and car loans have been effectively reduced.

• LTFH is seeing a strong increase in its fee and other income stream on a YoY basis, increasing by 46% YoY from Rs.495 crore to Rs.722 crore for FY2017 (up from 0.94% to 1.18% as a percentage of assets). Increased sell downs (doubled in volume during FY2017 from FY2016) have generated larger underwriting and advisory mandates. During Q1FY2018, LTFH has moved to 90DPD basis reporting of GNPAs, which resulted in a sequential rise in GNPAs. However, on comparable 90DPD basis, GNPA ratio improved from 7.11% to 5.71% QoQ. Even in absolute terms, GNPA reduced to Rs.3,698 crore versus Rs.4,519 crore.

• By virtue of a large and marquee parent, LTFH has access to several projects as well as industry expertise, which it can leverage upon to identify and target attractive wholesale accounts. Also, not only LTFH can benefit by leveraging the shared brand recall, it also is able to access strong relations and on-grounds industry knowledge, critical for its B2C businesses.

• Positive factors such as normal monsoon, low borrowing costs, increased rural wages and government’s continued thrust on physical infrastructure creation are aligning for LTFH. Going forward, better managed credit cost will be another lever that will help improve ROE further. Considering the recent run up in the stock price, we believe near-term positives are being factored in. Hence, we are changing our stance from ‘Positive’ to ‘Neutral’ and believe there is 5-8% upside potential from current levels.

Reco Price– Rs 199 CMP – Rs 190 View: Neutral

Particulars (Rs. Cr.) FY15 FY16 FY17 FY18E FY19E

Net Interest Income 2,335 2,693 3,034 3,812 4,438

Growth (%) 33% 15% 13% 26% 16%

PAT 707 854 1,042 1,395 1,740

Growth (%) 23 21 22 34 25

EPS (Rs) 4.3 3.8 5.2 8.0 10.0

BVPS (Rs) 45.0 47.3 51.9 58.6 65.4

P/E (x) 45.3 51.5 37.4 24.4 19.6

P/BV (x) 4.3 4.1 3.8 3.3 3.0

Wealth Creator Generating meaningful wealth in a multi-year rally

Sharekhan's Wealth Creator

Sharekhan’s Wealth Creator portfolio

• A well balanced portfolio of 16-18 quality companies to create meaningful wealth in multi-year rally in the Indian stock market • Capturing the long-term triggers over a period of 3-4 years

Focussed approach

• Careful selection of quality stocks against a backdrop of reviving macro environment and improving policy reforms • It is actively tracked and reviewed every month; timely changes/revisions are made to the portfolio and communicated to the investors

Wealth Creator: ahead of broader indices

Returns (%) (as on 28th Sept, 2017) Since inception (Aug 21, 2014)

Wealth Creator Folio (weighted average returns) 42.0

- Large cap (64%) 41.8

- Mid cap (36%) 42.4

Sensex 18.7

Nifty 23.8

CNX Midcap 60.5

• Sharekhan’s Wealth Creator portfolio continues to outperform the broader indices in the month of September 2017 with cumulative weighted average returns of 42.0% as against 18.7%/23.8% return in Sensex/Nifty.

• We are not making any changes in the current portfolio and expect it to maintain the leading performance in 2017.

Wealth Creator Folio

Sr No Scrip Weights Price as on Target Price Potential Upside

(%) 28-Sep-17 Mar-20 (%)

LargeCaps (64% weightage)

