Investment Update

For Sales discussion on 31st July 2019

Earnings and Market Outlook
 Equity market valuations

• High FII outflows (~USD2n) in July following Budget has driven ~7% correction in headline index MTD
• Valuations for the market at ~17x 1 year forward earnings still factor in >20% earnings growth for FY19-21E (as per
Bloomberg consensus estimates). The earnings assumptions could see some downside risk.
• The future direction of the market in the short run will continue to be driven by earnings performance (which is
muted) and global factors/flows
Fund Flows
 Earnings and valuation summary

Kotak Securities Estimates

Economic variables
Fund Philosophy
 Fund Philosophy and Approach
• Portfolio construction with lowest probability of downside risk
Philosophy • Focus on strong risk adjusted returns with highest level of focus on quality of business and
management track record

• Portfolio would be driven by mix of top-down and bottom-up analysis

• While the bed-rock of our approach would be investment into high quality businesses, the
Approach & style would have a mix of growth and value investing depending on fund strategy and
Style market environment
• The choice of companies would be determined based on quality parameters, earnings
growth outlook and valuations

• Endeavour would be the avoid stocks having any concerns on corporate governance or
Risk mitigation misallocation of capital or having balance sheet risk
& Avoidance • Constantly review portfolio for changes in business and macro environment and new risks
emerging from the same
Portfolio Positioning and Strategy
 Market Outlook and Fund Strategy
• While the Union Budget was a balanced one, the taxation on FPIs and lack of growth thrust
have resulted in sharp outflows from Indian markets in July so far
• The earnings season for FY20 has started off on a weak footing as expected; 2H could see
Volatile
some earnings bounce back on the back of weaker base
Markets to • Given this backdrop market might remain volatile in short run, awaiting fresh triggers in
sustain
the form of reversal of FPI taxation and/or government boost to consumer demand
• Global factors remain challenging with continued decline in global trade and limited
incremental headroom for Fed rate cuts drive muted near term global outlook

• Fund strategy remains focused on identifying high quality businesses (as demonstrated by
Fund long track record of high ROEs) and having strong earnings resilience
Strategy: • Market performance even during rebounds suggest that weak quality stocks are not
Continued participating unlike previous instances of bounce backs
thrust on • While multi cap portfolios continue to have tilt towards large caps, would look to increase
quality and exposure to high quality small and mid cap names once market stability is perceived
earnings • Medium to long term growth story has not changed and portfolio allocation would look to
delivery benefit from the growth rebound of Indian Economy
 Mahindra Kar Bachat Yojana
Sector Mix for Portfolio compared to BM Portfolio Characteristics
• Average ROE of
Parameters Kar Bachat NSE 200
Kar vs NSE 200 Maket Cap (Rs cr) 107,690 273,129
portfolio is almost
EPS 77.4 59.1
1.5x that of index
40%
35% • The portfolio is OW
Beta 0.9 1.0
30%
P E ratio 40.0 44.8
Industrials, Auto
25% and Consumer
20% ROE 18.5 11.1
15% ROA 11.1 9.9 Goods while key
10%
Debt to EBITDA 0.3 0.9 UWs include
5%
Price to sale 5.1 4.3 Financials, IT and
0%
Price to book 8.7 6.1 Energy
IT
ENERGY

METALS
CEMENT
PHARMA

TEXTILES
FINANCIALS

AUTOMOBILE
CAPITAL GOODS
CONSUMER GOODS

Dividend yield 1.1 1.3 • The portfolio is

Promotor holding 48.4 37.9 positioned to take
EPS Growth (FY19-21) 18.2% 23.3% advantage of both
improving
consumption trends
Kar NSE 200 Market Cap Kar Bachat NSE200 and investment
Large Cap 65.7% 88.7%
climate in the
Mid Cap 23.1% 10.9%
Small Cap 9.2% 0.4%
country
Total 97.9% 100.0%
 Mahindra Unnati
Sector Mix for Portfolio compared to BM Portfolio Characteristics
• Average ROE of
Parameters Unnati BSEmidcap
Unnati vs BSE Midcap
portfolio is almost
Maket Cap (Rs cr) 40,711 23,345
2x that of index
30.0% EPS 154.0 70.8
• The portfolio is OW
25.0% Beta 1.1 1.0
Industrials, Auto,
20.0% P E ratio 69.0 60.1
Consumer Goods
15.0% ROE 17.7 8.7
ROA 10.3 9.1
and Cement while
10.0%
Debt to EBITDA 0.5 0.8
key UWs include
5.0%
Price to sale 7.0 5.1
Financials, IT and
0.0%
Price to book 12.2 7.7
Pharma
CONSUMER GOODS

