India Strategy

Mandate 2024
May 14, 2024 Brace for volatility
As India completes 4th phase of most hotly contested Lok Sabha elections
Our Latest India Strategy Report in its history, narrative along NDA falling short of a majority or INDIA alliance
coming to power are raising their head, at least in social media and global
press. Markets have been nervous from past couple of weeks and sustained
volatility in run upto June 4 seems likely. Fear around a repeat of UPA victory
in 2004 is making markets nervous as the unexpected event had resulted in
15% cut in Sensex in a single day. We try to analyze and identify stocks,
which will remain a good bet irrespective of regime in power. While it will be
a continuation of policies if NDA comes back to power and themes around
Infra, Defence, CG, New energy, Tourism etc, will continue to do well.
Consumer, 2W and Tractors can get a boost from green shoots in rural
demand and expectations of normal monsoons.

INDIA alliance coming to power will de-rate markets and specific sectors like
defence, capital goods, Tourism, PSU’s (including Banks), Drones, AMC,
wires and Cables, Plastic Pipes and EMS. We believe sectors like FMCG,
Retail, 2W, PV (entry level), Tractors, Real Estate, Logistics (Ecom centric)
and consumer Durables will benefit from expected policies. We believe Post
Lehman trade of a shift towards FMCG, Private Banks, IT services,
Healthcare and Auto can again come to the fore, albeit including ground
realities around current global and technology scenario.

We turn “Overweight” on consumer after 2.5 years as we increase weight

behind HUL, ITC, Britannia and Titan Inds, we also add Delhivery in model
portfolio as a proxy to consumer demand. We turn over weight on auto and
add Hero MotoCorp in model portfolio even as we increase weight on Maruti
and M&M. We believe Consumer and Auto (PV, 2W and Tractor) provide a
good hedge as it will benefit from green shoots in rural demand if current
Govt continues. The scenario will further improve if INDIA comes to power
and doles out freebies to large section of population.

Capex led industries might suffer under INDIA alliance: Post Covid India as
emerged as the fastest growing economy as the bounce back from pandemic has
been very fast and schemes like PLI, PM Avas and big capex push from GOI have
boosted overall economy. We believe a freebies led agenda of INDIA alliance will
make a major dent to capex plans of GOI. We believe segments like EPS, defence,
railways, Capital Goods, New energy, wire and cables will suffer in INDIA regime.
This can result in sharp selloff in most of these sectors and segments. However,
global technology leaders like ABB, Siemens, Schneider, Honeywell, Hitachi, GGE
etc. will be able to withstand impact and continue to grow.

Domestic consumption seems well placed on all fronts: we believe domestic

Amnish Aggarwal consumption led sectors like consumer staples and Auto will boost demand under
[email protected] | 91-22-66322233
INDIA alliance, as huge doles of freebies, loan waivers will revive demand from
rural India and bottom end of urban India. In addition light consumer durables,
telecom will also witness a surge in demand. We note that rural demand is already
showing initial signs of revival which will be accelerated by freebies and loan

May 14, 2024 1

 India Strategy

waivers. We believe consumption led sectors will do better, irrespective of which

Govt comes to power.

Market likely to be de-rated if INDIA alliance comes to power: We have

analyzed and created scenarios showing specific sectors/stocks, which will benefit
depending upon which regime comes to power. This list is not a finality but based
on our analysis and Judgement. We are giving a list of sectors and stocks and
sectors, which will do well irrespective of the Govt at the center.

 FMCG – Rural demand revival will get a boost if supplemented by Freebies.

Key stocks – HUL, Dabur, Emami, Marico, GCPL, Britannia, Varun Beverages

 Auto – 2- wheeler, Tractor and entry level cars will benefit. Key stocks - Hero
MotoCorp, Maruti and M&M.

