That sinking feeling

“Down cycles are not fun, But they form the basis for enormous future profitability.” – Stephen A Schwarzman

Prithviraj Srinivas Sr. VP – Economist - Institutional Equity Research 1

prithviraj.srinivas@axiscap.in; 91 22 4325 1108 October 2019
Summary

Credit demand from both households and businesses have slowed, banks have turned risk averse and businesses are
shrugging off investment incentives to focus on current demand slump. More aggressive tax cuts and policy rate cuts are
needed to create a trough point in the near future. In addition, regulators should consider hiving off some dead weight (in
the banking system) so that the next up-cycle is exhilarating (greater heights in the roller coaster – see cover page graph).
 Key macro data readings: Growth indications deteriorated in September with services PMI indicating a contraction in
activity. External trade data showed further weakness in domestic and external demand. Which is why core WPI
inflation contracted further (poor pricing power). Monetary policy transmission improved with 10 bps decline in lending
rates MoM. Meanwhile, bond markets are ignoring deeper rate cut cycle and excess liquidity given fiscal concerns.
 Key sector trends
 Post corporate tax cut, FII investors bought banks, auto and
 Rainfall in October @ 11% excess, continues to support
engineering. Meanwhile, they remain net sellers in IT, pharma
winter crop prospects
and FMCG
 Bleak festive season so far with auto dealers associations
 Mutual Funds saw net positive flows in September albeit at weaker
reporting 13% YoY decline in registration with PV decline
levels. Large cap funds saw the biggest decline in flows
at 20% YoY.

 Projects announced decline in Sept while projects awarded pick up  Risk aversion and PSU consolidation behind weak credit
pace led by manufacturing, mining and infrastructure (8.7% YoY) and deposit (9.5% YoY) growth in September

 Cement volumes weakened, but dealer checks indicate

 RJio added 7.2 mn active subscribers in August, while incumbents
(Bharti Airtel and Vodafone Idea) continue to loose active subscribers
 FMCG channel checks indicate further demand deterioration led by
rural
 Floods impacted thermal power generation due to lower coal
production. Meanwhile, unpaid bills by DISCOMS rise 59% YoY
that firms are trying to push-up prices. Offering schemes
rather than straight discount on invoice.
 Railway container volumes declined due to domestic trade
while EXIM was flattish
 Diesel demand fell 3% YoY on economic slowdown. Gas
demand remains firm driven by CGD & fertilizer sectors

22 OCT 2019 2
Key conclusions

Page
 Eco 4
 Flows 8
 Key events 10
 Sector
 Agriculture 12
 Automobile 13
 Aviation 14
 BFSI 15
 Capital goods 16
 Cement 18
 FMCG 19
 IT 20
 Logistics 21
 Metal 22
 Oil & Gas 23
 Pharma 24
 Power 25
 Real Estate 26
 Telecom 29

 Appendix (heat map & macro forecasts) 30

22 OCT 2019 3
Eco: September data shows further deterioration in demand, pricing power
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

September PMIs show sequential contraction in services

Highlights
♦ September PMIs indicate flat momentum in (index) PMI Mfg PMI Services
manufacturing but contraction in services 56
54
♦ Further deterioration in pricing power with 52
manufacturing firms as core WPI declines 50
♦ Monetary policy transmission improved by 10bp MoM, 48
which takes lending rate decline to 40bp in total vs. 46
135bp in policy rate cuts 44

Feb-17

May-17

Feb-18

May-18

Feb-19

May-19
Aug-16

Aug-17

Aug-18

Aug-19
Nov-16

Nov-17

Nov-18
♦ GST collection decline of 2.7% y-o-y has kept debt
investors on guard, who seem to be shrugging off rate
cuts and loose liquidity conditions
Source: Bloomberg, CEIC

Fall in trade explained by commodity prices and domestic demand Manufacturers have weak pricing power
Goods trade by value
Exports Imports Core WPI Core core CPI
50 8 % y-o-y
40 (% YoY)
6
30
4 4.5
20
10 2
0
-6.6 0
(10)
-13.8 -1.1
(20) (2)
(30)
(4)
Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19
Sep 15 Sep 16 Sep 17 Sep 18 Sep 19

Source: CEIC Source: CEIC

22 OCT 2019 4
Eco: Bank lending rates coming off; fiscal concerns to keep investors on guard
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

40bp decline in lending rates (-10bp MoM) vs. 135bp policy rate cut Weak indirect tax collections more concerning due to direct tax give-ways

MCLR % 20 GST collections % y-o-y

9.5
15
9.0
8.83
8.35 10
8.5
5
8.0
7.95 0
7.5 7.73
(5) -2.7
7.0
Sep 18 Dec 18 Mar 19 Jun 19 Sep 19
Oct 16 Oct 17 Oct 18 Oct 19

Source: CEIC Source: CEIC

This is reflected in steeper yield curve despite rate cuts and excess
liquidity FII debt investor participation remains muted due to fiscal risk

Interest rate curve movement 10 FII Equity FII Debt

8 (%) Latest Jul 2019 Jan 2019 (USD bn)

5
7
6.7

6 6.4 0
5.8
5 5.4 (5)
5.2

4 4.3 (10)
Repo Call rate 1Y GOI 2Y GOI 5Y GOI 10Y GOI Oct 18 Jan 19 Apr 19 Jul 19 Oct 19
Source: CEIC Source: CEIC, October data as of 20th

22 OCT 2019 5
October special: Personal tax cut (when it comes) can boost demand
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

Around 4.2 million persons earning between INR 1 to 2 million will see maximum gain in disposable income (see report)

10%
Tax cut benefit % of
7.8%
8% average annual 6.9%
7.3%

income 6.2%
6% 4.9%
4.7%

4% 2.8%
2.4% 2.4%
2.1%
1.6%
2% 0.9% 0.9%

0%

-2%

-4% -3.3%
-4.2%
-4.7% -4.8% -4.9% -5.0%
-6%

1,468

3,337

6,884
179

674
5
3

10

12

17

22

33

69

18,357

91,900
Average annual income (in INR lakh)

Source: CEIC, Axis Capital estimates Note: The above estimates take into account tax slab proposed by CBDT. While tax authorities are in favor of removing deductions, we think deductions should be enhanced so that
policy can target auto and housing which are the main sectors under stress and therefore reduce knock-on impact for banks from fire sales.

22 OCT 2019 6
October special: Where is India’s potential growth ?
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

Most trend estimates indicate potential growth near 6.5% with FY20 growth likely to be below trend
M etho d 1: F il tering tec hniques to identify trend
R ange Po int estimate
GVA trend 6.3 to 6.8 6.5%
GVA ex. Agri trend 6.8 to 7.4 7.0%

M etho d 2: Using inv estment rate and p ast al l o c atio n effic ienc y
Average investment rate (last 3yrs) 28.7%
Last 5yr ICOR 4.5
Potential GDP growth 6.4%

M etho d 3: Using return o n c ap ital sto c k

India capital stock FY19 (INR trillion, nominal) 544
Average return on capital base 35%
Potential GDP nominal 188
Potential GDP growth nominal 9.2%
Less inflation (deflator) 3.0%
Potential GDP at current investment rate 6.2%

M etho d 4 : Gro wth ac c o unting (ro ugh estimates)

Growth in capital per worker 2.7%
Human capital 1.2%
Total Factor Productivity (TFP) 2.5%
Potential GDP 6.4%
Source: CEIC, Axis Capital estimates

