Commodity Report 3rd February 2020


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Gold and silver gain as WHO declares Chinese coronavirus as health emergency. Trend firm.


On Friday, gold and silver prices settled on a positive note in the international markets. Gold April futures settled at $1,587.90 per troy ounce, up by 0.01%, while silver March futures settled at $18.03 per troy ounce, up by 0.19%. Domestic markets also settled on a positive note on Saturday. Gold settled at Rs41,205 per 10 grams with a gain of 0.37%, and silver settled at Rs47,118 per kilogram with a gain of 0.27%. Gold and silver prices gained as WHO declared the Chinese coronavirus as a health emergency. Global equity markets tumbled on Friday, which supported precious metal prices. Prices also gained in domestic markets as the Finance Minister maintained status quo on the import duty on gold and silver in the Union Budget. The Union Budget also disappointed domestic equity markets and the rupee is also weakening, thereby supporting the prices of both precious metals. We expect prices of both precious metals to remain firm and could test next resistance levels. Gold has support at $1,584–1,572 and resistance is at $1,592–1,600. Silver has support at $17.84–17.60, while resistance is at $18.18–18.40.



Crude oil prices dip due to coronavirus outbreak and rising Russian oil production. Trend volatile.


On Friday, crude oil settled on a weaker note in international markets as WTI crude settled at $51.62 per barrel, while Brent settled at $56.65 per barrel. Domestic markets also settled on a weaker note at Rs3,677 per barrel with a loss of 0.16%. Crude oil prices slipped on Friday due to the coronavirus outbreak and rising Russian oil production. Russian oil and gas condensate output rose to 11.28 million barrels per day (bpd) in January, from 11.26 million bpd in December, Interfax news agency reported on Sunday, citing the Energy Ministry's data. This is in line with what sources told Reuters last week and the highest since it reached 11.29 million bpd in August. The coronavirus outbreak is already slowing down global oil demand and the record production in the US and Russia will continue to put pressure on prices. If crude oil breaks below $51.50 per barrel, it could test $50 per barrel in days to come. Crude oil has support at $51.20–50.50 and resistance at $52.20–52.80.



Short covering lifts base metal prices up; copper unable to gain amid fear of coronavirus. Trend volatile


On Friday, base metals settled on a mixed note in international markets. 3M LME copper settled at $5,559.50 per metric ton with a loss of 0.17% from the previous close. Base metal prices show some recovery at LME on Friday due to short covering. However, copper prices were unable to gain due to the coronavirus outbreak. Global equity markets also tumbled on Friday and put pressure on base metal prices. Copper prices settled below $5,600 per metric ton on a weekly closing basis at LME. We expect base metal prices to remain volatile next week. Today, copper has support in the range of Rs426–424, while resistance is at Rs429–431. Nickel should trade in the range of Rs926–955, zinc should trade in the range of Rs172–177, lead should trade in the range of Rs145–150, and aluminium should trade in the range of Rs137–141.



Edible oil and oil seeds witness very high volatility on Budget day. Trend volatile.


On Saturday, agricultural commodities witnessed a mixed trend, as edible oil, oil seeds and other agricultural commodities saw very high volatility on Budget day. The Government raised import duty on CPO from 37.5% to 44% on imports excluding Indonesia and Malaysia. Bursa Malaysia KLC also closed in the red on Friday. Soybean February future settled on a slightly weaker note in the domestic markets at Rs4,074 per quintal with a loss of 0.24%. CBOT settled at 873 cents. Other agricultural commodities settled on a mixed note at NCDEX. Chana March futures settled with a gain of 0.63%, and castor seed futures settled with a loss of 0.41%. RM seed closed with a loss of 0.63%. Guar seed settled with a loss of 0.45%, and guar gum settled with a loss of 0.35%. The spices pack settled on a mixed note; coriander, and turmeric settled negative while jeera settled positive. Cotton seed oilcake February futures closed positive with a gain of 1.46%. Refined soy oil February futures closed negative at Rs838.40. We expect refined soy oil to trade in the range of Rs826–854.


