Dated: 30th August 2019

Update on Indian market: The week ended on a positive note. The Nifty gained 0.68% on Friday to close at 11,023. Indian equity benchmarks ended higher in anticipation of another set of measures from the government to support a slowing economy. Finance Minister Nirmala Sitharaman announced a mega public sector bank merger where 10 banks will be amalgamated into 4 entities. India’s growth rate for April-June 2019 slipped to 5% compared to 8% a year ago, as per the latest data from the Central Statistics Office (CSO) released on Friday. The growth slowest in 25 quarters is being attributed to a sharp deceleration in the manufacturing sector and sluggish agriculture output.

Among the sectoral indices, Pharma was an outlier with the index rising 2.02%. Within the stocks, Yes Bank (+5.23%), Sun Pharma (+4.03%) and Zeel (+3.69%) were the best performers while Bharti Infratel (-3.23%), Coal India (-2.28%) and Eicher Motors (-1.68%) were the worst performers.

Thyrocare Technologies Ltd – A shift to organised sector to increase in the next 20 years.

Key highlights of the interview given by Mr A. Velumani, Promoter, Chairman, MD & CEO of Thyrocare Technologies Ltd on Economic Times:

1.      Shift from the unorganised sector to organised sector in healthcare space is happening for the last 10 years. This shift is happening with people becoming aware of brands. According to him, the brands are communicating and hence they are visible. So, the move from unorganised to organised has been happening. But the move is very slow. He sees the contribution of the organised sector to reach 20% in the time horizon of 20 years. Currently, the organised market contributes around 5-7% of the total market.

2.      He has seen unorganised players operating recklessly having no control on quality. There are instances where they pay no tax at all. So, the entry of such players is much faster than the growth of the industry.

3.      The preventive care segment is the key reason for the shift in organised space which contributes 10% of the total turnover of the industry. The preventive care segment is growing because of the increased awareness amongst the people. Increase in the per capita income and also the rates of the preventive care which is competitive are supporting the balance sheet of all organised listed players. 

4.      According to him, B2C (Business-to-Consumer) players are comfortable as they do not have true competition on a large scale. The price competition is not sensed in the B2C segment because common man does not know what test costs how much. This is not the case with the B2B (Business-to-Business) players. B2B players like Thyrocare has to deal with another businessman who knows what is the cost and what is the pricing. 80% of the business of Thyrocare is B2B. 

5.      Thyrocare has been facing some challenges in growth but is confident of gaining the growth back on track and believe that the current EBITDA level is sustainable for five more years.

Consensus estimates (Marketscreener website):

·        The stock price was Rs 463/- as of close price of 30th August 2019 and trades at P/E multiple of 25x / 22x / 19x the consensus EPS of Rs 18.6/ 20.8/23.8 for FY20E /21E / 22E respectively. 

·        Consensus target price is Rs 530.4/- implying P/E of 22x for FY22E EPS of Rs 23.8/-

Dated: 29th August 2019
Market update:
With no big catalyst today, the markets continued to fall for third straight day as Nifty dropped -0.9% to 10,948. Today was also the monthly F&O (Futures and Options) expiry day which led to volatile trading session. It is important to note that the FIIs have continued to sell their positions in spite of rollback of additional surcharge. This highlights that the focus is on the economy and corporate earnings growth.

Among the sectoral indices, Pharma was an outlier with the index rising 2.3%. 7 out of 11 major indices were in the red zone with Financial services (-1.9%) and Banks (-1.8%) led the drop. Within the stocks, Sun pharma (+5.2%) bharti infratel (+3.5%), JSW steel (+3.0%) were the best performers while SBI (-3.7%), Yes bank (-3.5%) and HDFC (-2.68%) were the worst performers.

Lupin Ltd: complex generics and specialty to drive US revenues

Following are the excerpts from the interview given by Mr Nilesh Gupta, Managing Director of Lupin, published in Livemint.