CEMENT
AUTOMOBILE

SERVICES
FINANCIALS

PHARMA

IT
CAPITAL GOODS

CHEMICALS
Dividend yield 1.1 1.0
• The portfolio is
promotor holding 57.9 58.0 positioned to take
EPS Growth (FY19-21) 17.7% 19.9% advantage of both
improving
consumption trends
Market Cap Unnati BSE midcap and investment
Unnati BSE Midcap Large Cap 21.3% 26.0% climate in the
Mid Cap 69.5% 72.8%
country
Small Cap 5.5% 1.2%
Total 96.3% 100.0%
 Mahindra Badhat Yojana
Sector Mix for Portfolio compared to BM Portfolio Characteristics
• Average ROE of
portfolio is almost
Parameters Badhat NSE 200
Badhat vs NSE 200 1.5x that of index
Maket Cap (Rs cr) 118,194 273,129
40% • Weighted earnings
EPS 108.1 59.1
35% growth of the
Beta 0.9 1.0
30% portfolio companies
25% P E ratio 47.2 44.8
is expected to
20% ROE 17.1 11.1
15% ROA 10.9 9.9
outstrip index by
10%
Debt to EBITDA 0.6 0.9
~250bps
5% • The portfolio is OW
0% Price to sale 4.2 4.3
Price to book 7.1 6.1
Industrials and
CONSUMER GOODS

CEMENT
AUTOMOBILE
ENERGY

METALS
PHARMA
FINANCIALS

CAPITAL GOODDS
IT

CHEMICALS
Dividend yield 1.5 1.3 Banks while key
promotor holding 38.5 37.9 UWs is NBFCs, IT,
EPS Growth (FY19-21) 25.7% 23.3% Energy
• The portfolio is
positioned to take
Badhat NSE 200 Market Cap Badhat NSE200 advantage of
Large Cap 74.1% 88.7% improvement in
Mid Cap 15.8% 10.9%
investment traction
Small Cap 5.1% 0.4%
Total 94.9% 100%
in the country
 Mahindra Pragati
Sector Mix for Portfolio compared to BM Portfolio Characteristics
• Average ROE of
Parameters Pragati Nifty50
Pragati vs NSE 200 portfolio compared
Maket Cap (Rs cr) 215,062 344,796
favourably to index
40.0% EPS 81.3 56.8
35.0% • The portfolio is OW
Beta 0.9 1.0
30.0% Industrials, Auto,
25.0% P E ratio 37.0 43.6
Consumer Goods
20.0% ROE 15.1 12.2
15.0% ROA 7.8 10.4
and Cement while
10.0%
Debt to EBITDA 0.6 0.9
key UWs include
5.0%
0.0% Price to sale 4.5 4.2
Financials, IT and
Energy
CONSUMER GOODS

CEMENT
AUTOMOBILE

ENERGY

METALS
FINANCIALS

PHARMA

IT
CAPITAL GOODS

CHEMICALS
Price to book 5.8 5.9
Dividend yield 0.8 1.3
• The portfolio is
promotor holding 49.0 33.5 positioned to take
EPS Growth (FY19-21) 17.5% 24.9% advantage of both
improving
consumption trends
Pragati NSE 200 Market Cap Pragati Nifty50 and investment
Large Cap 80.5% 100.0% climate in the
Mid Cap 6.6% 0%
country
Small Cap 0.0% 0%
Total 87.1% 100.0%
 Mahindra Rural Bharat
Sector Mix for Portfolio compared to BM Portfolio Characteristics
• Average ROE of
portfolio is almost
Parameters Rural Bha NSE 200
Rural vs NSE 200 Maket Cap (Rs cr) 59,892 273,129
1.5x that of index
40.0%
• The portfolio is OW
EPS 187.6 59.1
35.0%
Beta 1.1 1.0
Industrials, Auto
30.0%
P E ratio 45.5 44.8
and Consumer
25.0%
ROE 17.6 11.1 Goods while key
20.0%
15.0% ROA 10.4 9.9 UWs include
10.0% Debt to EBITDA 0.3 0.9 Financials; This fund
5.0%
Price to sale 4.9 4.3 cannot invest in IT
0.0%
Price to book 8.3 6.1 and Pharma
CONSUMER GOODS