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Budget 2020 : Sectors and Stocks are likely to gain from the Budget Announcements

Key Takeaways on Union Budget 2020!BUDGET OVERVIEW The Union Budget for fiscal year 2020-21 has laid significant focus on improving agricultural economy, upliftment of farmers, strengthening the rural economy and related infrastructure. Focus has also been laid towards continuing several infrastructure initiatives such as waterways, roads, and seaways. Several positives were offered for small businesses, MSMEs and investors (other than listed). Higher limits for audit (increased from Rs10mn to Rs 50mn) where cash transactions are less than 5% of turnover, and Higher turnover limits for starts-ups for the initial 3 year tax exemption limit, followed by higher number of years for claiming deduction from 7 years to 10 years. The budget also sought to give significant impetus to addressing environmental and climate change challenges with continued focus on solar power. We also expect the pace of FGD (Flu Gas Desulphurisation) installation to pick up for thermal power plants to make them more environmental friendly. The bond markets could see a flurry of activity with certain government securities being opened up 100% for non-domestic investors. Even corporate bond investment limit for FPIs has been revised from 9% to 15%. This could keep bond markets excited in the weeks to come. The much anticipated reform of abolishing Dividend Distribution Tax was announced with the tax liability on dividends shifting to receiver. This is beneficial to corporates and shall have positive cash flow impact. This will also offer leeway to companies to distribute higher dividend and reduce the overall tax outgo for the corporate (and ultimately cash flows). The individual shall pay tax on dividend income at the applicable marginal income tax rate. However, the budget falters a bit in direct taxation, where, despite making the right noises to simplify the personal income tax structure, the budget proposals appear to have made them more complicated with multiple slabs. Against the old personal tax structure, the new structure does not leave meaningful incremental cash flows in the hands of tax payers. This therefore makes the exercise unviable for tax payers already using the benefits of Section 6C in their tax planning. We therefore see status quo for tax payers in not adopting the new tax slabs except for HUFs. BUDGET ESTIMATES The budget projections are based on a nominal GDP growth of 10%YoY with a marginally softer net tax (centre) /GDP ratio of 7.27%. The fiscal deficit for 2019-20 has been revised to 3.8%, against our expectation of 3.7% while the budgeted fiscal deficit for next year has been pegged at 3.5%. The estimate for non-debt capital receipts at Rs2.1tn assumes a 2.2x increase YoY. The receipts fine print shows Rs1.2tn from disinvestment receipts. It may be noted that the disinvestment target was revised from Rs1,050bn to Rs650bn in 2019-20 RE. The disinvestment target has thus spilled over into fiscal 2020-21. Notable disinvestment candidates include Air India and BPCL. Another Rs900bn is expect from disinvestment of government stake in financial institutions. We believe this is attributable to LIC IPO and privatisation of IDBI Bank in which GoI owns 47.1% stake (current market capitalisation Rs387bn). The net tax revenues estimated for FY21E are a shade below the budget estimates for FY20 and 8.7% higher than RE for FY20. The interest payments estimate also appears higher (13.3%YoY, Rs830bn) compared to increase in fiscal deficit (3.8%YoY, Rs300bn) Overall, the net tax revenue estimate appears conservative and any tax buoyancy due to economic recovery can potentially reduce fiscal deficit. BUDGET AT A GLANCE Particulars (Rs bn) 2017-2018 Actuals 2018-2019 Actuals 2019-2020 BE 2019-2020 RE 2020-2021 BE 2020-21 %YoY RECEIPTS             Revenue Receipts 14,352 15,529 19,628 18,501 20,209 9.2 Tax Revenue (Net to Centre) 12,425 13,172 16,496 15,046 16,359 8.7 Non Tax Revenue 1,927 2,357 3,132 3,455 3,850 11.4 Capital Receipts 7,067 7,622 8,236 8,485 10,213 20.4 Recovery of Loans 156 181 148 166 150 (9.9) Other Receipts 1,000 947 1,050 650 2,100 223.1 Borrowings and Other Liabilities 5,911 6,494 7,038 7,668 7,963 3.8 Total Receipts 21,420 23,151 27,863 26,986 30,422 12.7 EXPENDITURE             On Revenue Account 18,788 20,074 24,478 23,496 26,301 11.9 of which,             Interest Payments 5,290 5,826 6,605 6,251 7,082 13.3 Grants-in-aid for creation of capital assets 1,910 1,918 2,073 1,917 2,065 7.7 On Capital Account 2,631 3,077 3,386 3,489 4,121 18.1 Total Expenditure 21,420 23,151 27,863 26,986 30,422 12.7 Revenue Deficit (4,436) (4,545) (4,850) (4,995) (6,092) 22.0 % of GDP (2.6) (2.4) (2.3) (2.4) (2.7)   Effective Revenue Deficit         (2,526) (2,627) (2,777) (3,078) (4,027) 30.8 % of GDP (1.5) (1.4) (1.3) (1.5) (1.8)   Fiscal Deficit         (5,911) (6,494) (7,038) (7,668) (7,963) 3.8 % of GDP (3.5) (3.4) (3.3) (3.8) (3.5)   Primary Deficit (621) (668) (433) (1,417) (881) (37.8) % of GDP (0.4) (0.4) (0.2) (0.7) (0.4)                 