• The industry is going through a major transformation at this point of time. He mentioned that the industry had 10 years of strong growth where the Indian generics markets were doing well.
• In the last 2-3 years, the generics industry is under pressure in the US. He attributed two reasons for this slowdown. First, in the beginning, the industry used to have at least 10 customers controlling about 90% of the market. In the current markets, only three customers control the 90% of the market. This shift happened 2 years ago. The second reason is hyper competition among the players for market share which led to pricing pressure.
• Lupin was a late entrant in the generics market. The other companies were already present in the generics market 15 year ago. In spite of that, the company was able to execute the story well for 10 years. In the last 2-3 years, things have started to go down.
• On the generics front, currently the company is facing single digit price erosion. During the times when the consolidation of customers took place, the price erosion was in the range of 12-15%. He mentioned that price increases were very permissible in the past. In the present market, nobody would take any rational price increase.
• Gupta was bullish about Indian market. Lupin is number five in the Indian market. The market is growing in the range of 8-10%, which is above most of the markets. The company has more market share in US than in India. He was of the opinion that as the affordability of India increases, with that increases the ability to get diagnosed and then get treated as well. This will be a great long term opportunity for Indian market.
• About the lawsuit against Indian pharma companies including Lupin in US, the company has done internal investigation. He is confident about the company’s position and merits of the case.
• Biosimilars is a great opportunity for the company. Lupin is expanding heavily in this segment. The company has six products in the pipeline. Three of them are more later stage and the remaining three are in the early stage of development.
• According to Gupta, the big growth drivers for the companies, especially in the US, are going to be from complex generics and specialty in the next five years.

Consensus Estimate (Source: marketscreener website)

• The closing price of Lupin was Rs 734/- as of 29^th August 2019. It traded at a price to Earnings Multiple (P/E) multiple of 19x/16x the consensus EPS estimates for FY20/21E of Rs 38.2/45.8 respectively.
• Consensus target price of Rs 794/- implies a P/E multiple of 17x on EPS of Rs 45.8 for the year ending Mar-21E.

Dated: 29th August 2019
Market update:

With no big catalyst today, the markets continued to fall for third straight day as Nifty dropped -0.9% to 10,948. Today was also the monthly F&O (Futures and Options) expiry day which led to volatile trading session. It is important to note that the FIIs have continued to sell their positions in spite of rollback of additional surcharge. This highlights that the focus is on the economy and corporate earnings growth.

Among the sectoral indices, Pharma was an outlier with the index rising 2.3%. 7 out of 11 major indices were in the red zone with Financial services (-1.9%) and Banks (-1.8%) led the drop. Within the stocks, Sun pharma (+5.2%) bharti infratel (+3.5%), JSW steel (+3.0%) were the best performers while SBI (-3.7%), Yes bank (-3.5%) and HDFC (-2.68%) were the worst performers.

HDFC Life – Robust FY20 strategy to drive growth

Key highlights from interview with Mrs. VIbha Padalkar (CEO- HDFC Life) that appeared in Economic Times – 29^th August 2019

• The market realises a couple of things. One is that insurance companies have a much longer horizon in terms of everything and fundamentals of Indian macros are pretty strong and worldwide it is seen as very strong emerging market.
• The understanding of what insurance products can offer which are different from investment related insurance products as it was known earlier, is becoming more and more apparent.
• Protection is something that insurance companies are beginning to focus on and HFDC Life has been the market leaders in that space.
• They expect the industry to grow from strength to strength despite all the macro level volatility that they are seeing.
• HDFC Life has always believed in the principles of strong growth and profitability. Market share is an outcome. It will continue to beat overall industry growth but not necessarily be the first in terms of profitability as well as market share.
• 1Q margins were very robust, just shy of 30% and this was on the back of a lot of focus on  non-par product which is Sanchay Plus. However, on a full year basis, this will stabilize somewhat. It will certainly be higher than where it ended last year but nevertheless rationalise.
• She believes in a balanced product mix. HDFC life might be exiting the year with a non-par portfolio in the range of about 35 odd per cent.
• HDFC Life continues to be interested in evaluating inorganic growth opportunities that come its way. They have a currency and a strong balance sheet but they want to do this in a sensible manner. As regards Max Life, nothing is on the table right now but they continue to remain interested.