22 OCT 2019 7
FPI flows: What investors did during the month
(pankaj.kadu@axiscap.in; 91 22 4325 1111) (nitesh.momaya@axiscap.in)

FPI sectoral investment trend over last 12 months: FII flows turn positive after 2 months
Sector Oct- 18 Nov- 18 Dec- 18 Jan- 19 Feb- 19 Mar- 19 Apr- 19 May- 19 Jun- 19 Jul- 19 Aug- 19 Sep- 19
Automobiles (155) 59 90 (132) (20) (69) 194 (154) 204 (247) 11 179
Banks & Fin Serv (372) 224 143 (428) 1,489 3,335 1,199 913 535 (831) (1,245) 700
Cement (140) (45) 55 (18) 3 67 (176) (215) (99) (52) (155) (76)
Chemicals & Ferts 8 57 (64) (2) 76 37 8 50 3 30 25 (30)
Cons. Durables 30 77 (8) 9 14 77 58 (24) 10 (14) (42) 31
Cons. Discretionary 2 3 (23) (43) 13 (27) (41) (36) 1 7 15 4
Engineering (29) 97 (89) (225) (83) 248 (41) 200 258 (168) (162) 166
FMCG 104 139 60 115 (199) 207 140 (98) (110) (246) (207) (147)
IT (307) 31 (244) (27) 96 78 (14) (462) (299) (863) (386) (383)
Logistics 2 30 (32) (81) 31 59 6 23 10 (10) (73) (48)
Media 12 4 (2) 95 94 (63) (21) 75 16 19 85 13
Metals/ Mining (128) (40) (23) (112) (32) 254 167 33 31 (36) (137) (6)
Oil & Gas (110) (42) (108) 283 7 849 612 88 11 (169) (539) (95)
Others (14) (98) 611 (191) 750 (998) 926 1,060 (113) 800 267 948
Pharma 233 188 (104) 131 36 295 (43) (339) (221) (51) (41) (38)
Power 117 102 160 20 122 322 231 37 142 18 60 (40)
Realty 23 (1) (7) (12) 13 (7) (138) 2 38 4 (5) (40)
Retail (50) (28) 34 (50) (32) 130 12 37 (55) (23) (15) 3
Telecom 105 77 (2) 67 39 98 (25) (55) 10 26 72 (85)
Total (668) 83 2 445 (602) 2,418 4,892 3 ,054 1,13 5 3 73 (1,805) (2,471) 1,057

♦ Post corporate tax cut, Sep-2019 saw large inflows in BFSI (mainly QIP), Automobiles and Engineering
♦ Cement, FMCG, IT and Pharma continue to witness selling pressure

Source: NSDL, Axis Capital

22 OCT 2019 8
Domestic flows: What investors did during the month
(pankaj.kadu@axiscap.in; 91 22 4325 1111) (nitesh.momaya@axiscap.in)

DII flows: 4th month of positive inflows Mutual Funds: Net inflow-outflow in growth/ equity-oriented schemes

MFs Others 18 17 16
13 (Rs bn)
4,000 (USD mn)
12 9
3,000
2,000 6
6 4 3
1,000
0 (0)
0 (1)
0
(1,000)

ELSS
Multi Cap Fund

Small Cap Fund

Large & Mid Cap

Sectoral/Thematic
Dividend Yield Fund
Focused Fund

Value Fund/Contra
Mid Cap Fund
Large Cap Fund
(2,000) (6)
(3,000)

Funds
Fund

Fund
Jul-19
May-19
Mar-19
Oct-18

Feb-19

Sep-19

Oct-19
Jan-19
Dec-18

Jun-19
Apr-19
Nov-18

Aug-19
SIP flows: Persistent Inflows into equities continue Highlights
85 (Rs bn)
♦ SIP – 10th continuous month of Rs 80 bn + inflows
83

83
82

82
82

81
81
81

81
80
80
80

♦ Flows of Rs 66 bn came into equity schemes – a drop of

77

70
28% MoM. This was largely due to the reduction in
flows in large caps schemes which saw a drop of 40%
55
♦ DII saw net inflow of USD 9 bn so far in FY20. Of this,
90%+ have come in since July-19
40
May-19

Jul-19
Mar-19
Sep-18

Feb-19

Sep-19
Oct-18

Jan-19
Dec-18
Nov-18

Jun-19
Apr-19

Aug-19

Source: AMFI, SEBI, CEIC, Axis Capital 22 OCT 2019 9

Key events during the month

Indian growth forecast shrinks

The RBI cut India’s growth forecast for 2019-20 to 6.1% from 6.9%. Various international bodies also lowered
their growth forecast for India – IMF, World Bank, and Moody’s down to 6.1%, 6%, and 5.8% respectively on
the back of a severe reaction to a global slowdown.

These institutions differed mainly around the nature of the slowdown that led to the revision. Some maintained
that the downturn was cyclical (IMF), while others claimed it to be cyclical and structural. Global uncertainty,
fractured relations, and tariff wars were not the only reasons cited for the downturn though. The economic
downturn was linked to the poor performance by key sectors like automobile and infrastructure.

22 OCT 2019 10
Sector

22 OCT 2019 11
Agriculture: Late rains continue to support winter crop prospects
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

Rainfall in October ( post monsoon ) @ 11% excess

Highlights
♦ South-West monsoon period ended with a 10 %
excess. Withdrawal of South-west monsoon was
delayed to 9th October and post monsoon rainfall
remains near the LPA with 34 of 36 subdivisions
having normal levels of rainfall
♦ Cotton and coarse cereals sowing were up 5.5%
and 1.8% YoY respectively, pulling the shortfall in
area sown to near 2018-19 levels
♦ IMD expects North-East monsoon to commence on
17th October

Crop acreage down only 0.05% YoY

As of 27September 2019
Area sown in Area sown in
Crop (in Lac hectares) 2018-19 2019-20 % YoY
Rice 386.92 382.34 (1.2)
Pulses 136.40 134.02 (1.7)
Coarse Cereals 176.68 179.92 1.8
Oilseeds 179.28 179.48 0.1
Sugarcane 55.51 52.45 (5.5)
Jute & Mesta 7.20 6.84 (5.0)
Cotton 121.05 127.67 5.5
Total 1063.24 1062.72 (0.0)

Source: CEIC, IMD, Agricoop 22 OCT 2019 12

Automobile: Festive season fails to reverse decline as retail remains weak
(nishit.jalan@axsicap.in; 91 22 4325 1148) (nikhil.kale@axiscap.in; 91 22 4325 1137)

PVs: Volumes down 24% YoY but up 14% MoM on festive buying in CVs: Volumes declined 39% YoY, as both LCVs (-23% YoY) and
Sept M&HCV (-62% YoY) remained weak

Cars UVs Vans YoY growth (RHS)

M&HCVs LCV YoY growth (RHS)
350 ('000) (% ) 50
18 40 120 ('000) 100
300 16 18 18
21
(% )
16 30 80
13 14 100
250 18 13 10
77 82 83 93 11 9 20 60
70 83
200 74 10 80
66 77 73 82
65 40
150 67 71 0 60
57
53 53 20
56
(10) 47
45
100 197 185 180 44 45 45 0
155 179 171 178 160 148 140 123 116 131 (20) 40 39 44
50 36 (20)
(30)
20 39 31 31 34 34
44
(40)
0 (40) 25 25 24 25 18 16 15
0 (60)
Feb-19
Dec-18
Oct-18