 Healthcare – perfect defensive with Sun Pharma, Cipla, Max Health and
Jupiter as key stocks

 IT services – More of a global play with very limited impact. Key stocks – TCS,
LTI Mind tree, HCL tech, Cyient, and Tata Tech

 Private Banks – we expect de-raying of all PSU’s including banks. Focus may
shift to top rung private banks, which are already trading at significant discount
to their last 10 year P/ABV. Key stocks - HDFC Bank, Kotak Mahindra Bank,
Axis Bank, ICICI Bank

 Capital Goods – While many segments in EPC, defence, new energy are at
risk. We believe global technology leaders like Siemens, ABB, Schneider,
Honeywell, Elantas Beck, GE T&D, Hitachi Energy, Timken, Schaffler etc. are
likely to suffer much less impact.

 Hindalco, Havells India and Telecom companies like Bharti Airtel will not be
impacted

May 14, 2024 2

 India Strategy

NDA or INDIA Alliance: likely sectoral impact and key stocks

Scenario I Scenario II Scenario III Scenario IV
Government NDA NDA INDIA INDIA
Seats BJP 300-325 BJP 275-300 Congress - 150 Congress - 180
Market Reaction Very Positive Positive De-rating De-rating

Sector Companies Sector Companies

HUL, Dabur, Emami,
L&T, Adani Port, Road & Metro
Infra FMCG Britannia, GCPL, Marico,
EPC companies
Varun Beverages
Siemens, ABB, Carborandum,
V Mart, Relaxo, Campus,
Capital Goods Schneider, Esab, Ingersoll Rand, Retail
Rupa, Lux, Trent (Zudio)
Kirloskar Pneumatic
HAL, BEL, BDL, BEML, Mazgaon
Defence 2 Wheelers Hero MotoCorp, TVS Motors
Dock, Cochin Ship
Cement Ultratech, Ambuja Cement Railways HBL Power, Siemens
Gainers
Reliance Inds, Sterling Wilson,
New Energy Entry Level PV, Tractors Maruti Suzuki, M&M, Escorts
Waree, L&T, Praj Inds
Metals JSPL, JSL Real Estate DLF and Others
PSU Banks SBI, BOB, Canara, Union, PNB Logistics Delhivery, Mahindra Logistics
Bajaj Elec, Orient Electric,
PSU Across Sectors including OMC Consumer Durables
Crompton Consumer
Polycab, RR Kabel, Dixon, Amber,
Wire and Cable, EMS
Keynes, Syrma

HAL, BEL, BDL, BEML,

Defence
Mazgaon Dock, Cohin Ship
PSU Across Sectors
SBI, BOB, Canara, Union,
PSU Banks
PNB
NBFC Second rung companies
Aviation Interglobe Aviation, Speicejet
Indian Hotels, Chalet, EIH,
Tourism
Lemon Tree
Cement All stocks
Losers None as there will be continuation of Policies
Metals All stocks except Hindalco
Drones All Companies
HDFC, Nippon, UTI, Birla
AMC
AMC
MFI De-rating
Wire and Cable Polycab, RR Kabel
Plastic Pipe Supreme, Astral
Keynes, Syrma, Avalon,
EMS
Cyient DLM

Sector Companies
HUL, Britannia, GCPL, Marico, Dabur, Emami, Varun
FMCG
Beverages
Auto Eicher, Hero MotoCorp, M&M, Maruti Suzuki
Pharma, Hospital Sun, Max Healthcare, Lupin, Jupiter Hospitals
IT Services TCS, HCL Tech, LTI Mind tree, Cyient,
Defensive Hedge
Private Banks HDFC Bank, Kotak, Axis and ICICI Bank
Siemens, ABB, Schneider, Honeywell, Elantas Beck, Timken,
Capital Goods
Hitachi Energy, GE T&D
Commodities Hindalco
Consumer Durables/ Telecom/ Others Havells India, Bharti Airtel, Delhivery

Source: PL

** This list is only indicative and there could be other stocks outside this, which could qualify for each of these scenarios