Strategy for FY20:

1. In Q1, agency channel grew 121%, bancassurance grew upwards of 45%, broker channel grew three times, online channel almost doubled. In FY20, they want to continue to forge ahead through all its channels. They want to be firing on all the channels.
2. They want to continue to be known as product innovator and they have a few in the pipeline and they are hoping that by the end of 3Q, they can take some more blockbuster products to market which will be first of its kind.
3. They are known as a technology-focussed life insurer. On that part as well, they have mentioned in the past that they have tied up with Ivy Camp and they are looking under their Futurance umbrella at a whole host of start-ups that can work with them.
4. Be it in the pension space or the life insurance space, they are looking at it as an end-to-end platform.
5. Forging ahead in the ecosystem such as the recent tie up with Airtel. They are having more conversations that are happening with the new ecosystem partners who at present have a very huge customer base who have not really thought that they could sell financial services products through their own channels.

Consensus estimates (Marketscreener website):

• The stock price was Rs 541/- as of close price of 29^th August 2019 and trades at P/E multiple of 72x / 62x / 56x the consensus EPS of Rs 7.5/ 8.8 /9.6 for FY20E /21E / 22E respectively. 
• Consensus target price is Rs 529/- implying P/E of 55x for FY22E EPS of Rs 9.6.

Dated : 27th August 2019

Update on Indian Market:

Indian markets moved up on Tuesday. Nifty closed 0.43% higher. Among the sectoral Nifty indices, Bank (0.63%), Auto (1.85%), Metal (2.09%) closed higher, whereas Pharma (-0.16%), IT (-1.35%), Media (-0.18%) closed lower.

Is it the best time to buy cars?

Excerpts from an interview of Mr Nikunj Sanghi, Director Federation of Automobile Dealers Associations (FADA) given to ETNOW – dated 19 August 2019

• Large amounts of discounts are given by OEM’s, dealers to tackle the pressure to push inventory out, as BS-VI transition is just around the corner.
• Speaking about the discounts Mr Sanghi says, the discount on diesel vehicles are the highest because in smaller vehicles, diesel as a fuel is taking a hit and the customer is shifting towards petrol.
• Most manufacturers have said that they will not produce diesel variant of small cars, because the cost of small car becoming a BS-VI is higher as a proportion to total cost.
• Mr Sanghi don’t expect further increase in discounts because they are already on peak, also the monsoon has done reasonably and a lot of shortfall of the monsoon has been covered.
• The festive season is also on its way and both dealers and manufacturers are looking at a much better festival season than the past five, six months that they have already seen.
• Mr Sanghi believes that major correction took place in passenger vehicle segment, but inventory continues to be a concern for two-wheeler and Commercial vehicles dealers and manufacturers.
• A relief is expected from the guarantee scheme for the NBFC’s that the government of India has floated, which will help in inventory funding. When money comes in system, it creates a better environment for dealers.
•  Corrections have also taken place in terms of man power a lot of OEM’s are now cutting down production and hiving off staff, he believes the pain is likely to continue for some period of time.
• Mr Sanghi says, that the level of inventory in the pipeline is sufficient for the festival season and don’t expect a build up in inventory as it normally happens.

Our views – In our view, the festive season is expected to be robust because of the heavy discounts offered by auto manufacturers. The other factor is that most of the companies are expected to roll out the BS-VI compliant vehicles as early as this December. This is expected to increase price of vehicles. Hence this might be a strong festive season for companies 

Dated: 26th August 2019

Update on the Indian market:

Indian markets rallied on Monday amid weak global macros. Nifty 50 closed 2.1% higher.  The rally was driven by various announcements made by the Finance Minister on Friday evening. The details about the announcements are discussed in today’s update.  Among the sectoral indices, Financial services (4.0%), Banks (3.9%) and Media (3.6%) were the best performers while only Metal (-0.9%) ended in the negative zone.