Nov-18

May-19

Aug-19
Jan-19

Apr-19

Jul-19
Mar-19

Jun-19

Sep-19
Sep-18

Feb-19
Dec-18
Oct-18

Nov-18

May-19
Jan-19

Apr-19

Aug-19
Jul-19
Mar-19

Jun-19

Sep-19
Sep-18
Two-wheelers: Volumes were down 22% with scooters declining less
(-16% YoY) vs. motorcycles (-23% YoY)
Highlights
Motorcycles Scooters Mopeds YoY growth (RHS) ♦ Start of the festive season led to a sequential uptick
2,500 ('000) (% ) 40
100 82
in volumes but failed to drive YoY growth. Our
30
2,000 52
channel checks suggest sales in Navratri period
75 75 64 52 57 20
666 643 73
71
51 56 were down ~5-15% YoY across segments
1,500 60 10
522 497 493 490 512 513 556
1,000 406
388 527 521
0 ♦ Dealers have reported weak footfalls and booking
levels for Diwali deliveries as well. As such, we do
1,360

1,328

(10)
1,162
1,085

1,085
1,050

1,044
1,028

1,047

500
982

934

not see demand turnaround in the festive season

937
793

(20)
0 (30)
♦ Discounts continue to remain high across 2W and PV
Feb-19
Dec-18
Nov-18
Oct-18

May-19
Jan-19

Apr-19

Aug-19
Jul-19
Mar-19

Jun-19
Sep-18

Sep-19

OEMs. Weak festive and impending BS-VI transition

could lead to further increase in Q3

Source: SIAM, CEIC, Axis Capital 22 OCT 2019 13

Aviation: August traffic growth remains weak as tourist season ends
(kunal.lakhan@axiscap.in; 91 22 4325 1147)

Volume growth remains muted at 3% YoY post Jet’s grounding… …but large players post robust growth

Passengers YoY growth (RHS) Passenger Growth (YoY) Load factor (RHS)
13.0 (mn) 30%
12.5 45% 95
12.0 20%
11.5 30% 37% 90
10%
11.0 31%
10.5 0% 15% 85
10.0 16%
9.5 -10%
0% 80

Jul-19
May-19
Mar-19
Sep-18

Feb-19
Oct-18

Jan-19
Dec-18

Jun-19
Nov-18

Apr-19
Aug-18

Aug-19
Indigo Spicejet Go Air

Market share remains largely stable for most carriers

Highlights
♦ Passenger traffic growth in August remained slow at 3.9%
Indigo Jet Airways Air India Spicejet Go Air
100% YoY amid a lean travel season, weak consumer sentiment
9% 9% 9% 9% 9% 9% 9% 10% 11% 11% 11% 11% 12%
and shutdown of Jet Airways
80% 12% 12% 12% 13% 12% 13% 14% 14% 13%
15% 16% 16% 16%
11% 10% 11% 11% 11% 11% 11% 12%
12% 12% 11% 11%
♦ Our view: We expect fares to increase in Q3FY20 driven
60% 13%
by upward pressure on crude prices, however, it will be
14% 14% 13% 13% 12% 12% 10% 5% 1% 0% 0% 0% 0%
40% marginally offset by (1) increase in the capacity as Jet
50%

49%

48%
48%

Airways’ unutilized slots become operational and (2) new

47%

47%
43%
43%

43%
43%

43%

44%
42%

20%
fleet addition by Indigo (30% capacity growth) and
0% SpiceJet (80% capacity growth). We expect overall
Mar-19

Jul-19
May-19
Sep-18

Feb-19
Oct-18

Jan-19
Dec-18
Nov-18

Jun-19
Apr-19
Aug-18

Aug-19

passenger traffic growth to revert to 12-14% range in

medium term (GDP growth multiplier to passenger traffic
growth is ~2x) once Jet Airway’s unutilized slots get
absorbed in the system.

Source: DGCA, CEIC, Axis Capital

22 OCT 2019 14
Note: Data release pending, hence this is the latest available
BFSI: Risk aversion and PSU consolidation drove lower credit growth
(praveen.agarwal@axiscap.in; 91 22 4325 1102; ) (vikash.mundhra@axiscap.in; 91 22 4325 1126) (ojasvi.khicha@axiscap.in; 91 22 4325 1133)

Credit growth continues to moderate CD ratio stable as both credit and deposit growth slowed down

Deposits Loans Loan growth YoY (RHS) (%) (%)

ID Ratio CD Ratio (RHS)
150 20%
(Rs trn) 17.4% 31 80
78.3 78.3 78.4
120 30 77.9
77.3 77.1
13.2% 15% 76.7 76.5 78
90 12.1% 29 75.9 75.9
10.2% 28 28.6 28.6
76
60 8.7%
10% 27 27.9 27.7 27.7 27.8 27.6 27.6
28.0
30 74

100

100

100

100

101
26
123

124

129

129

130

130

131
123

128

133
26.9
96

96

97

99

99
0 5% 25 72

Mar-19

Jul-19
May-19
Sep-18

Feb-19

Sep-19
Oct-18

Jan-19
Dec-18
Nov-18

Jun-19
Apr-19

Aug-19
Jul-19
May-19
Mar-19
Oct-18
Sep-18

Sep-19
Feb-19
Jan-19
Dec-18

Jun-19
Nov-18

Apr-19

Aug-19
Life insurance: group single business gained traction
Highlights
FYP - Individual Single FYP - Individual Non Single
FYP - Group Single FYP - Group Non Single
♦ Credit growth further weakened in Sept’19 at 8.7%
YoY. Deposit growth also moderated in Sept’19 to
100 3 2 9 4 7 9.5% leading to stable CD ratio (~76%)
80 36
49 42
44 57 ♦ Private banks are treading cautiously and lending
60 48
40 37
41 23 selectively along with many PSU banks slowing
33
20
31 28 down due to lack of capital and merger related
16 31
0
16 18 13 7 8 issues, impacting CD ratio
Mar-19

May-19

Jul-19
Sep-18

Feb-19

Sep-19
Oct-18

Jan-19
Dec-18
Nov-18

Jun-19
Apr-19

Aug-19

♦ In life insurance, LIC continued to dominate with

the share of First Year Premium (FYP) at 63.6% as of
Sept’19 (61.6%/72.6% in Sept’18/Aug’19)

Source: CEIC, RBI, IRDA, Axis Capital

ID Ratio: Investment Deposit Ratio; CD Ratio: Credit to Deposit ratio; FYP: First Year Premium; GDP: Gross Direct Premium 22 OCT 2019 15
Capital goods: Production weak, mfg and infra project awards recover
(abhishek.puri@axiscap.in; 91 22 4325 1144) (vaibhav.saboo@axiscap.in; 91 22 4325 1123)

Highlights

♦ IIP data for both capital goods and infrastructure segment seems weak. In Aug’19, capital goods production plummeted by
~21% and infrastructure declined by ~4%
♦ Projects announcements declined by ~68% YoY. However, project awarding turned positive for the first time in 11 months –
growing ~31% YoY – largely driven by the infrastructure and the manufacturing segment ( up 82% and 35% respectively)
♦ We believe project awarding has finally started to bottom out following a strong 12-14 month project announcement streak.
Expect strong awarding in H2FY20

IIP data for Aug’19 shows weakness in production… … However, project awards started rising from Sep’2019

Capita Goods IIP Infrastructure IIP Overall IIP Projects awarded yoy Projects announced yoy
400%
20%
Project
300%
10% Awards
200% turn +ve
0% after
100%
11months
-10% 0%
-20% -100%