Implied nominal GDP 168,875 191,005 213,261 204,422 224,894 10.0 Tax Revenue (Centre) / GDP (%) 7.36 6.90 7.74 7.36 7.27   AUTOMOBILES Union Budget 2020 turned out to be a complete disappointment for the auto industry. SIAM, the automotive industry association, had highlighted the slowdown in the sector and the resultant job losses. The cost of ownership is already higher by ~10% and with the introduction of BSVI emission norms, its is expected to rise by another ~10%. To boost demand, the industry had requested for a GST cut from 28% to 18%. Another measure sought in the Budget was a favourble (incentive-based) scrappage policy. The M&HCV segment has reported a decline of ~40% YoY in FY20 and was desperately seeking some government intervention to fuel demand. The governing body had requested for a 50% cut in registration charges as well. Under the green mobility push, the industry was hoping for a cut in the import duty of lithium-ion cells. None of the above measures/requests had any mention in the Union Budget. Our View: Overall, with no major incentive or boost in personal income, the auto industry may continue to struggle in the near term. We currently have a SELL rating on Maruti Suzuki and Eicher Motors in the OEM space (rich valuations). We are hopeful for a rural recovery due to the higher acreage under rabi cultivation. We believe the biggest beneficiaries of the same will be Hero MotoCorp, TVS Motors, Escorts, VST Tillers and Swaraj Engines.   AGRI - INPUTS Fertilizer subsidy reduced to INR713b (Impact: Neutral) The government has reduced the fertilizer subsidy to Rs713bn from Rs800bn last year. The urea subsidy has been reduced to Rs478bn (from Rs536bn) while the nutrient-based subsidy has come down to Rs235bn (from Rs264bn). However, given the fact that the prices of key inputs have softened in 9MFY20, the decline in subsidy would not put significant pressure on the working capital of fertilizer companies. The price of phosphoric acid is down 12.1% YoY, ammonia is down 18.9% YoY, sulphuric acid is down 25.4% YoY, and rock phosphate is down 11.6% YoY. We, therefore, believe that the reduced subsidy would be neutral for the industry. However, any upward movement in input cost would potentially stress the working capital and require upward revision in subsidy. Curb the excessive use of chemical fertilizers and focus on zero-budget farming (Impact: Negative) The government has increased its focus on promoting traditional organic and other innovative fertilizers with a view to curb the excessive use of chemical fertilizers. The announcement comes amid the government’s continued focus on zero-budget farming, which promotes the use of own seeds and natural manure rather than using fertilizers and agrochemicals. We believe the announcement will have a negative impact on the fertilizer and agrochemical industry over the long term. However, the concept of zero-budget farming is still at a nascent stage and has been receiving mixed reviews from the farmer community, as the lack of chemical inputs puts pressure on yield and consequently production. Other key announcements (Impact: Positive) The government has proposed the creation of agri-warehouses. As of now, India has an estimated capacity of 162mn million tonnes of agri-warehousing, cold storage, reefer van facilities, etc. NABARD will undertake an exercise to map and geo-tag them. We believe this is a positive step for farmers as agri-warehouses help in the price stabilization of agricultural commodities by keeping the tendency to make post-harvest sale under check. The NABARD re-finance scheme is proposed to be further expanded with an agriculture credit target of Rs15 lakh crore for 2020-21, up from Rs12 lakh crore last year. A total allocation of Rs2.83 lakh crore has been made for rural development and agricultural activities. An amount of Rs1.6 lakh crore has been earmarked for agriculture, irrigation and allied activities, while an amount of Rs1.23 lakh crore has been earmarked for rural development and Panchayati Raj. CONSUMER Key Proposal Impact Companies impacted National Calamity Contingent duty per 1000 sticks Negative ITC, Godfrey Phillips, VST Industries   Filter/non-filter From (Rs) To (Rs) ≤65mm Non-filter (Plain) 90 200 65-75mm Non-Filter (Plain) 145 250 ≤65mm Filter 90 440 65-70mm Filter 90 440 70-75mm Filter 145 545 Other Containing tobacco 235 735 Other Containing tobacco substitutes 150 600 Excise duty increased from 10% to 25% for manufactured tobacco, chewing tobacco, tobacco extracts Negative ITC, Godfrey Philips, VST Industries Refund of accumulated credit of compensation cess on tobacco products arising out has been disallowed w.e.f. 1 October 2019 with retrospective effect from 1 July 2017 onwards. No refund on account of inverted duty structure would be admissible on any tobacco products. Negative ITC, Godfrey Phillips, VST Industries Custom duty increased from 25% to 35% on footwear   Positive   Bata India, Relaxo Footwears, Liberty Shoes, Khadim India, Sreeleathers Ltd Custom duty increased from 10% to 20% kitchenware   Positive   Borosil Glass Works   Custom duty