1 Axis Bank 8% 512 1110 116.9

2 Larsen & Toubro 8% 1129 2533 124.3

3 Maruti Suzuki 8% 7973 13550 69.9

4 Britannia 8% 4345 7250 66.9

5 IndusInd Bank 8% 1679 2850 69.7

6 Sun Pharmaceuticals 8% 501 975 94.6

7 Tata Consultancy Services 8% 2478 5100 105.8

8 TVS Motors 8% 644 1080 67.7

Midcaps (36% weightage; 4% each) 9 Capital First 4% 721 1485 106.0

10 V-Guard Ltd 4% 181 310 71.6

11 Indian Oil Corporation 4% 397 750 88.8

12 IRB Infra 4% 223 545 144.5

13 Network 18 Media 4% 45 105 135.4

14 Gabriel India 4% 196 325 66.1

15 Century Plyboard 4% 242 485 100.1

16 Triveni Turbine 4% 129 265 106.2

17 PI Industries 4% 740 1850 149.9%

* Pls note we see scope for upward revision in target price (3-year) of some of the stock depending on the extent of economic recovery and will keep updating on the same.

Think Investment – Think Portfolio

Key Features Best 10 stocks of the day.

Long only Balanced and Concentrated Portfolio.

Quality Companies backed by In-Depth Research.

Actively Managed and Monitored.

Centralized Advice and Execution. Fully invested at all times.

Sample Portfolio

SCRIP NAME TARGET UPSIDE (%)

APOLLOTYRE 320 31%

UPL 980 26%

BAJAJHLDNG 3481 25%

M&M 1525 22%

FEDERALBNK 135 20%

AXISBANK 610 20%

POWERGRID 247 17%

ZEEL 610 17%

GUJGASLTD 972 17%

GODREJIND 664 13%

Power Portfolio - Performance

Performance as on 02nd Oct 2017

Total Active

Portfolios

Portfolio

Return

(%)

Nifty Return

(%)

OP/UP

(%)

No of

Outperforming

Portfolios

Outperforming

Portfolios (%)

2224 22.22 12.66 9.56 1899 85.39

Power Portfolio - Performance

TOP FIVE

Client Start Date Portfolio Return(%) Nifty (%) Outperformance (%)

Client 1 2016-03-22 71.77 26.90 44.87

Client 2 2016-03-21 67.63 28.47 39.16

Client 3 2016-03-16 69.36 30.57 38.79

Client 4 2016-03-18 69.11 30.77 38.34

Client 5 2016-03-16 70.19 31.90 38.29

BOTTOM FIVE

Client Start Date Portfolio Return(%) Nifty (%) Outperformance (%)

Client 1 2017-06-27 -5.24 2.91 -8.15

Client 2 2017-04-20 0.93 7.17 -6.24

Client 3 2016-10-18 7.68 12.80 -5.12

Client 4 2017-06-15 -2.92 2.19 -5.11

Client 5 2016-04-26 17.79 22.90 -5.11

Performance as on 02nd Oct 2017

Power Portfolio # Offering Min Ticket Size

(At time of Investment) Rs. 300000

Top Up facility Rs. 100000 & in multiples of same

Brokerage Delivery 0.50% + Stat cost

Account Opening Charges Rs. 499 (Annual)

AMC ( Upfront & Annual) 1% of Corpus + GST (18%)

Wealthtiger Investment Advisors Pvt. Ltd

Profit Sharing NIL

Advisory Offerings

Segment Product Corpus Clients

Cash Top Picks - Investors

Cash Actionable Ideas - Investors

Cash Alpha Delivery Picks 3 lac Short Term traders

Cash + FNO CTFT 3 lac Traders

Options Derivative Calls 1 Lac Option traders

Options+Fut Derivative Idea 5 lac Strategy + Future traders

1-2 months delivery based Ideas based on Short term triggers (Results/ corporate action/Policy) &/or reported flows. Each Idea will have a Fundamental Rationale/Key Triggers Points .

New Alpha Delivery Picks

Actionable Ideas

Actionable Ideas focus on generating absolute returns with a time frame of 6-12 months and a favorable risk-reward ratio. Stocks are closely tracked with regular interaction with companies’ management to stay abreast of the business outlook.