-30% -200%

May-19

Jul-19
Mar-19

Sep-19
Feb-19
Jan'19

Jun-19
Apr-19

Aug-19
Jul-19
Mar-19

May-19
Sep-18

Feb-19
Oct-18

Jan-19
Dec-18
Nov-18

Jun-19
Apr-19
Aug-18

Aug-19

Source: Projects Today, Axis Capital 22 OCT 2019 16

Capital goods: Awards turn positive; 48% of announcements by private sector
(abhishek.puri@axiscap.in; 91 22 4325 1144) (vaibhav.saboo@axiscap.in; 91 22 4325 1123)

Yo y gro wth (% ) J an'19 F eb - 19 M ar- 19 Ap r- 19 M ay- 19 J un- 19 J ul - 19 Aug- 19 S ep - 19

Manufacturing awarded -53% 379% 139% 4175% -44% 165% -44% -5% 82%
Manufacturing announced 2512% 227% 26% -14% 74% 437% -1% -50% -92%
Mining awarded -73% -100% 28% -99% -100% - - -100% 24%
Mining announced 1720% -68% -43% 1451% 9275% 590% -64% -72% -100%
Electricity awarded -83% -99% -98% -60% -91% 27% -46% -15% -63%
Electricity announced 152% 244% 353% -99% -55% -61% 572% 53% 118%
Infra awarded -54% -54% -72% -82% -88% -72% -78% -61% 35%
Infra announced 39% 98% 44% 62% 107% 283% -4% -49% -61%
Irrigation awarded -98% 4429% 414% -100% -99% 48% -80% -56% 0%
Irrigation announced -67% 50160% 47% -65% -91% -31% 368% 62% -66%
Pro jec ts awarded 128 14 7 225 185 41 203 92 155 230
Projects awarded yoy -59% -57% -72% -34% -90% -42% -73% -55% 31%
Pro jec ts anno unc ed 2, 4 77 1, 638 1, 185 54 7 1, 130 1, 919 788 789 330
Projects announced yoy 221% 125% 41% -26% 63% 315% 47% -35% -68%

♦ Project announcements Sep’2019: YoY decline of ~68% largely on

 Manufacturing sector – down ~92% YoY (high base and tax incentives would lead to reframing of plans)
 Infra sector – lower ~66% YoY (3rd consecutive month of decline)
 However, Electricity sector was up ~118% YoY
♦ Project announcements H1FY20 – up 17% YoY at Rs 5,503 bn
♦ Private domestic sector was up ~33% despite a strong base growth of ~50% for 2019

Source: Projects Today, Axis Capital 22 OCT 2019 17

Cement: Prices moderate from peak, cost soft; demand remains soft
(arijit.dutta@axiscap.in; 91 22 4325 1122)

Cement prices weakened due to seasonality Cement monthly production as per DIPP data – volumes remain soft

Kolkata Delhi Chennai Mumbai mmt % YoY (RHS)

40 20
425 (Rs/bag) 15
400 30
10
375
20 5
350
0
325 10
300 (5)
275 0 (10)

May-19

Jul-19
Mar-19
Sep-18

Feb-19
Oct-18

Dec-18

Jan-19

Jun-19
Nov-18

Apr-19
Aug-18

Aug-19
Jul-19
May-19
Mar-19
Sep-18

Oct-18

Sep-19
Feb-19
Jan-19
Dec-18

Jun-19
Nov-18

Apr-19

Aug-19
Fuel prices continue to remain favorable
Highlights
Gulf (9% Sulphur) USA (6.5% Sulphur)
♦ Cement prices declined during monsoon, a seasonally
Domestic Petcoke (RHS)
145 11,000 weak quarter. Dealer interaction suggests cement
(USD/t) (Rs/t) companies are trying to push cement prices up unlike last
130 10,000
year when they were pushing volumes by reducing bill
115 9,000 amount. Dealers confirmed that companies are offering
100 8,000 various schemes to boost sales instead of reducing the bill.
85 7,000 Cost continues to be favorable, as both coal and pet coke
prices softened
70 6,000
♦ Volumes remained muted, as demand have not recovered
Mar-19

May-19

Jul-19
Sep-18

Sep-19
Feb-19
Oct-18

Jan-19
Dec-18
Nov-18

Jun-19
Apr-19

Aug-19

from hit due to general elections in May. Liquidity in the

economy continues to be a key issue. Q2 demand further
impacted by heavy monsoon

Source: Bloomberg, CEIC, Axis Capital 22 OCT 2019 18

FMCG: Rural demand subdued; RM prices a mixed bag
(anand.shah@axiscap.in; 91 22 4325 1142) (gaurav.jogani@axiscap.in; 91 22 4325 1124) (raghav.malik@axiscap.in; 91 2243251139)

New launches Price monitor

Pric e P r odu ct Gr am m age Se p - 1 9 MoM ch g.
C o mp any Pro duc t Weight
(R s) Indulekha 100 ml 432 20.0%
HUL Ponds Super Light gel moisturiser 149 73 g Saffola Gold 1l 159 14.4%
Real Masala Range: Mixed Fruit & Aam Kesh Kanti Natural Cleanser 200 ml 85 13.3%
Dabur 99 1l
Panna Dabur Amla 90 ml 20 20.0%
Cadbury 5 Star Fruit n Nut 25 31 g Parle Crack Jack 76 g 10 25.0%
Nestle Munch Crisp Pop 10 20 g
Britannia 50-50 Jeera Masti 10 80 g

Raw material price trend

Highlights
Pric e Pric e c hange
C o mmo dity Unit Mo nth- Av g 1m 3m 6m 1 yr
♦ Demand remained weak in October, however,
Palm Oil Rs/metric ton 39,871 - 5% 7% -6% -37% there has been some festive-related uptick. Rural
Skimmed milk powder Rs/kg 325 8% 13% 59% 91% growth has decelerated and urban continues to
PFAD US$/MT 442 6% 14% -6% -7% remain slow
Styrene - domestic Rs/kg 1,016 - 7% -29% -30% -23% ♦ On raw material side, price movement for agri-
Crude - Brent US$/Barrel 62 5% -2% -6% -21% basket was a mixed bag. PFAD shot up 6% MoM
Turpentine oil Rs/Ltr 118 - 6% -6% -2% 18% although it is still down 7% YoY. While prices of
styrene and turpentine oil continued to decline,
crude shot up by 5% .