increased from 20% to 60% on toys   Positive   Reliance Industries (Hamley’s) Proposed outlay of Rs25bn on tourism promotion   Positive   All hotels   Revocation of anti-dumping duty on import of purified terephthalic acid (PTA)   Positive   Filatex India, Essel Propack Ltd, Jindal Films, Polyplex   CONSUMER DURABLES Products Custom Duty(%)   Old New Impacted Table Fans, Ceiling Fans, Pedestal Fans, Blowers, Portable, Food Grinders, Grinders & Mixers, Shavers, Hair Clippers, Hair-removing Appliances, Water Heaters, Immersion Heaters, Storage Heating Radiators, Hair Dryers, Hair Dressing & Drying Apparatus, Electric Smoothing Irons, Other ovens, Cookers, Cooking Plates, Grillers, Roasters, Coffee and Tea Makers, Toasters, Electro-thermic fluid Heaters, Electrical or Electronic devices for repelling insects, Other electro-thermic appliances used for domestic purposes, Electric heating Resistors 10 20 Positive for CG Consumers, Havells, Bajaj Electricals, V-Guard, Orient Electric, TTK Prestige, Hawkins, amongst others Fans with self-contained Electric Motor 7.5 20 Compressor of Refrigerator and Air conditioner 10 12.5 Positive for Johnson-Controls Hitachi; Negative for Voltas, Bluestar, Whirlpool Railway Carriage Fans, Industrial Fans, Blowers, Pressure Vessels, Welding & Plasma cutting Machines, Motors like Single Phase AC motors, Stepper motors, Wiper Motors, etc. 7.5 10 Positive for ABB, Siemens Commercial Refrigerator Freezers, fit with separate external doors, Commercial freezer of chest type (800lt) 7.5 15 Positive for Bluestar, Voltas Other chest type freezers, Water cooler, Vending machine, other than automatic 10 15 Dip bridge rectifier, Populated/loaded/stuffed printed circuit boards, PCBA of Cellular mobile phones 10 20 Positive for Electronic Manufacturing Service companies like, Dixon  Budget Allocation FY19A FY20B FY20RB FY21B Impact Bharat Net 43,155 60,000 20,000 60,000 Positive for Sterlite Tech, Polycab, KEI, Finolex Optical Fibre Cable based network for Defence Services 19,272 47,250 47,250 50,000 Positive for Sterlite Tech, HFCL CAPITAL GOODS  Budget Allocation FY19A FY20B FY20RB FY21B Impact Railways Capital Outlay (net of recoveries) 528,377 658,370 678,370 700,000   Railways 310,677 372,149 365,958 407,415         - New Lines (Construction) 56,476 72,550 78,816 120,000 To benefit KEC, Kalpataru, Texmaco, Titagarh, IRCON       - Gauge Conversion 25,899 22,000 23,442 22,500       - Doubling 6,101 7,000 6,303 7,000       - Traffic Facilities - Yard Remodeling and Others 11,314 12,100 10,733 12,250       - Rolling Stock 45,720 61,148 90,690 57,870       - Road Safety Works - Road Over/Under Bridges 35,229 53,500 36,973 43,500       - Track Renewals 96,901 101,200 84,617 105,995       - Signalling and Telecom 15,384 17,500 13,748 16,500       - Other Electrical Works 2,499 9,150 4,836 7,800       - Traction Distribution Works 3,513 0 0 0       - Metropolitan Transportation Projects 11,640 16,000 15,800 14,000             Department of Space 55,326 65,985 72,645 77,753 Positive for HAL, L&T, Solar Industries, PEL Capital Outlay on Roads & Bridges 676,383 659,736 660,844 751,747 In addition to Road EPC players, we expect Solar Industries, ACE, to be the indirect beneficiaries Total-MRTS and Metro Projects 143,646 184,139 181,620 195,710 To mainly benefit BEML Products Customs Duty(%)   Old New Impacted Static Converters 15 20 Positive for Voltamp, Schneider Electric, Machinery required for use in High Voltage Power Transmission project 5 7.5 Positive for KEC, Kalpataru DEFENCE   Actual FY18-19 Budget FY19-20 Rev. budget FY19-20 Budget FY20-21   Revenue Capital Total Revenue Capital Total Revenue Capital Total Revenue Capital Total                           Defence – Pension 1,017,746 0 1,017,746 1,120,796 0 1,120,796 1,178,104 0 1,178,104 1,338,250 0 1,338,250 Defence – Capital Outlay 0 952,306 952,306 0 1,103,943 1,103,943 0 1,103,943 1,103,943 0 1,137,340 1,137,340 Defence Services – Revenue 1,955,716 0 1,955,716 2,019,018 0 2,019,018 2,059,018 0 2,059,018 2,093,190 0 2,093,190 Defence – Misc/Civil 63,099 45,706 108,805 87,807 48,545 136,352 97,365 49,771 147,136 96,790 48,210 145,000 Total 3,036,561 998,012 4,034,573 3,227,620 1,152,488 4,380,108 3,334,487 1,153,714 4,488,201 3,528,230 1,185,550 4,713,780                                                     Defence – Capital Outlay (exc. land & construction, not core)                                     - Indian Army 0.0 217,970.8 217,970.8 0.0 228,056.3 228,056.3 0.0 234,198.1 234,198.1 0.0 257,986.1 257,986.1             - Indian Navy 0.0 170,214.8 170,214.8 0.0 181,270.0 181,270.0 0.0 202,090.0 202,090.0 0.0 177,160.0 177,160.0             - Indian Air Force 0.0 347,597.8 347,597.8 0.0 373,953.4 373,953.4 0.0 424,818.4 424,818.4 0.0 400,319.1 400,319.1 Totals 0.0 735,783.4 735,783.4 0.0 783,279.7 783,279.7 0.0 861,106.5 861,106.5 0.0 835,465.2 835,465.2 as % of outlay   77% 77%   71% 71%   78% 78%   73% 73% FY21E defence allocation at ~Rs4,700bn vs FY20 revenue budget estimate of ~Rs4,500bn, reflects a ~5% increase. On comparing the revised budget FY20 to actuals for FY19 (~Rs4,000bn), the growth stood at ~11%. This indicates openness to spend more, in case of need.  