Alpha Delivery Picks & Actionable Ideas

New Alpha Delivery Picks

Ideas Ideas based on Stock Ideas, Viewpoints, Stock Update,

Market Analysis

Weightage(%) 7

Stop Loss (%) Max -10

Min -5

Profit Potential(%) Max -20

Min -10

Time Frame Max - 2 Months

Trail Stop loss 5% trailing Sl on 5% rise in stock price

Exit Rules

A) Pre defined / Trail Stop loss is hit

B) Unexpected Event/ News/ Outcome

C) Time frame

Performance Reporting Daily

Alpha Delivery Picks - Rules

Alpha Delivery Picks - Performance Sep’17

Summary Sep -17

Initated Open Calls Profit Booked Loss Booked

11 2 9 6

New Alpha Delivery Picks Performance

Financial Year No of Calls Open Calls Profit Booked Loss Booked

FY 2017 – 2018 48 2 25 21

FY 2016 – 2017 100 8 67 25

Sr No Scrip Name Buy Date Close Date Buy Price Sell Price Return Call Result

1 Reliance Inds 28-Jul-17 6-Sep-17 1601 1627 1.65% Profit

2 Yes Bank 11-Aug-17 11-Sep-17 1746 1844 5.57% Profit

3 Vedanta 21-Aug-17 5-Sep-17 301 317 5.19% Profit

4 GSFC 29-Aug-17 22-Sep-17 143 134 -6.27% Loss

5 Balrampur Chini 31-Aug-17 25-Sep-17 171 162 -5.04% Loss

6 Maruti Suzuki 31-Aug-17 4-Sep-17 7588 7869 3.70% Profit

7 Arvind Ltd 1-Sep-17 7-Sep-17 372 399 7.19% Profit

8 Apollo Tyres 1-Sep-17 15-Sep-17 256 257 0.35% Profit

9 IIFL Holdings 7-Sep-17 11-Sep-17 621 682 9.84% Profit

10 V - Guard 7-Sep-17 25-Sep-17 198 184 -6.98% Loss

11 Sintex Plastics 7-Sep-17 15-Sep-17 108 100 -7.29% Loss

12 GNFC 8-Sep-17 25-Sep-17 337 313 -7.10% Loss

13 Strides Shashank 11-Sep-17 12-Sep-17 937 983 4.99% Profit

14 Bank Of Baroda 12-Sep-17 25-Sep-17 140 140 0.14% Profit

15 Axis Bank 18-Sep-17 25-Sep-17 522 495 -5.25% Loss

16 Eros Media 28-Sep-17 4-Oct-17 213 Open

17 Coal India 28-Sep-17 4-Oct-17 264 Open

Actionable Ideas - Performance Sep’17

Sr No Scrip Initiation Date Exit Date Booked Price/

CMP Initiation Price Target Price

Profit/ Loss (%)