Source: Bloomberg, NCDEX, MRCO, RIL, CMIE, Capital Line, Tea Board 22 OCT 2019 19
IT: Hiring picks up; deal wins strong
(shashi.bhusan@axiscap.in; 91 22 4325 1104) (santosh.sinha@axiscap.in; 91 22 4325 1121)

Tech hiring again gains momentum Infosys’ deal wins show more consistent improvement vs. peers

IT-Software/Software Services 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20

50% (YoY growth) (USD mn)

6,400

6,840
8,000

6,200
5,900

5,840
5,700
40%

5,050
4,900
4,900

4,690

4,590
6,000

4,270
38% 38% 39%
30% 36%
32% 31% 33%

2,847
2,714
20% 26% 4,000

2,029
1,570
1,568
1,116
10% 14% 2,000
0%

Jul-19
May-19
Mar-19
Feb-19

Sep-19
Jan-19

Jun-19
Apr-19

Aug-19
0
TCS Accenture (Outsourcing) Infosys

Strong outsourcing booking for Accenture

Highlights
24% Cons (Revs yoy @cc) 60% ♦ Hiring activity in IT-Software industry grew 33% YoY;
45% up from 14%YoY growth in Aug-19
12%
30% ♦ Infosys’ deal wins showed consistent improvement over
0% 15% the last six quarters, showing a jump over USD 1 bn+
0% on a quarterly run-rate basis
-12%
-15% ♦ Strong outsourcing order wins for Accenture indicates
-24% -30% continued buoyancy in the demand environment for
the IT sector. However, it guided for Q1FY20/FY20
Q1FY16
Q2FY16

Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18

Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q3FY16

Q4FY18

with bit of caution, in line with commentary from TCS

and Infosys

Source: Companies, Naukri Jobspeak 22 OCT 2019 20

Logistics: Macro blues continue; container falters (September volumes)
(ankur.periwal@axiscap.in; 91 22 4325 1149) (nitesh.dhoot@axiscap.in; 91 22 4325 1138)

Cargo performance across major ports Container tonnage growth across ports

Others Coal JNPT Major Ports Growth (RHS)

Container Iron Ore 20 15
(mn tons) (YoY%)
POL Overall Growth (RHS)
80 (mn tons) 15
(YoY%) 15 10
60 10

12.0

11.5
10 5
40 21 22 5
12 11 5 0
20 0

5.1

4.7
11 11
0 -5
0 (5)

May-19

Jul-19
Mar-19
Sep-18

Sep-19
Feb-19
Oct-18

Dec-18

Jan-19

Jun-19
Nov-18

Apr-19

Aug-19
Jul-19
May-19
Mar-19
Feb-19
Sep-18

Sep-19
Oct-18

Jan-19
Dec-18

Jun-19
Nov-18

Apr-19

Aug-19
Railways – aggregate cargo growth Highlights
(YoY%) Agg Cargo Coal Container (RHS) (YoY%) ♦ Cargo volumes across major ports relapsed (marginal
12 30 dip YoY) after a recovery in the last few months
4 (+3.5%/+1% in July/Aug’19 vs. flattish vol in
6 3 20 May-June’19). While POL* (41% share) grew,
12
0 10 decline was led by containers (21% share)
-2 ♦ Among containers, non-JNPT tonnage declined 2%
(6) 0
-7
YoY (first since last 18 months), while JNPT volumes
(12) (10) declined 8% YoY
- 11
Jul-19
May-19
Mar-19
Sep-18

Sep-19
Feb-19
Oct-18

Dec-18

Jan-19

Jun-19
Nov-18

Apr-19

Aug-19

♦ Railway container volumes declined 2% YoY

(+2% YTM) on 3% fall in domestic (declined 2% YTM)
and flattish Exim volumes (+3% YTM)

Source: CIEC, Axis Capital *Petroleum, Oil & Lubricants 22 OCT 2019 21
Metal: Prices remain weak globally
(arijit.dutta@axiscap.in; 91 22 4325 1122)

China HRC export (FOB) prices have started recovering Zinc inventory decline continues – to support prices

LME Zinc Inventory (RHS) LME Zinc

China HRC export (FOB)
650 (USD/t) 3,200 240
(USD/t) (tons/'000)
600
2,800 160
550
2,400 80
500

450 2,000 0

Jul-19
May-19
Mar-19
Oct-18

Sep-19

Oct-19
Feb-19
Jan-19
Dec-18

Jun-19
Nov-18

Apr-19

Aug-19

May-19

Jul-19
Mar-19
Feb-19

Sep-19
Oct-18

Oct-19
Jan-19
Dec-18

Jun-19
Nov-18

Apr-19

Aug-19
Highlights
Aluminium – remains weak with new supplies coming
♦ Global steel prices are weak, as concerns over
LME Primary Aluminium Inventory (RHS) LME Aluminium
US-China trade dispute continues. Metals prices to
2,500 1,400
(USD/t) (tons/'000) remain volatile till a deal is signed
2,250 1,250 ♦ Steel prices in India continue to decline in line with
global prices due to weakness in demand
2,000 1,100
♦ Aluminum prices remained weak on softening Alumina
1,750 950 prices and demand
1,500 800 ♦ Zinc prices continues to remain weak as expectation
of sizable capacity addition amidst lackluster
Jul-19
May-19
Mar-19
Feb-19

Sep-19
Oct-19
Oct-18

Jan-19
Dec-18

Jun-19
Nov-18

Apr-19

Aug-19

consumption to impact supply-demand balance

♦ Cost moderated on decrease in coal prices

Source: Bloomberg, Axis Capital 22 OCT 2019 22

Oil & Gas: Diesel demand weakens further, gas consumption up 9% YoY
(manikantha.garre@axiscap.in; 91 22 4325 1113)

Sep’19: MS demand up 6% YoY but HSD fell 3% YoY Aug’19: Crude production % of total demand is down 104 bps YoY

Diesel (LHS) Petrol (LHS) LPG (LHS) Crude throughput (kt) Production % throughput (RHS)
Diesel (YoY%) Petrol (YoY%) LPG (YoY%)
24 14.0%
10 (mnt) 20% (mt)
22 13.5%
8
10% 13.0%
6 20
4 12.5%
0% 18
2 12.0%
0 -10% 16 11.5%

May-19
Mar-19

Jul-19
Sep-18

Feb-19
Oct-18

Dec-18
Jan-19
Nov-18

Jun-19
Apr-19
Aug-18

Aug-19
Mar-19

May-19

Jul-19
Sep-18

Feb-19

Sep-19
Oct-18

Jan-19
Dec-18
Nov-18

Jun-19
Apr-19

Aug’19: Gas consumption rose 9% YoY/4% MoM Aug-19 Highlights

(mcmd) Fertilizers Power ♦ HSD demand growth fell 3% YoY due to prolonged
CGD Downstream/Others
Total YoY (RHS, %)
rainfall/ floods and low auto sales. We expect
160 10%
growth in demand of petroleum products to be muted
120 at 2% in FY20 due to weak domestic GDP growth.
5% Medium-term growth to be supported by auto fuels
80 (under-penetration of vehicles, rising per capita
0% income) and LPG (policy boost)
40
♦ Gas consumption by CGD sector rose 20% YoY
0 -5%
again and fertilizers was up 11% YoY. Consumption
May-19

Jul-19
Mar-19
Sep-18

Feb-19
Oct-18

Dec-18

Jan-19

Jun-19
Nov-18

Apr-19
Aug-18

Aug-19

by power fell 3% YoY. We expect consumption

growth to be strong at >6% in medium term on policy
thrust and economics (cheaper alternative)

Source: PPAC, MoPNG 22 OCT 2019 23

 Pharma: Domestic formulations Sep’19 scorecard
(prakash.agarwal@axiscap.in; 91 22 4325 1145) (dhagash.vora@axiscap.in; 91 22 4325 1129)

Therapy-wise growth Indian domestic formulations – growth drivers

% of
Yo Y Gro wth F Y17 F Y18 F Y19 Q1'20 Q2'20 S ep '19
IPM T o tal Volume Price New Product
20
Anti-Infective 13 4 1 6 6 14 11 (%)
Cardiac 13 11 6 13 10 12 14
15 12
Gastro Intestinal 11 10 6 9 6 11 12 12
10 10
Anti-Diabetic 10 19 12 15 11 14 14
10 8 3 3
Vitamins/ Nutrients 9 10 4 9 8 10 11 3 6 2
Respiratory 7 9 8 8 7 13 8 2 6 6
5 2 3 4
Pain / Analgesics 7 10 4 8 7 12 13 5
Neuro / CNS 6 10
5 4 4 3.2 4
6 10 9 10 12
0
Derma 7 12 10 11 6 8 10 1
(1)
Gynaecological 5 11 4 9 7 7 8
(5)
Anti-Malarial 0 (4) (18) 1 1 14 11
FY17 FY18 FY19 Q1'20 Q2'20 Sep'19
T o tal IPM (R s b n) 1, 305 10 6 10 8 12 12