Allocation towards pensions saw a sharp increase of 14% YoY. Of the total budgeted defence capital outlay in FY21E at ~Rs1,130bn vs FY20 revenue budget estimate of ~Rs 1,100bn saw ~3% jump. On comparing the revenue budget FY20 to actuals for FY19 (~Rs952bn), the growth stood at ~16%. Within capital outlay, if one excludes allocations towards land, construction activities, non-core items, then the FY21E budget at~Rs835bn will see 3% decrease vs ~Rs861bn of revenue budget for FY20. On comparing the revenue budget for FY20 to actuals for FY19 (~Rs735bn), the growth stood at ~17%. Within capital outlay, if one excludes allocations towards land, construction activities, non-core items, barring, Indian Army saw 10% YoY higher allocation; both Indian Navy and Indian Air Force will see lower capital allocation by 12% and 6% respectively vs the FY20 revenue budget. This has to be read with the fact that IAF saw ~22% increase in allocation (FY20 revenue budget vs FY19 actuals) and Indian Navy saw ~19% increase in allocation (FY20 revenue budget vs FY19 actuals). HEALTHCARE Under the Ayushman Bharat scheme, 20,000 hospitals are already empanelled and the government plans to set up more hospitals under PPP mode across 112 Tier II & III cities which dont have Ayushman Bharat empanelled hospitals. Expansion of Jan Aushadhi Kendras offering 2,000 medicines and 300 surgical procedures to all districts by 2024. Currently, 5,000 Jan Aushadhi Kendras are reported. “TB harega, Desh Jitega” campaign launched to end tuberculosis (TB) by 2025. The government has provided Rs69,000cr for these initiatives, which includes Rs6,400crs for the ‘Prime Minister Jan Arogya Yojana’ (PMJAY). The government plans to promote animal healthcare, by eliminating foot and mouth disease, brucellosis in cattle and also peste des petits ruminants (PPR) in sheep and goats by 2025. Views: We do not see any near-term positive impact for the healthcare and diagnostics sector in the current budget. Jan Aushadhi Kendras currently have a lot of non-operational stores and facing inventory issues. TB drug manufacturers such as Lupin, Cipla, and J&J (with its new MDR-TB drug, in partnership with Dishman) could see incremental growth with government orders for the TB mission. However, it will not add any incremental growth to the company. Promotion of animal healthcare would be positive for animal & poultry vaccine and other product manufacturers such as Hester Biosciences and Sequent Scientific. Stock-specific (Positive): Hester Biosciences, Sequent Scientific, Apollo Hospitals, Narayana Hrudayalaya. INFORMATION TECHNOLOGY The government plans to come out with a policy to promote data centre parks for development of big data technologies. Our view: We believe an important aspect needs to be the focus on skills development in these technologies, given that IT firms face a shortage of digital talent. From a long-term perspective, the move could potentially benefit all IT firms including TCS, Infosys, Wipro, HCL Technologies and Tech Mahindra, along with mid-sized firms like LTI, Mindtree, Persistent and Hexaware, given the incremental focus on growing their digital businesses. At present, dividend is taxed in the hands of company distributing such dividend. The government has proposed to change this to taxiing dividends in the hands of shareholders. Our view: This will lead to rise in cash balances for IT firms from FY21 onward, given savings on DDT. It could also lead to IT firms giving higher dividends in Q4FY20 prior to the new rule taking effect from April 1, 2020. Companies like TCS could award a higher payout, which will benefit minority shareholders as well as promoter Tata Sons, with tax not required to be paid by the shareholders and promoters at their end before the new ruling takes effect. From FY21, dividend payout ratios of IT firms could also rise with no tax incidence at the company end, along with strong cash flows. This move is likely to benefit all IT majors.   LIFE INSURANCE New personal taxation regime does not appear beneficial to tax payers who are already claiming deductions under one or multiple exemptions (~17) available under Section 80 of the IT Act. For the individual taxpayer for whom the new tax regime is beneficial, it in no way means that the individual tax payer shall stop saving or buying new insurance / investment products On the contrary, the tax payer is likely to continue with her savings while exploring means to either save or spend the tax savings. We therefore believe the new tax option will not necessarily entail a mass shift away from life insurance / tax savings products. Budget estimates total revenue foregone on account of the new tax regime at Rs400bn. In other words, this is the tax savings in the hands of the individual tax payers, an opportunity to leverage it into either consumer loans or convert into incremental savings. Without doubt, the budget proposals appear to have taken some sheen off life insurance as tax savings instruments. This is likely to be reflected in the seasonality given