May 14, 2024 3

 India Strategy

Model Portfolio

Model Portfolio v/s Nifty Nifty PL

Mcap
Sectors Weightage Weightage Weights
Model (Rs bn)
Returns Nifty Perf. (%) (%)
Portfolio Automobiles 8.0 9.0 Overweight
Mahindra & Mahindra 2,716 2.2 3.0
Since
127.94% 105.37% 22.57% Maruti Suzuki 3,985 1.7 3.0
Nov'18
Tata Motors 3,518 1.7 1.5
Since Hero Motorcorp 977 0.7 1.5
Last 2.52% 0.49% 2.03%
Report Banks 29.3 29.3 Overweight
Axis Bank 3,496 3.3 3.4
Since
30.7% 24.83% 5.87% HDFC Bank 11,064 11.2 10.0
Apr'23
ICICI Bank 7,928 8.1 9.0
Source: PL Kotak Mahindra Bank 3,263 2.5 3.7
State Bank Of India 7,218 3.2 3.2

Cement 1.1 0.6 Underweight

UltraTech Cement 2,757 1.1 0.6

Construction & Engineering 7.1 12.0 Overweight

ABB 1,692 3.0
Carborandum Universal 287 1.0
Larsen & Toubro 4,528 4.0 3.5
Siemens 2,358 4.5

Consumer 11.1 12.0 Overweight

Britannia Industries 1,236 0.6 1.5
Avenue Supermarts 3,054 1.0
Hindustan Unilever 5,547 2.2 2.2
ITC 5,392 3.9 2.0
Nestle India 2,426 0.9 1.0
Titan Company 2,889 1.4 2.0
Astral 595 1.0
Interglobe Aviation 1,576 1.3

Healthcare 4.3 7.3 Overweight

Apollo Hospitals Enterprises 838 0.6 1.0
Cipla 1,142 0.8 1.5
Max Healthcare 778.06 3.0
Sun Pharmaceutical Industries 3,659 1.7 1.8

IT 12.7 10.9 Underweight

Infosys 5,909 5.2 4.5
LTI Mindtree 1,360.44 0.7 1.2
L&T Technology 467 1.0
Tata Consultancy Services 14,283 4.1 4.2

Metals 4.2 1.5 Underweight

Hindalco Industries 1,424 1.0 1.0
Jindal Steel & Power 958 0.5

Diversified Financials 4.7 3.0 Underweight

Bajaj Finance 4,159 1.9 1.5
HDFC AMC 784 1.5

Oil & Gas 11.4 10.0 Underweight

Reliance Industries 18,982 9.7 10.0

Telecom 3.4 4.0 Overweight

Bharti Airtel 7,648 3.4 4.0

Others 2.7 0.5 Underweight

Delhivery 332 0.5

Cash -

PL Model Portfolio has outperformed NIFTY by 22.57% since Nov 2018, 5.87%
since April 23 and 2.03% since last report.

May 14, 2024 4

 India Strategy

 Banks: Overweight: We believe Banks are a good hedge in current situation

as many of them are trading at significantly lower P/ABV than their historical
averages. Although Banks can suffer in case of India de-rating, PSU banks
have higher risk and private banks seem better placed. We re capping max
weight on any stock to 10%. We are increasing weight on KBM from 2.8% to
3.7% as RBI led restrictions will have only temporary impact on its performance
and risk reward looks favorable at 1.6xFY26 P/ABV.

 Healthcare: Over weight: We believe Pharma and Hospitals remains a

defensive play and we remain overweight. We remain positive on Hospitals led
by Max healthcare with huge overweight given gains from brownfield
expansion in Mumbai and NCR and acquisitions.

 Consumer: Over weight: We turn overweight on consumer after 2.5 years as

twin benefit of green shoots in rural India and normal monsoons will boost
demand for staples. Moreover, any potential freebies can significantly re-rate
sector. We increase weight behind HUL, ITC, Britannia and TTAN (should re-
bound in H225).

 Capital Goods: Overweight: We retain overweight, as we believe that some

of the technology changes on T&D, renewables, Data centers, AI, etc. are
structural. We believe defence, PSU has and infra have the risk of regime
change and we cut weight on L&T by 100bps. We believe technology leaders
like ABB, Siemens, Schneider, GE, Honeywell, Hitachi etc. will not be impacted
by political turmoil and remain a good play irrespective of the regime.