Company-wise growth
Yo Y Gro wth % F Y17 F Y18 F Y19 Q1'20 Q2'20 S ep '19 Highlights
Alkem 15 5 11 12 18 15
Alembic Pharma 7 (1) 11 2 3 0 ♦ Volume growth in domestic formulations recovered to
Cadila 12 6 8 11 14 14 3.5% in Aug’19 after a downward trend since
Cipla 8 4 9 9 8 6 Jan’19 (except Jul’19 when it grew 4.5%), leading
Dr Reddy's 5 6 9 15 19 24 to IPM growth of 11.9% YoY (as per AIOCD)
Glenmark Pharma 12 9 13 8 8 9 ♦ Volume growth recovered to 3.2% in Q2’20 from
IPCA 9 (6) 23 9 10 9 0.7% in Q1’20; H1’20 volume growth was 1.7%
Lupin 12 10 15 14 17 19
Sun Pharma 11 6 8 7 11 13 ♦ This also led to mixed growth for Chronic therapies.
Torrent Pharma 13 5 15 9 13 18 Acute therapy growth was led by onset of acute
Mankind 10 7 11 9 13 18
season
Eris Life Sciences 13 0 9 13 10 10
IPM 10 6 10 8 12 12

Source: AIOCD, % of FY19 sales 22 OCT 2019 24

Power: Discom dues surge despite LCs; reforms imperative to improve sector heath
(abhishek.puri@axiscap.in; 91 22 4325 1144 ) (pranjal.jain@axiscap.in; 91 22 4325 1120)

India added 6 GW capacity in H1 ; thermal gross addition at 3 GW Expect utilization to drop in Sep’19 ; coal gen declined 10%;
largely led by NTPC; RE addition at ~4 GW lags the target hydro/nuclear up 19%/59% YoY

(BU) Coal gen (BU) Coal PLF- Derived (RHS) (%)

100 70
60
80
50
60 40
40 30
20
20
10
0 0

May-18

Jul-18

Jul-19
May-19
Mar-19
Feb-19
Sep-18

Sep-19
Oct-18

Dec-18
Jan-19
Jun-18

Jun-19
Nov-18

Apr-19
Apr-18

Aug-18

Aug-19
Despite LC mechanism, discom dues surged; O/S dues are up
59% YoY and 36% up from Mar’19 level to Rs 780 bn Highlights
♦ Thermal generation declined 3% in Q2 due to extended
O/S dues Overdues excl. disputes
monsoon though rains supported hydro gen growth (+9%)
♦ Coal availability dipped – lower production by Coal India
1000
780
(Rs bn) (down 12% YoY) and mine shutdowns due to floods
800
593

LC mechanism implemented from 1st Aug’19. Despite this,

572

♦
491

421

600 discom dues were up 59% YoY/ 36% up from Mar’19

341

400 level to Rs 780 bn. ~77% of theses are dues over 60 days.
Discoms expect package settlement for prior outstanding
200
dues through centre’s aid, which in our opinion has limited
0 scope. Hence, discom reforms w.r.t to franchise/licensing
Mar-19

May-19

Jul-19
Sep-18

Feb-19
Oct-18

Jan-19
Dec-18
Nov-18

Jun-19
Apr-19
Aug-18

Aug-19

remains imperative to improve sector health

Source: CEA, Bloomberg, Axis Capital 22 OCT 2019 25

Note: Sept’ coal generation taken from NPP India
Real estate: Residential cycle slows down, commercial demand steady…
(kunal.lakhan@axiscap.in; 91 22 4325 1147)

Residential sales growth slows down in Q3CY19

Highlights
160,000 (No. of units)
♦ Residential: New launches were down 18% YoY in
140,000
Q3CY19 on liquidity crisis and economic slowdown.
120,000
Sales volumes were down 18% YoY and 20% QoQ,
100,000
with sales significantly down in all major cities.

45,230
80,000
♦ Commercial: Office space absorption was at 60,000
decadal high at 27.4 msf, up 26% YoY, in H1CY19. 40,000
Average rentals increased ~10% YoY during the 20,000
period. Vacancy levels continue to be low at 12.7% 0
(flat YoY)

Q1FY15

Q3FY16
Q4FY15

Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q2FY15

Q1FY16
Source: CEIC

Residential launches plunged in Q3CY19 Housing affordability worsened over past 4 years

100,000 (No. of units) Loan to annual inc. ratio (RHS)

55,080
80,000 EMI to Inc Ratio (%)
80 4
60,000
70 3
40,000 60
2
20,000 50
40 1
0
30 0
Q1FY15
Q2FY15
Q3FY16
Q4FY15

Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18

Q1FY19
Q2FY19
Q3FY19
Q1FY16

Q4FY18

Mar-15

Mar-17

Mar-18

Mar-19
Mar-16
Sep-15

Sep-16

Sep-17

Sep-18
Dec-15

Dec-16

Dec-17

Dec-18
Jun-15

Jun-16

Jun-17

Jun-18
Source: CEIC, RBI Source: RBI

Note: Data release pending, hence this is the latest available 22 OCT 2019 26
…Residential cycle slows down, commercial demand steady…
(kunal.lakhan@axiscap.in; 91 22 4325 1147)

Office space: Demand surges in H1CY19

Bank credit to housing improving after demonetization dive

Mumbai NCR Bangalore Pune Chennai

Housing Credit (YoY%)
30 15 (msf)
25
20 10
15
10 5
5
0 0
Aug 07

Aug 08

Aug 09

Aug 10

Aug 11

Aug 12

Aug 13

Aug 14

Aug 15

Aug 16

Aug 17

Aug 18

Aug 19
CY14 CY15 CY16 CY17 CY18 H1 CY19

Source: Knight Frank

Source: CEIC

Steady growth in office rentals on paucity of grade A supply and

Office space: Supply continues to lag demand stable demand from tenants in key markets (Bangalore, Pune)

Av g. commercial propert rates (INR/sqft)

Mumbai NCR Bangalore Pune Chennai
300
Mumbai Delhi Kolkata
15 (msf)
Chennai Bangalore Gurgaon
200
10
100
5
0
Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19
0
CY14 CY15 CY16 CY17 CY18 H1 CY19

Source: CEIC, Colliers

Note: Data release pending, hence this is the latest available 22 OCT 2019 27
…Residential cycle slows down, commercial demand steady

Residential launches plunge in all major cities Sales decline after a steady quarter

Q3'19 QoQ (RHS) YoY (RHS) Q3'19 QoQ (RHS) YoY (RHS)
16,000 (Units) 80% 20,000 0%
(Units)
12,000 40% 16,000 -10%
12,000
8,000 0% -20%
8,000
4,000 -40% 4,000 -30%
0 -80% 0 -40%
MMR

Pune
NCR

Chennai
Bengaluru

Kolkata
Hyderabad

MMR

Pune
NCR

Chennai
Bengaluru

Kolkata
Hyderabad
Inventory levels decrease marginally as sales exceed new launches Prices remain range-bound in most of the cities

Q3'19 QoQ (RHS) YoY (RHS) Q3'19 YoY (RHS)