CEMENT
AUTOMOBILE

ENERGY

METALS
FINANCIALS

PHARMA
IT
CAPITAL GOODS

CHEMICALS

Dividend yield 1.1 1.3 • The portfolio is

Promotor holding 50.3 37.9 positioned to take
EPS Growth (FY19-21) 19.6% 23.3% advantage of
improving rural
consumption
Market Cap Rural Bharat NSE200 • The fund is well
Rural NSE 200
Large Cap 42.0% 88.7%
diversified across
Mid Cap 34.5% 10.9%
Small Cap 16.0% 0.4%
large, mid and small
Total 92.4% 100.0% cap companies
 Mahindra Dhan Sanchay
Sector Mix for Portfolio compared to BM Portfolio Characteristics • Average ROE of
portfolio compares
Parameters Dhan Sanc Nifty50 favourably to that of
Dhan vs Nifty 50 Maket Cap (Rs cr) 179,897 344,796 index
40.0% EPS 71.4 56.8 • Weighted earnings
35.0% Beta 1.1 1.0 growth of the
30.0%
25.0%
P E ratio 48.2 43.6 portfolio companies
20.0% ROE 15.7 12.2 is expected to
15.0% ROA 10.0 10.4 outstrip index by
10.0% Debt to EBITDA 0.8 0.9
5.0%
~150bps
0.0% Price to sale 3.9 4.2 • The portfolio is OW
Price to book 6.2 5.9 Industrials and
CONSUMER GOODS

CEMENT
AUTOMOBILE
ENERGY

METALS
FINANCIALS

PHARMA
IT

CAPITAL GOODS

Dividend yield 1.6 1.3 Banks while key

promotor holding 36.5 33.5 UWs is Consumer,
EPS Growth (FY19-21) 26.3% 24.9% NBFCs, IT, Energy
• The portfolio is
Market Cap Dhan Sanc Nifty50 positioned to take
Dhan Nifty 50 Large Cap 78.1% 100.0% advantage of
Mid Cap 9.5% 0.0% improvement in
Small Cap 2.5% 0.0% investment traction
Total 90.1% 100.0% in the country
Annexure
Union Budget and Implications
 Budget: Prudent with small social tilt
• The Union Budget was a prudent one in sticking to the fiscal consolidation path
• It continued with its thrust on investment reforms even as it balanced the same with
Prudent higher allocation to social welfare schemes
budget

Fiscal deficit (% of GDP)

7 6.6
6.1 5.9
6
4.9 4.9
5
Prudent 4.3
3.9 4.0
4.5
4.1 3.9
4 3.4 3.5 3.5 3.4
Fiscal Deficit 3 2.6
3.3

Path 2
1
0

FY20E
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19
 Union Budget: Balanced & progressive
 Vision for a $5 trillion economy: driven by ‘virtuous cycle’ of investment, strengthening connectivity
infra, transforming rural lives and enhancing ease of direct / indirect taxation
 Focus on fiscal discipline: fiscal deficit projected at 3.3% of GDP by FY20, a big positive for the rupee
as well as for G-Sec rates
 Infra investments: to invest Rs100trillion over the next five years - roads, industrial Corridors, Bharat
Mala & Sagar Mala, Dedicated Freight Corridors (DFCs); develop India as a global manufacturing hub
Key  Farm development: aim to double farm income by 2022, increased allocation of Rs1.5trillion,
focus fertilizer subsidy increased by 14% YoY in FY20 to Rs800bn
areas  Affordable housing: Under the PMAY (Urban) “Housing for All” Mission, 1.95cr houses proposed to
be built in the second phase; additional deduction of up to Rs150,000/- for interest paid on loans (for
purchase of an affordable house valued up to Rs4.5mn)
 Recapitalization of public sector banks: Rs700bn would be made available to spur credit growth in
the economy
 Financial sector stability: one-time six months' partial credit guarantee for NBFC assets available to
public-sector banks (for first loss of up to 10%) to address any liquidity concerns of financially sound
NBFCs
 Empowering SMEs: Rs3.5bn allocated for a 2% interest subvention scheme, a payment platform for
bill filing for MSMEs would be created to address delays
Note: PMAY – Pradhan Mantri Avaas Yojana
Thank You