Here comes the relief package from FM, more to follow

The Finance Minister Ms Nirmala Sitharaman, in her press conference on 23^rd August 2019, announced a relief package for Indian economy. Following are the key announcements from the Finance Minister:

• Roll-back of higher surcharge on capital gains tax for FPIs (Foreign Portfolio Investors).
• Immediate recapitalisation of PSB (Public Sector Banks) of Rs 700bn. This can facilitate additional lending and liquidity to the tune of Rs 5000bn by providing upfront capital to PSB.
• Additional liquidity to HFCs (Housing Finance Companies) worth Rs 200 bn by NHB (National Housing Bank)
• Withdrawal of angel tax provisions for start-ups.
• Repayment of pending GST refunds to MSMEs within 30 days and future refunds in 60 days.
• Repayment of 75% of funds in contractual disputes between government/ CPSEs and private entities.
• Launch of repo/external benchmark-linked interest rate products. The government would take further action on the development of Credit Default Swap markets soon, in consultation with RBI and SEBI.

In our view, the roll-back of higher surcharge on FPIs is a positive development for the equities market. Since the announcement of budget on 5^th July 2019, the FIIs sold total Rs 292,360 mn till 23^rd August 2019. We expect the selling pressure from FIIs to slow down with the announcement.

The companies from the Auto industry were demanding a GST rate cut to revive demand. The government has provided some relief like deferring the revision of one-time registration fees till June 2020, higher depreciation on purchases made during FY20, BS-IV vehicles purchased before 31st March 2020 to remain operational for the entire period of registration.

The Finance Minister has mentioned that she will announce more measures to boost the economy in the coming days. The timeline for this is not yet known. While the relief package announcement made by the government is welcome, we hope it does not get overshadowed by increasing bitterness in tariff wars between the US and China.

Michael Batnick writes that one of the biggest challenges investors face is their desire to tinker. Like Pascal said, “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”

You don’t dig up a young tree every time storms. It needs time to grow. The roots can handle wind and rain and thunder. Likewise, a diversified portfolio needs time to grow, and can also withstand some discomfort. Beyond discomfort, investors will have to survive tornadoes from time to time. 

Morgan Housel recently framed how different investors might deal with market turbulence: If you view every debt-fueled recession, market crash, and asset bubble as an example of your fellow people acting crazy you might get cynical, which makes it hard to be a long-term optimist even when you should be. If you view them as inevitable you realize they’re just part of the ride and an occasional reminder that the fasten-your-seatbelt sign should never be turned off.

So, finally, here are the three things you can do to think and act for the long-term:

• You can’t think long-term if you’re not saving money. Everyone knows what their income is, not everyone has a handle on the other side of the ledger. You don’t have to create an agonizingly detailed spreadsheet of every Rupee that goes out, but you must have a rough idea of what you can afford to save every month. And those savings must be automated. When your income comes in, savings go out. Pay yourself first. (I understand that saving money is a luxury many people don’t have, but if you’re reading this, I assume you’re one of the fortunate ones)
• You can’t think long-term if you are experiencing a short-term cash crunch. The best way to avoid this is to keep your big-ticket items to a reasonable percentage of your income. Coffee won’t break the bank, a mortgage and car payments can. The second best way to avoid a short-term cash crunch is to have cash in the bank. Six months seems reasonable, but if you’re responsible with your bills, I’m okay with having less.
• You can’t think long-term if you take more risk than you can stomach. If you thought about how much higher the market might be in twenty years, would you care how low it went tomorrow? In theory no, in reality, obviously yes. And this is where planning comes into play. If you really hate seeing your account go down, then figure out where your maximum pain point is and work backward. For example, if 10% is the maximum loss you can tolerate, using the assumption that stocks can get cut in half, you should have no more than 20% of your portfolio in stocks at any time. Of course, this will severely limit your upside, but investing isn’t just about maximizing return, it’s about maximizing a return that you can reasonably expect to achieve.

Batnick concludes that if these seem obvious to you, good, that’s the idea. This isn’t rocket science. Thinking long-term is hard, which is why it can be so rewarding. Acting on short-term impulses, on the other hand, is a short cut, which rarely works out well. The most successful investors are able to ignore the things today that they know won’t matter tomorrow.