INVEST IN TODAY’S AND TOMORROW’S LEADERS

[Pages:23]INVEST IN TODAY'S AND TOMORROW'S LEADERS

Motilal Oswal Large and Midcap Fund

India: $5 Trillion Economy by 2025

1

186 193 201 218 212 233 249 279

297 296 321 270 288 279 327 360

393 416 421 459 468 485

515 608 709 820 940 1217 1199 1342 1676 1823 1828 1857 2039 2104 2290 2653 2726 2972 3258 3577 3924 4306 4729

India GDP (current $ bn)

5000 4500 4000 3500 3000 2500 2000 1500 1000

500 0

1st US$ tn

Nearing 5th US$ tn 4th US$ tn

3rd US$ tn

2nd US$tn

FY 1980 FY 1981 FY 1982 FY 1983 FY 1984 FY 1985 FY 1986 FY 1987 FY 1988 FY 1989 FY 1990 FY 1991 FY 1992 FY 1993 FY 1994 FY 1995 FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020E FY 2021E FY 2022E FY 2023E FY 2024E

According to World Bank data, India has now become the world's sixth-largest economy India is one of the fastest growing among major economies

Source: Past performance may or may not sustain and does not guarantee future performance Note - Above forward looking statements are based on external current views and assumptions and involve known and unknown risks and uncertainties that could affect actual results. Investments are subject to market risk.

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Jul/01 Feb/02 Sep/02 Apr/03 Nov/03 Jun/04 Jan/05 Aug/05 Mar/06 Oct/06 May/07 Dec/07 Jul/08 Feb/09 Sep/09 Apr/10 Nov/10 Jun/11 Jan/12 Aug/12 Mar/13 Oct/13 May/14 Dec/14 Jul/15 Feb/16 Sep/16 Apr/17 Nov/17 Jun/18 Jan/19 Aug/19

Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-14 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19

Low Inflation & Falling Interest Rate

14

12

10

8

6

4

2

0

-2

-4

WPI

CPI

-6

-8

12.0

Repo Rate (%)

11.0

10.0

9.0

8.0

7.0

6.0

5.0

4.0

WPI - Wholesale Price Index; CPI - Consumer Price Index

2

Past monetary easing cycles

indicate that transmission takes

3.05

3-12 months to start reducing

2.45

the cost of borrowing

Recently, deposits rate has started coming down (total down by 30bps), average lending rate has also come down by 35bps.

5.40

Source: Bloomberg, Spark Capital The above graph is used to explain the concept and is for illustration purpose only and should not be used for development or implementation of an investment strategy. Past performance may or may not be sustained in future.

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Investment Environment Improving

3

Understanding what led to the fall in demand

What is improving incrementally now?

Crude price rise to $ 85

CAD widened (>2.7% of GDP) and fiscal deficit deteriorated

Currency depreciated to INR 72 per USD, to support currency, RBI sold USD

Liquidity concerns alongwith IL&FS and other corporate defaults

GST impact

Pressure on fiscal

Consumption demand slowdown

Crude price corrected back to $60-65 range

RBI infused liquidity

Repo rate cuts by RBI getting transmitted to deposit and lending rates

Good Monsoon in 2019

Central government has accelerated spending from Jul'19

Recent steps taken by the government to boost growth

Source: MOAMC Internal Analysis and Spark Capital

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Government is Listening

4

Corporate tax rates cut from 30% to 22% (plus surcharge)

15% tax rate for new domestic manufacturing companies incorporated after 1st October 2019 Reversal of enhanced surcharge on equity capital gains Bank Recapitalisation : Upfront Rs 70,000 crs released to banks to improve lending Funds worth Rs. 20,000 crs for incomplete real estate projects to help completion of about 3.5 lakh units in affordable and middle income segments No tax will be levied on public buyback of shares announced prior to 5th July 2019 For SMEs, GST refunds to be fastracked

Note that the above statement is based on the announcement of the Finance Minister and would be subject to provisions of final Finance Act.

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Corporate Earnings to Grow

5

EPS Growth: FY19-21E: 22.3%

Niy Returns: FY08-18: 8%

Niy Returns: FY01-08: 22.5% EPS Growth: FY01-08: 21.3%

EPS Growth: FY08-18: 4.8%

19%

720

25%

603

236 281 251 247 315 348 369 406 413 384 439 451 482 73 78 92 131 169 184

Niy EPS

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E

In the long run, the markets always follow the earnings pattern. For FY19-21, Nifty EPS is estimated to grow at 22.3% CAGR, which gives scope for markets to catch up.

Source: Motilal Oswal Research India Strategy September 2019 The statements made herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in future.

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Demand Boost - Government Spending and Good Monsoon

6

35%

30% 25% 23.0%

Total Central Govt. Spend (%, YoY) 31.2%

23.9%

20% 15%

15.2% 11.2%

13.1% 15.5%

10%

8.2%

8.5%

5%

8.3%

7.8%

3.7%

5.3% 1.3%

0%

Central Govt. expenditure picked up from Jul'19

30

2019

2018

2017

20

10

2.2

0

-10

-5.2

-10.3

-20

-30

Rainfall as % of LPA

-40

-50

1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th W W WW W W W WW W W WW W WW

June

July

Aug

Sep

Good rainfall bodes well for the kharif and upcoming rabi crops

Source: RBI, Spark Capital Research; Data as on Sep 2019 The above graph is used to explain the concept and is for illustration purpose only and should not used for development or implementation of an investment strategy. Past performance may or may not be sustained in future.

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Non-Agri

Lower Commodity Prices - To Improve Corporate Margins

7

Coal Petcoke RLNG Oil Linked Crude oil (Brent) Steel Aluminium ZINC VAM Petrol Retail Price Diesel Retail Price Palm Oil Copper Lead Titanium Dioxide NNS Gold Iron Ore

Units

Rs/tonne Rs/MT

(Rs./SCM) Rs/BBL Rs/MT Rs/MT Rs/MT Rs/MT Rs./litre Rs./litre Rs/qtl Rs./MT Rs/MT Rs./kgs

Rs./10gm Rs/MT

Current

5,197 6,730

20 4,322 39,864 1,23,315 1,58,198 1,12,733

72 65 6,250 4,04,488 1,43,966 265 39,720 6,277

3M

-8.8% -20.2% -3.7% -3.7% -6.2% -0.1% -14.8% 2.8% 0.4% -1.9% 6.8% 0.1% 15.3% -2.6% 19.7% -8.6%

6M

-23.9% -13.3% 5.6% 5.6% -1.6% -9.7% -14.6% -1.6% -1.2% -3.6% 4.2% -6.9% 5.3% -5.4% 26.2% 39.1%

12M

-32.0% -22.3% -21.2% -21.2% -17.3% -17.2% -9.3% -9.2% -8.3% -7.1% -6.4% -4.4% -1.3% 0.8% 26.7% 42.9%

Around 5-30% decline in non-agri commodity prices

in the last 12 months

Source: Spark Capital Research; Data as on Sep 2019 The sectors mentioned herein are for general and comparison purpose only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. Past performance may or may not be sustained in future.

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