1 Ramco Cements 8-Feb-17 13-Sep-17 750 681 750 10.13%

2 Jyothy Labs 19-May-17 19-Sep-17 435 378 435 15.08%

3 Rico Auto 14-Jul-17 7-Sep-17 94 78 94 20.51%

4 Ashok Leyland 25-Jul-17 29-Sep-17 120 104 120 15.38%

5 V-Guard Inds 2-Aug-17 7-Sep-17 200 181 200 10.50%

6 KEC International 3-Aug-17 12-Sep-17 330 299 330 10.37%

7 CESC 1-Sep-17 986.75 1021 1165 -3.35%

8 Rico Auto 11-Sep-17 92.65 92 117 0.71%

9 TVS Motors 11-Sep-17 658.50 636 700 3.54%

10 V-Guard Inds 15-Sep-17 182.50 194 215 -5.93%

11 Bajaj Auto 20-Sep-17 3108.15 3116 3470 -0.25%

12 Yes Bank 21-Sep-17 350.00 375 420 -6.67%

13 ICICI Bank 27-Sep-17 276.95 283 330 -2.14%

Actionable Ideas - Performance Sep’17

Sep-17

Initiated Calls Profit Booked Loss Booked

7 6 0

Actionable Idea Summary

No of Calls Open Calls Profit Booked Loss Booked Avg Profit

Booked per Idea

Unrealized Profit / Loss Per Idea

Strike Rate

334 52 243 35 14.70% -6.05% 87%

Derivatives Calls & Derivative Idea

Derivative Calls

Rs. 1,00,000 Margin

Derivative Idea

Rs. 5,00,000 Margin

Derivatives Calls

• OPTIONS only SEGMENT

• LONG ONLY IDEAS TYPE

• Rs.1,00,000 MARGIN

• 30-40 AVG. IDEAS PER MONTH

• 3-5 MAX OPEN POSITIONS

• 1-5 Days TIME FRAME(MONTHS)

• 50% TARGET(%)

• 20-30% STOP LOSS

• 30-35% of Invested Capital DRAWDOWN AMOUNT (Rs.)

Derivative Calls - Performance Sep’17

Summary Sep-17

Initated Profit Booked Loss Booked Gross Profit/Loss

52 30 22 57949

Derivative Calls Performance

Financial Year No of Calls Profit Booked Loss Booked Gross Profit/Loss

FY 2017 – 2018 268 161 107 217581

Derivatives Idea - Strategy

CTFT

Carry Today for Tomorrow.

Popularly known as BTST / STBT. CTFT is a Trade, Intraday Traders have to carry forward for next day either in Cash segment and/or F&O segment.

CTFT

CTFT

Ideas Ideas / Calls are based on EOD Momentum Triggers

Risk: Reward Ratio 1:2

Time Of Initiation After 2:30 PM

Day of Initiation

Time Of Square Off Any Time after initiation or

Next Trading Day

Time Frame 1 Day

Exposure per Call Rs 1 Lakh in Cash Segment & 1 Lot in F&O Segment

Exit Rules A) Pre defined Target / Stop Loss is hit

B) Time Frame

Performance Reporting Daily

Target Clients Aggressive & High Risk Traders

CTFT- Offering

Cash Ticket Size Rs. 125000

FNO Ticket Size Rs. 500000

Calls per Day Max 1 Call in Cash (Long Only) Max 1-3 Calls in FNO (Long / Short)

Coverage Universe *CNX 500 & FNO Stocks*

Trigger Points End Of Day Momentum Stocks

BTST Calls Segment Cash & FNO Segment

Draw Down 25% of the Corpus

CTFT Performance Sep’17

Sr No Scrip Name Buy/Sell Date Close Date Buy/Sell Reco

Price

Close/

Exit Price Returns (%) Call Result

1 Tata Chem Sep Fut 6-Sep-17 7-Sep-17 Buy 581.9 584.00 0.36% Profit

2 ONGC Sep Fut 11-Sep-17 12-Sep-17 Buy 163.4 161.95 -0.89% Loss

3 UPL Sep Fut 14-Sep-17 15-Sep-17 Buy 822.35 823.20 0.10% Profit

4 Mindtree Sep Fut 25-Sep-17 26-Sep-17 Buy 463.75 471.05 1.57% Profit

5 Tata Motors Sep Fut 26-Sep-17 27-Sep-17 Buy 413.85 409.10 -1.15% Loss

6 Dish Tv 1-Sep-17 4-Sep-17 Buy 81.33 81.05 -0.34% Loss

7 Adani Enterprises 12-Sep-17 13-Sep-17 Buy 133.2 132.70 -0.38% Loss

8 Persistent Systems 15-Sep-17 18-Sep-17 Buy 628 634.04 0.96% Profit

9 Bajaj Holdings 18-Sep-17 19-Sep-17 Buy 2833 2845.02 0.42% Profit

10 Prism Cement 19-Sep-17 20-Sep-17 Buy 110.11 109.00 -1.01% Loss

11 Bajaj Holdings 28-Sep-17 29-Sep-17 Buy 2864.9 2895.45 1.07% Profit

Summary Sep-17

Initated Open Calls Profit Booked Loss Booked 11 0 6 5

CTFT Performance

Financial Year No of Calls Open Calls Profit Booked Loss Booked Profit / Loss Amount