250,000 10% 12,000 (Rs/sq. ft.) 1.20%
(Units)
200,000 10,000 1.00%
0% 8,000 0.80%
150,000
6,000 0.60%
100,000 -10% 4,000 0.40%
50,000 2,000 0.20%
0 -20% 0 0.00%

MMR

Pune
NCR

Chennai
Bengaluru
MMR

Pune

Kolkata
NCR

Hyderabad
Chennai
Bengaluru

Kolkata
Hyderabad

Source: XXXX 22 OCT 2019 28

Telecom: RJio continues to gain share as others slide in August
(shashi.bhusan@axiscap.in; 91 22 4325 1104) (santosh.sinha@axiscap.in; 91 22 4325 1121)

Total reported mobile subscribers (mn) – RJio added 8.4 mn subs in Total active mobile subscribers (mn) – RJio added 7.2 mn MoM
JAug2019 vs. 5.0 mn/0.6 mn lost by Vodafone Idea/Bharti active subs vs. 2.9 mn / 5.7 mn lost by Vodafone Idea/ Bharti
C o mp any (mn) Aug- 19 Jul - 19 M o M Aug- 18 Yo Y C o mp any (mn) Aug- 19 Jul - 19 MoM Aug- 18 Yo Y

Bharti (incl. TTSL) 328 329 (0.6) 370 (42.2) Bharti (incl. TTSL) 306 312 (5.7) 341 (34.9)

Vodafone Idea 375 380 (5.0) 442 (66.6) Vodafone Idea 308 311 (2.9) 407 (99.0)

RJio 348 340 8.4 239 109.0 RJio 289 282 7.2 198 91.5

Others 120 120 (0.2) 116 3.9 Others 66 67 (0.8) 67 (0.6)

T o tal 1, 171 1, 168 2. 7 1, 167 4.1 T o tal 970 972 (2. 2) 1, 013 (4 3. 0)

Active mobile subscriber share (%) – RJio active SMS was up

80 bps MoM at 29.8% at end of Aug 2019
Highlights
Bharti Vodafone Idea RJio Others
♦ RJio added 7.2 mn active subscribers in August,
100% 7% 6% 7% 7% 7% 7% 7% increasing its active subscriber market share by
80% 20% 22% 24% 27% 28% 29% 30%
80 bps MoM to 29.8%.

60% ♦ Vodafone Idea lost another 2.9 mn active

40% 39% 37% 34% 33% 32% 32%
subscribers, dragging its share down by 22 bps
40% MoM to 31.8%
20% 34% 33% 32% 32% 32% 32%
♦ Bharti (incl. TTSL) lost 5.7 mn active subscribers, with
32%
market share down 52 bps MoM at 31.6%. Losses
0% in active subscribers were higher as VLR declined
Aug-18 Nov-18 Feb-19 May-19 Jun-19 Jul-19 Aug-19 from 95.0 in July to 93.4 in August.

Source: TRAI Note: SMS = Subscriber Market Share; Active subscriber is calculated based on reported Visitor Location
Register (VLR), a key metric reflecting the number of active users on a mobile network 22 OCT 2019 29
Appendix

22 OCT 2019 30
Heat map – high frequency trends (chg YoY)…
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

Decreasing trend and negative Decreasing trend but positive

Increasing trend but negative Increasing trend and positive
No growth NA - Not Available

M on t h Se p - 1 8 Oct - 1 8 Nov- 1 8 De c- 1 8 Jan - 1 9 Fe b - 1 9 M ar - 1 9 A p r - 1 9 M ay- 1 9 Ju n - 1 9 Ju l - 1 9 A u g- 1 9 Se p - 1 9

Ou t p u t
PMI mfg index (Value) 52.2 53.1 54.0 53.2 53.9 54.3 52.6 51.8 52.7 52.1 52.5 51.4 51.4
PMI serv index (Value) 50.9 52.2 53.7 53.2 52.2 52.5 52.0 51.0 50.2 49.6 53.8 52.4 48.7
IIP 4.6 8.4 0.2 2.5 1.6 0.2 2.7 3.2 4.5 1.2 4.6 (1.1) NA
IIP mfg 4.8 8.2 (0.7) 2.9 1.3 (0.3) 3.1 2.5 4.4 0.2 4.5 (1.2) NA
IIP cons goods 5.9 12.4 (1.4) 5.6 3.3 3.3 (0.6) 4.0 4.6 (1.0) 3.4 (1.8) NA
IIP cap goods 6.9 16.9 (4.1) 4.2 (3.6) (9.3) (9.1) (1.4) (2.1) (6.8) (7.2) (21.0) NA
IIP Infra goods 9.5 9.0 4.8 9.0 6.4 1.9 5.1 (0.7) 3.0 (1.9) 3.5 (4.5) NA

Ext e r n al
Export (2.5) 17.9 0.8 0.3 3.7 2.4 11.0 0.6 3.9 (9.7) 2.2 (6.0) (6.6)
Import 12.8 17.6 4.3 (2.4) 0.0 (5.4) 1.4 4.5 4.3 (9.1) (10.4) (13.4) (13.8)
Trade bal (USD bn) (15.0) (17.1) (16.7) (13.1) (14.7) (9.6) (10.9) (15.3) (15.4) (15.3) (13.4) (13.5) (10.9)
FX reserves (USD bn) 401 392 394 393 398 399 412 419 422 428 430 429 434

P r i ce s
CPI 3.7 3.4 2.3 2.1 2.0 2.6 2.9 3.0 3.0 3.2 3.1 3.3 4.0
CPI core 5.7 6.2 5.7 5.6 5.2 5.4 5.1 4.6 4.1 4.1 4.5 4.2 4.2
WPI 5.2 5.5 4.5 3.5 2.8 2.9 3.1 3.2 2.8 2.0 1.2 1.1 0.3
WPI core 4.8 5.2 4.9 4.2 3.1 2.5 2.5 2.0 1.3 0.8 0.1 (0.4) (1.1)
Source: Axis Capital, Bloomberg, CMIE, DGCA, EA Industry, CEA, SIAM, MoPNG

Further deterioration in output and demand indicators in September

22 OCT 2019 31
…Heat map – high frequency trends (chg YoY)
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

Decreasing trend and negative Decreasing trend but positive

Increasing trend but negative Increasing trend and positive
No growth NA - Not Available

M on t h Se p - 1 8 Oct - 1 8 Nov- 1 8 De c- 1 8 Jan - 1 9 Fe b - 1 9 M ar - 1 9 A p r - 1 9 M ay- 1 9 Ju n - 1 9 Ju l - 1 9 A u g- 1 9 Se p - 1 9

Con su m p t i on
Passenger cars (domestic) (5.6) 0.4 (0.9) (2.0) (2.6) (4.3) (6.9) (19.9) (26.0) (24.1) (36.0) (41.1) (33.4)
2-Wheelers (domestic) 4.1 17.2 7.1 (2.2) (5.2) (4.2) (17.3) (16.4) (6.7) (11.7) (16.8) (22.2) (22.1)
Domestic air pax traffic 18.9 13.3 11.0 12.9 9.1 5.6 0.1 (4.5) 3.0 6.2 3.0 3.9 NA
Electricity generation 5.7 10.3 4.5 3.9 (1.0) (0.6) 1.2 5.2 5.4 8.6 5.6 0.4 (3.4)
Petrol consumption 4.2 4.7 8.8 10.0 13.3 8.0 7.2 7.7 11.4 10.9 8.9 9.0 6.2
Tourist arrivals (0.1) 1.7 1.4 2.0 5.3 3.7 (4.8) 3.5 0.7 5.4 1.4 1.6 NA
Rural Wages (Men&Women) 4.7 5.5 6.1 4.7 4.7 4.7 5.1 4.8 4.8 4.6 4.8 NA NA