life insurers collect 1/3rd of their premiums in Q4. We see multiple outcomes for life insurers in near term: It shall be interesting to watch the persistency as well as new business trends within life insurance sector in near future. We believe life insurance companies in near future are likely to re-focus messaging on 'insurance', 'protection', and 'life events' to drive sales. New business for 15 of the 23 private insurers making up ~15% of the private market share could see heavy slowdown. These players have already struggled to scale and may be forced to consolidate. Product innovation would be the main driver for the sector as savings products would need to be sold as strong investment products with protection features rather than mere tax-saving vehicles . It would be interesting to watch how slowdown in new business premiums impacts distributor commissions and therefore agency tie-ups On balance, we feel the market reaction to life insurers' stock prices has been extreme and any dips should be utilised as buying opportunities. We reiterate 'BUY' on IPRU. Our current target price is Rs642 (3.2x FY21E EV per share). Seasonality (NBP-basis) FY18 FY19 Q4 (%) (%) Aditya Birla Sun Life 36.2 31.4 Aegon Life 45.4 34.5 Aviva Life 40.8 50.2 Bajaj Allianz Life 32.5 36.9 Bharti Axa Life 39.6 32.2 Canara HSBC OBC Life 26.7 34.9 DHFL Pramerica Life 31.0 18.3 Edleweiss Tokio Life 48.5 40.7 Exide Life 35.7 37.7 Future Generali Life 38.2 41.6 HDFC Life 37.7 33.6 ICICI Prudential Life 28.0 33.4 IDBI Federal Life 33.2 36.0 India First Life 41.4 33.0 Kotak Mahindra Life 41.3 40.3 Max Life 39.4 40.0 PNB Met Life 36.0 38.6 Reliance Nippon Life 33.9 33.8 Sahara Life     SBI Life 34.3 31.3 Shriram Life 32.8 31.9 Star Union Dai-ichi Life 34.2 36.7 Tata AIA Life 42.9 43.6 Private Total 35.1 34.5 LIC of India 25.8 33.8 Grand Total 28.7 34.0 Seasonality - savings APE LOB (%)   FY18 FY19 HDFCLIFE 36.7 35.2 ICICIPRU 27.2 31.0 SBILIFE 31.9 29.4 METALS AND MINING Key budget highlights related to mining and allied sector No direct changes in mining regulations Specific focus on affordable housing and infrastructure spend target of INR103 lakh crore with 6,500 projects Investment of INR3.6 lakh crore to provide piped water supply to all households, under Jal Jeevan Mission for cities with population of over 1 million Proposal to expand the national gas grid from the present 16,200km to 27,000km Custom duties remain largely unchanged and the new duty was introduced on gold (used for industrial purpose) @ 12.5% and few semi-precious stones @0.5%, while the duties for platinum/palladium used for manufacturing, are reduced from 12.5% to 7.5%.  Impact on the sector (Positive) The mining sector is likely to benefit from the series of measures embraced to boost infrastructure, which would arguably drive demand for steel (long products in particular). The development will also boost demand for incremental supply from the upcoming capacity addition in the sector. We see this as positive for key steel companies including JSPL and JSW Steel. This is a positive development for steel pipe and tubes manufacturers, which are likely to see demand from the government’s plan to provide piped water supply to all households, under Jal Jeevan Mission and with the expansion of the national gas grid. This will be a positive for pipe manufacturers including Ratnamani Metals, Man Industries, Welspun Corp, Jindal Saw and Maharashtra Seamless.  Key pipe manufacturers Product portfolio Sector play Ratnamani Metals Stainless steel, nickel alloy pipes and coating solutions Oil & Gas, Water Man Industries Large diameter Carbon Steel Line Pipes Gas, Petrochemical Products and Potable Water Welspun Corp. Large diameter pipes, Plates and Coil  etc. Oil and Gas Jindal Saw SAW Pipes, seamless tubes and pipes etc. Oil and gas sector as well as water and slurry transportation Maharashtra Seamless Seamless Pipes, Cold Drawn Seamless Pipes,  ‎ERW Pipes Gas Potable Water Source: Company, IndiaNivesh Institutional Research NBFC Measure: NBFC/HFCs: Partial credit guarantee scheme The government currently offers a partial credit guarantee on assets originated by NBFCs before Mar'19. This scheme is available for NBFC assets purchased by SCBs and was done to offer liquidity to NBFCs. The guarantee is available for a period up to 24months and for aggregate purchases of Rs1tn. To further this support NBFCs under partial credit guarantee scheme of providing liquidity, a mechanism would be devised. Government will offer support by guaranteeing securities so floated. Under the existing partial credit guarantee scheme, the government offers one time guarantee upto 24 months for assets originated before Mar'19 and for a cumulative amount of Rs1tn. View: Positive Financing conditions have been normalising for NBFCs and additional measures that the likely to be announced shall help to further ease the operating environment for NBFCs. A number of small as well as large NBFCs are likely to benefit from this measure. Our conversation with select NBFCs suggest the tie-ups for asset sales to SCBs are almost in place and FY21E shall witness a