FY 2017 – 2018 82 - 44 37 81440

All Product Call/Alerts Window in TT

Mode of Communication of All Product Calls: - Trade Tiger Call Alert Window (Pop Up) - Email from Advisory Team to Branches

Mode of Communication of All Product Calls: - Trade Tiger Call Alert Window (Pop Up) - Email from Advisory Team to Branches

Market Outlook October 2017

Overview

Markets take a breather

Post GST implementation woes and earnings weakness key limiting factors

But liquidity and global environment favourable

Our Prognosis – Stuck in a Range

Key Investment themes

Markets – Taking a Pause • Markets took a breather last month, while benchmark indices saw limited damage, the correction in broader

market and certain pockets was much more intense and painful

• After the breather, the Sensex premium over MCSI Emerging Market Index cooled off a bit but, in absolute terms, Sensex currently trades at ~18-18.5x one-year forward PE which is higher than its historical average multiples of 15.5-16x.

8.0

10.0

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Sensex PE Average PE

0%

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Oct

-07

Oct

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-11

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Oct

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Oct

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Oct

-17

Sensex Premium to MSCI EM PE Average Premium

GST – Transition pain dents sentiments • Given the back-to-back structural reforms Demon and GST implementation, the economic activity has slowdown

considerably with Q1 GVA figures at 5.7% and RBI (& other estimates) pegging FY2018 growth estimates in the range of 6.5-6.7% marked reduction from 7.2-7.4% expected earlier

• Bond yields have also firmed up sharply from 6.45% to beyond 6.7% in past few weeks. Possible fiscal slippages and RBI concerns related to inflationary pressures (Despite slowdown in eco growth) has led to selling pressure in bond market which is negative for banks and financials.

6.4

6.6

6.8

6-S

ep

11

-Sep

16

-Sep

21

-Sep

26

-Sep

1-O

ct

6-O

ct

India Gsec Yield %

7.9% 7.5%

7.0%

6.1% 5.7%

Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18

GDP

Earnings – Failed to revive yet

• Revival in corporate earnings fell short of expectations in the last two years due to adverse impact of • Commodity crash and • high bank provisions in FY2016

• Demon-led disruption and continued weakness due to clean up in banks led to weakness in FY2017 • GST led disruption has resulted in lower base and may puncture the consensus expectations of 15-18% growth

in earnings of Sensex companies in FY2018

0.0

5000.0

10000.0

15000.0

20000.0

25000.0

30000.0

35000.0

FY14 FY15 FY16 FY17

Aggregate net profit of ICICI, Axis and SBI (Rs Cr)

0

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Copper ($/mt) Nickel ($/mt) Aluminium ($/mt) - RHS

Hopes pinned on H2 and FY2019 now

Outlook: Early signs of demand recovery :

Encouraging Auto growth numbers (considered as lead indicators) indicating at improvement in on-ground demand

Positives triggers for demand and investment in place: GST Implementation is long term positive, Good Monsoons, low inflation and interest rates, positive macros and a stable reforms-led political situation

We remain positive on equities for long-term investment, as we expect earnings growth to accelerate over the next 2-3 years, led by new reforms and a supportive macro environment..

Valuation – Earnings Revival key as there is little scope for re-rating of valuation multiples:

Rally driven by PE expansion in line with global peers. But earnings in India lags some of its peers. Thus, the rally needs to be supported by earnings now as there is limited scope for multiple re-rating form here.

Unfortunately, the weak Q1 results and not so encouraging expectations of Q2 results means the hopes of meaningful would be pinned on H2 and FY2019 now.