 IT services: underweight: remain under- weight on IT services as recovery

in IT services is delayed. We believe segments like EDS, Data Analytics,
Digital, Artificial intelligence and supply chain etc. will drive growth in next
cycle; however, the sector can be defensive hedge in run upto elections.

 Automobiles: Overweight: We include Hero Moto Corp as a proxy on rural

demand revival and add it to model portfolio. We also increase weight
significantly on Maruti Suzuki and M&M. We believe M&M can gain from strong
SUV demand and upsurge in tractor demand post normal monsoons, any
potential benefits to agriculture can be an icing on the cake.

 Oil and Gas: Underweight; we remain underweight as we avoid all PSU’s. We

cut weight on RIL to 10% (max for any stock) as a formidable play on Retail,
telecom and new energy.

 Telecom: we remain overweight on Bharti Airtel as data sage will remain

strong and sector offers secular growth with least risk. We believe completion
of 5G auctions and tariff hike post elections/ JIO platforms demerger will be a
key trigger in the medium term.

May 14, 2024 5

 India Strategy

NIFTY 4.5x since 2010 NIFTY auto has outperformed NIFTY 50

NIFTY 50 800 NIFTY 50 NIFTY AUTO

700 667
425
450
400 600
350 500
300 221 400
250 262 425
200 300
127
150 200 181
100 156 221
50 100
127
- -
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24

FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
Source: Company, PL Source: Company, PL

NIFTY Bank saw major outperformance post 2014 NIFTY Financials has shown sustained OP

600 600 561

NIFTY 50 NIFTY BANK NIFTY 50 Nifty Financial Services
500
500 500

400 400 331

319 425 425
300 300

200 200
132 221 138 221
100 100
127 127
- -
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24

FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
Source: Company, PL Source: Company, PL

NIFTY FMCG on a sustained run IT Services - Post Covid phase led to OP

800 NIFTY 50 NIFTY FMCG 742 700 NIFTY 50 NIFTY IT

586
700 600
600 500
500 416 400
400 425
425 300 265
300 249
200 200 158
221
221
100 100
127 127
- -
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24

FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24

Source: Company, PL Source: Company, PL

May 14, 2024 6

 India Strategy

Metals - Catch up post 2020 after 1 decade of UP Pharma - On a comeback, but volatile

450 NIFTY 50 NIFTY METAL 425 600 NIFTY 50 NIFTY PHARMA

400 478
500
350
300 400
425
250 221
174 300 233
200
127 191
150 200
221
100
100
50 127
51 63
- -
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24

FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
Source: Company, PL Source: Company, PL

Media - UP led by global tech changes Reality - Coming out of decade long UP

450 425 450 425

NIFTY 50 NIFTY MEDIA NIFTY 50 NIFTY REALTY
400 400
350 350
300 300 322
250 221 250 221
200 200
150 127 150 127
100 147 100
108 112 91
50 50
64
- -
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24

FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
Source: Company, PL Source: Company, PL

Infra - Gathering steam since 2020 Energy - Sharp catch up after a long winter

450 425 600 561

NIFTY 50 Nifty Infrastructure NIFTY 50 NIFTY ENERGY
400
500
350
300 400
425
250 221 300
300 235
200
150 127 200
127 221
100 115 100
50 93 120
- -
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23

FY24

Source: Company, PL Source: Company, PL

May 14, 2024 7

 India Strategy
PL’s Recommendation Nomenclature
Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

May 14, 2024 8

 India Strategy

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We/I Mr. Amnish Aggarwal- MBA, CFA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report
accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report.

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recommendation or views expressed in this research report.

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Amnish
Digitally signed by Amnish Aggarwal
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May 14, 2024 2.5.4.20=21151ea12dd366d1ac370cb42343ee44b6e851c37bdbac5f86a

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Date: 2024.05.14 14:22:51 +05'30'