meaningful activity on this front. Measure: Agricultural credit target for FY21 set at Rs15tn. View: Neutral This is in-line with the higher agricultural credit targets usually set in the union budget every year. Measure: NBFCs eligible for effecting NPA recoveries under SARFAESI Act Limit for NBFC eligibility for debt recovery under the SARFAESI Act to be reduced from Rs5bn to Rs1bn and loan size from the existing Rs10mn to Rs 5mn. View: Neutral The experience of recoveries through SARFAESI has been patchy although this incremental measure is a welcome tool for addressing recovery efforts. The proposal lowers the bar and makes more NBFCs eligible to use this mechanism. Measure: Invoice financing through TReDS Amendments to be made to Factor Regulation Act 2011 to enable NBFCs to extend invoice financing to MSMEs through TReDS. View: Positive The volumes in TReDS have been going up ever since the introduction of this mechanism. Presently, invoice financing is done by banks to MSMEs. The participation of NBFCs shall further provide depth to the market. Invoicemart, the largest TReDS platform, has reported a throughput of ~Rs60bn in the two and half years of operations with 4,320 participants on its platform. VALUATION SUMMARY SHEET Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing." )

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Weekly Currency Report 3rd - 7th February 2020

Weekly change & technical levels NSE/BSE/MSEI February Futures Currency pair LTP Wk  % change R1 R2 Pivot S1 S2 USDINR 71.56 0.31 71.8400 72.1200 71.5200 71.2400 70.9200 EURINR 79.07 0.42 79.3300 79.5900 78.9900 78.7300 78.3900 GBPINR 93.87 0.54 94.2133 94.5567 93.8567 93.5133 93.1567 JPYINR 65.74 1.01 66.1267 66.5133 65.8133 65.4267 65.1133   Currencies against the US dollar Currency pair LTP Wk  % change R1 R2 Pivot S1 S2 DOLLAR INDEX 97.36 -0.54 97.9233 98.4867 97.6367 97.0733 96.7867 EURUSD 1.1088 0.56 1.1123 1.1157 1.1056 1.1022 1.0955 GBPUSD 1.3202 0.97 1.3280 1.3359 1.3127 1.3048 1.2895 USDJPY 108.34 -0.84 108.970 109.600 108.630 108.000 107.660   Foreign exchange reserves   24 January 2020 Weekly change Total reserves $466.693bn up $4.53mn Important highlights: China's official manufacturing PMI index came in at 50.0 for January, in line with market expectations while the non-manufacturing PMI rose to 54.1, higher than estimates of 53.5. Unemployment rate in the Eurozone fell to 7.4% in December from 7.5% in November. US new home sales slipped 0.4% to a seasonally adjusted annual rate of 694,000 units last, with sales in the south dropping to more than a one-year low. US durable goods orders for December were up 2.4%, as compared to the previous figure of -2.1%, which was revised to -3.1%. US Federal Open Market Committee left its benchmark rate unchanged in the range of 1.5% to 1.75%. US goods trade gap, which had dropped for three straight months due to declining imports, surged 8.5% to $68.3 billion last month. German Ifo Business Climate Index came in at 95.9 in January, weaker than previous month's 96.3 and missing the market estimates of 97.0. Eurozone manufacturing PMI data, released on Friday, stood at 47.8 beating expectation of 46.8 while the services PMI was lower than anticipated at 52.2 in January. Annual house price growth jumped to a 14-month high this month in the UK. Property values across the UK were 1.9% higher than a year earlier, marking the strongest annual growth since November 2018, when it was also at 1.9%. USDINR (February Futures) LTP Sell around 1st target 2nd target Stop-loss 71.54 71.50-71.60 71.20 70.90 71.88 The USDINR pair retreated from the weekly high of 71.80 and settled at 71.56. Earlier in the week, the pair had a momentum gain as the US dollar remained in demand against the rupee and other Asian currencies, after the Federal Reserve did nothing to signal any near-term easing of policy despite issuing a statement that was seen as slightly less confident about the economic outlook. On Friday, the pair dropped to the day’s low of 71.46 on selling by exporters ahead of the Union Budget. However, crude oil prices surged by 1.3% after the World Health Organization (WHO) said it had confidence China could control the virus outbreak. Technically, as per the last week’s outlook, the USDINR pair was able to test the first predicted target of 71.60. The weekly price action resulted in the formation of a high-wave candlestick, which is indicating a volatile to range-bound trend in the near future. On the upside, 71.85 will act as a massive resistance and only a break above will open the door for the next upside target 72.05. Alternatively, the pair is expected to correct towards 71.20–70.90 again. DOLLAR INDEX The dollar index, which tracks the greenback against a basket of six major currencies, settled at 97.36 as compared to the previous week’s close of 97.89. The dollar weakened against major counterparts on Friday, paced by losses against safe-haven currencies like the yen amid fears of a global pandemic as Chinese health authorities showed little sign they have a grip on the outbreak. From a technical standpoint, on the weekly chart, the