Revival in Earnings: Normalisation on low base -Low base formed in banks (huge provisions for bad loans) and commodity stocks; the same likely to reverse in FY2018/2019. - Plus as impact of demon and GST fades the consumer demand would pick up and reflect in financials of auto, media and other consumer disc stocks.

Ample liquidity; strong global equities

More than ample liquidity globally + Strong Equities • Negative yields on close to $13-14 trillion of debt assets

• Number of sovereign bonds issues at negative interest rates; Germany, Swiss, Japan among others

• Even private players like Nestle and Henkel raised long term money at negative yield

• Argentina raises 100-year bond at just 7.5% coupon rate – country that is known to default every alternate decade

• More importantly, the major global indices continue to scale new highs and sentiments for equities is generally positive.

1.80

2.00

2.20

2.40

2.60

2.80

Dec

-16

Feb

-17

Ap

r-1

7

Jun

-17

Au

g-1

7

Oct

-17

US Government Bond Yield

…….and domestically

Real interest rate positive for two years now; encouraging flow of funds into financial assets (away from gold and real estate) including equities.

MF flows of Rs17000-18000 crore including Rs4500 plus through SIPS; on other hand there is withdrawal form debt funds as further decline in the interest rate could be limited from here.

EPFO/{HRDA to increase allocation towards equities.

Expected Flow in Markets this year (Sticky Money) In Crs

SIP 48000 over 4500 Cr Monthly

EPFO 20000 Expected Flow this year

PFRDA 25000 Expected Flow this year

Indian Market:

Premium Valuations Sustainable

Premium Valuation: Hides more than it reflects

• Premium PE (price-earnings) multiples is concerning but should not be the only matrix to track for investors.

• On PBV (price-book value) and Mcap-to-GDP the Indian equities are not expensive as yet.

0.8X

1.0X

0.6X

1.0X

0.9X

0.7X

0.6X

0.7X

0.8X

0.7X

0.9X

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

MCap to GDP

0.0

1.0

2.0

3.0

4.0

5.0

Oct

-07

Oct

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Oct

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Oct

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Oct

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Oct

-12

Oct

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Oct

-14

Oct

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Oct

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Oct

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Sensex P/BV

Premium Valuation: Hides more than it reflects

Low interest rates = Higher Valuation • Premium PE (price-earnings) multiples is also a function of cost of capital.

• Lower interest rates would attract higher PE multiples for equities; easing of interest rates globally has re-rated the

valuation multiples of equities globally.

0

2

4

6

8

10

12

14

16

18

20

Straits Times PE Dow Jones PE DAX PE SENSEX PE Hang Sang PE SHCOMP PE CAC PE

Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17

Premium Valuation: Hides more than it reflects

Index Composition Matters • Rising weight of high PE sectors like consumer and private banks • Reducing weight of commodity sectors like oil & Gas and Metals/Cement • In the last 10 years the weight of high PE sectors have gone up from 26% to 49% whereas the low PE sectors account for

less than 12% weight now.

Conclusion – Stuck in Range

Given the continued weakness in earnings growth and premium valuations, the scope for further re-rating of PE multiples is limited and consequently any material upside could be capped from here in the near future.

Moreover, the street would wait for concrete signs of revival as expected in H2.

Lastly, a lot is at stake for BJP in the forthcoming Gujarat lections which might not be a cake walk for them given the growing pessimism from GST implementation led slowdown in economy. Thereby, would be another factor to keep in check in major upside from here.

On the positive side, the market positions are light and there is sense of cautiousness. Moreover, India continues to be an attractive long term growth story for institutional investors (FII + DI) and there are strong inflows into equities.

Thus, the benchmark indices could remain range-bound over the next few week. However, volatility in the individual stocks could be high during the result season.

Key Investment Themes

Key Investment Themes

Financialisation of savings. Affordable housing: Housing for all by 2022. Government spending on infra/fiscal stimulus. Consumption.

Key Investment Themes

Financialisation of savings:

- Shift from physical assets to financial assets is likely to be a multi-year trend supported by positive real interest rates (interest rates higher than inflation), crackdown on black money (generally flows to physical assets like gold/real estate) and growing investor awareness.

- Positive rub off effect on NBFC’s, Pvt Banking ,Stock Exchanges, Insurance Companies,AMC.

Affordable housing: - Housing for all by 2022 would require immense amount of investment in housing sector and would benefit allied segments. -Positive rub off effect on Cement, Steel, Paints, Housing finance, Tiles, Sanitary ware among other industries. Overall help in creating over 2 million jobs annually and add up to 75 basis points to India’s GDP.

Government spending on infra/fiscal stimulus: - In the absence of private investment and need to boost infrastructure, the government is focusing on capital expenditure on railways, roads, river linking and defense. A whole range of companies would benefit multiple years from expected spending in these select few segments. - Positive for Sectors like Rail, Roads, Waterway, Defense, Power transmission; Housing, Defense

Consumption: It is an evergreen and consistent investment theme that has been a key driver of Indian economy for the past few years. We expect both urban and rural consumer demand to recover on the back of good monsoons and shift in market share from unorganized to organized sector in many segments due to recent policy measures. - Positive for Auto’s,FMCG

Key Investment Themes

Thank You

The views expressed herein are solely of the analyst, Any review, retransmission, or any other use is prohibited. The information contained herein is from publicly available data or other sources believed to be reliable. Each recipient of this information should make such investigations as it deems necessary to arrive at an independent evaluation of an investment avenue referred to in this web cast and determine the merits and risks of such an investment. Further each recipient of this information may take their own decisions based on their specific investment objectives and financial position and using such independent advisors, as they believe necessary. This information is given in good faith and Sharekhan Ltd makes no representations or warranties, express or implied as to the accuracy or completeness of the information and shall have no liability to you or your representative(s) resulting from use of this information. The investment ideas discussed or views expressed may not be suitable for all investors Analysts and other employees of Sharekhan and Sharekhan may have holdings in the companies mentioned in the webcast. Sharekhan neither makes any representation as to the quality, liquidity or market perception on the securities/market, not does it provide any guarantee whatsoever. The risk arising out of the /participation in any financial instrument will rest fully with you without any form of recourse to Sharekhan. The views are for assistance only and are not intended to be and must not alone be taken as the basis for an investment decision.

Disclaimer

Q1 FY18 Review

Q1 FY18 Results: Little to cheer, long term positives encouraging GST causes in Volumes growth disruption: Inventory de-stocking (due to GST) impacts revenue growth, volumes for several sectors.

Margins impacted: Rise in commodity prices (steel, aluminum, cooper, lead etc.) led to higher input costs for mfg. Sectors like auto, cement, paints, etc. thereby impacting margins.

Also higher discounts to clear inventory before GST implementation also impacted margins.

NPA pains yet to get over: Banks’ accelerated NPA recognition, provision requirements and absence of treasury profits resulted in Net Interest Margins (NIMs) shrinking for several players, both in the private and public banking space.

Outlook: Early signs of demand recovery :

Encouraging Auto growth numbers (considered as lead indicators) indicating at improvement in on-ground demand

Positives triggers for demand and investment in place: GST Implementation is long term positive, Good Monsoons, low inflation and interest rates, positive macros and a stable reforms-led political situation

We remain positive on equities for long-term investment, as we expect earnings growth to accelerate over the next 2-3 years, led by new reforms and a supportive macro environment..

Valuation – Earnings Revival key as there is little scope for re-rating of valuation multiples:

Supportive Global and domestic macro-economic conditions but

earnings growth will be the best indicator to anticipate market performance.

Limited scope at present for re-rating in most segments.

Leader – Laggards of Q1 FY18