dollar index trading on the verge of the Raff regression channel support of 97.30, and a break below this level will indicate a probability for a bearish momentum. In the near future, the dollar index is expected to break its next support of 96.80 and may test 96.50. On the upside, crucial support is seen at 97.30 and a break below this level is expected to test the next support of 96.80–96.50. EURINR February Futures LTP Sell around 1st target 2nd target Stop-loss 79.07 79.30 78.65 78.20 79.55 The EURINR pair retreated from the weekly high of 79.20 and dropped towards 78.91 before closing at 79.05. The euro came under pressure against the rupee and US dollar on account of increased safe-haven buying in the greenback, as risk appetite suffered following the rise in coronavirus-related deaths and as disappointing Eurozone PMI data and deterioration in the German Ifo economic data led the common currency lower. However, the fall in the pair remained capped and the pair found some support after the unemployment rate in the euro area ticked down in December. On the weekly chart, since 12 January 2020, the EURINR pair is consolidating around 79.50–78.60 and forming an indecisive candlestick. In the near future, the pair is expected to trade in the above range unless there is a break on either side. On the downside, a break below 78.60 would confirm the downside target of 78.20–78.00. Alternatively, any rise towards 79.30 may provide a selling opportunity with a stop-loss above 79.65. GBPINR February Futures LTP Buy around 1st target 2nd target Stop-loss 93.87 93.30-93.40 93.90 94.30 92.88 The GBPINR pair witnessed a gain of 0.54% last week and settled at 93.87 as compared to the previous week’s close of 93.37. The pound surged on Thursday in the wake of the Bank of England's decision to keep rates steady, with outgoing Governor Mark Carney saying a cut would have risked inflation rising above the central bank's target. The pound, meanwhile, ticked up after consumer confidence hit a 16-month high in January, on the day that the UK formally leaves the EU. Technically, the formation of a high-wave candlestick on the weekly chart is indicating that the GBPINR pair will have an indecisive trade in the. However, since 22 December 2019, the GBPINR pair is consolidating above the support of 92.20, which is indicating for bullish momentum in the near future unless the pair closes below it. On the downside, a break below 92.40 only will create probability for a correction towards next support of 91.80–91.50. High impact economic data & events scheduled during the week       Date Time Currency Economic Indicators Forecast Previous Impact 03.02.20  7:15am CNY Caixin Manufacturing PMI 51 51.5 Negative   8:30pm USD ISM Manufacturing PMI 48.5 47.2 Positive 05.02.20 3:15am NZD Employment Change q/q 0.30% 0.20% Positive     NZD Unemployment Rate 4.20% 4.20% Neutral   5:45pm EUR ECB President Lagarde Speaks - - -   6:45pm USD ADP Non-Farm Employment Change 150K 202K Negative   8:30pm USD ISM Non-Manufacturing PMI 55.1 55 Neutral 06.02.20 1:30pm EUR ECB President Lagarde Speaks - - - 07.02.20 7:30am NZD Inflation Expectations q/q - 1.80% -   7:00pm CAD Employment Change - 35.2K -     CAD Unemployment Rate - 5.60% -     USD Average Hourly Earnings m/m 0.30% 0.10% Positive     USD Non-Farm Employment Change 160K 145K Positive     USD Unemployment Rate 3.50% 3.50% Neutral Note: Economic data expectations are based on median forecast by economists or Reuters and Bloomberg survey. Here, a positive impact indicates currency could appreciate and negative indicates currency could depreciate against the US Dollar. Technical Chart Source: Tickerplant *DOS- Depends on statement. DOV- Depends on Votes. DOR- Depends on Report.Disclaimer: This document has been prepared by IndiaNivesh Securities Limited (IndiaNivesh), for use by the recipient as information only and is not for circulation or public distribution. This document is not to be reproduced, copied, redistributed or published or made available to others, in whole or in part without prior permission from us. This document is not to be construed as an offer to sell or the solicitation of an offer to buy any currency pair. Recipients of this document should be aware that past performance is not necessarily a guide for future performance and price and value of investments can go up or down. The suitability or otherwise of any investments will depend upon the recipients particular circumstances. The information contained in this document has been obtained from sources that are considered as reliable though its accuracy or Completeness has not been verified by IndiaNivesh independently and cannot be guaranteed. Neither IndiaNivesh nor any of its affiliates, its directors or its employees accepts any responsibility or whatever nature for the information, statements and opinion given, made available or expressed herein or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this material only. IndiaNivesh directors and its clients may have holdings in the currencies mentioned in the report. )

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