I n ve st m e n t
LCVs (Domestic) 22.9 29.1 17.5 4.1 3.2 5.8 3.9 (1.1) (3.7) (9.8) (18.8) (28.2) (23.1)
MHCVs (Domestic) 26.0 17.8 (11.0) (20.7) 0.7 (8.8) (4.7) (13.6) (19.7) (16.4) (37.5) (54.3) (62.1)
Cement production 11.8 18.4 8.8 11.6 11.0 8.0 15.7 2.3 2.8 (1.7) 7.9 (4.9) NA
Diesel consumption (0.8) 7.3 (4.5) 3.8 6.3 3.0 1.5 2.1 2.9 1.5 3.4 (1.1) (3.3)
Steel production 3.2 2.4 5.3 10.1 5.5 4.9 11.5 13.3 13.3 8.4 8.9 5.0 NA
Govt Capex ^ 20.3 15.9 9.2 (3.4) 1.5 10.7 14.0 (35.0) (19.6) (26.0) 2.0 10.3 NA

Fi scal H e al t h
Total Revenue ^ 9.1 5.3 3.4 4.9 5.8 4.2 7.4 36.6 15.2 4.0 14.4 29.6 NA
Total Expenditure ^ 13.5 12.7 9.1 7.8 8.8 9.5 7.9 14.0 8.5 2.0 6.5 9.8 NA

Source: Axis Capital, Bloomberg, CMIE, DGCA, EA Industry, CEA, SIAM, MoPNG Note: ^FYTD growth rate

Both consumption and investment indicators are flashing red

22 OCT 2019 32
Demand indicators
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

Lat e st Lat e st M oM Y oY FY 2 0 FY 1 9
I n di cat or s m on t h val u e ch g (% ) ch g (% ) Y t d (% ) Y oY (% )
A u t os (n os 0 0 0 )
Passenger Vehicles Sep-19 223 13.6 (23.7) (23.6) 2.7
Passenger Cars Sep-19 131 13.2 (33.4) (30.1) 2.0
Commercial Vehicles Sep-19 58 12.6 (39.1) (22.9) 17.6
2-Wheelers Sep-19 1,657 9.4 (22.1) (16.2) 4.9
Cem ent
Cement - Production (mn tonnes) Aug-19 24 (12.9) (4.9) 1.3 13.3
Cement price - Mumbai (Rs /50 kg) Sep-19 340 (1.4) (2.9) 0.0 0.0
Cement prices - Delhi (Rs /50 kg) Sep-19 360 0.0 12.5 20.0 (4.8)
Cement price - Kolkata (Rs /50 kg) Sep-19 330 (2.9) 0.0 (4.3) (1.4)
P or t s (m n t on s)
Overall cargo volume Sep-19 55 (5.2) (0.5) 1.5 2.9
Goods traffic on railways Sep-19 89 (2.8) (6.6) (0.4) 5.3
Te l e com (m n n os)
Cellular Subscribers Aug-19 1,171 0.2 0.4 0.79 (1.8)
Net cellular additions Aug-19 2.7 (5.6) (72.7) - -
Broadband Subscribers Aug-19 18 (1.1) 1.7 (0.54) 2.6
Source: SIAM, EA Industry, CMIE, IPA, TRAI; Note: NM = Not meaningful

Goods traffic on railways and cement production contracting

22 OCT 2019 33
Supply indicators
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

Lat e st Lat e st M oM Y oY FY 2 0 FY 1 9
I n di cat or s m on t h val u e ch g (% ) ch g (% ) Y t d (% ) Y oY (% )
B an ki n g
Deposits (Rs bn) Sep-19 129,068 1.0 9.4 2.6 10.0
Credit (Rs bn) Sep-19 97,713 0.9 8.8 (0.0) 13.3
Non-Food Credit (Rs bn) Sep-19 97,112 1.0 8.7 (0.2) 13.4
Food Credit (Rs bn) Sep-19 601 (3.7) 26.1 44.4 (0.9)
Credit Deposits Ratio (% ) * Sep-19 76 76 76 - 78
Money Supply - M1 (Rs bn) Sep-19 36,495 1.5 10.9 (1.9) 13.8
Money Supply - M2 (Rs bn) Sep-19 158,176 0.9 9.7 2.4 10.6
Foreign Currency Assets (USD bn) * Sep-19 402 396 376 - 384
M e t al s (m n t on s)
Steel Production Aug-19 10 (0.7) 5.0 9.7 5.1
Coal Production Aug-19 44 (10.9) (8.6) (0.2) 7.4
Oi l & Gas
Diesel Consumption (000 tons) Sep-19 5,830 (4.7) (3.3) 1.1 3.0
Petrol Consumption (000 tons) Sep-19 2,372 (7.9) 6.2 9.1 8.1
Kerosene Consumption (000 tons) Sep-19 176 (23.8) (37.7) (22.4) (10.0)
I n t e r n at i on al Oi l & Gas P r i ce s
Oil - WTI ($/bbl) Sep-19 54 (1.9) (26.2) (10.1) (7.4)
Natural Gas - ($/mmbtu) Sep-19 2 1.3 (21.5) (13.2) (2.8)
P owe r (b n kwh )
Electricity Generaion Sep-19 105 (1.4) (3.4) 3.6 3.6
Source: Bloomberg, RBI, EA Industry, CEA, MoPNG Note: * Absolute figures in that period

Petrol consumption up, but diesel consumption down. Electricity generation down.

22 OCT 2019 34
 Eco indicators
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

Lat e st Lat e st M oM Y oY FY 2 0 FY 1 9 Lat e st Lat e st M oM Y oY FY 2 0 FY 1 9

I n di cat or s m on t h val u e ch g (% ) ch g (% ) Y t d (% ) Y oY (% ) I n di cat or s m on t h val u e ch g (% ) ch g (% ) Y t d (% ) Y oY (% )
I I P (% ) ^ Aug-19 127 (3 .7 ) (1 .1 ) 2 .5 3 .8 C u r r e n cy
Manufacturing ^ Aug-19 129 (3.3) (1.2) 2.1 3.8 INR vs USD Sep-19 70.9 (0.8) (2.2) 2.5 6.1
Mining ^ Aug-19 92 (8.0) 0.1 2.8 2.8 I n t e r e st Rat e s (% ) *
Electricity ^ Aug-19 166 (2.4) (0.9) 5.0 5.2 Repo Rate Sep-19 5.40 5.40 6.50 - 6.25
Capital Goods ^ Aug-19 89 (3.3) (21.0) (8.0) 2.7 10 Year Sep-19 6.70 6.56 8.02 - 7.35
Cons Goods ^ Aug-19 135 (2.6) (1.8) 1.8 4.6 I n ve st m e n t s (U SD m ) *
WP I (% ) ^ Sep-19 121 (0 .1 ) 0 .3 1 .8 4 .3 FII [Equity] Sep-19 955 - - 1,315 122
Mfg Products ^ Sep-19 118 0.1 (0.4) 0.7 3.7 MF [Equity] Sep-19 1,545 - - 7,119 12,570
All Primary ^ Sep-19 143 (0.6) 5.5 6.2 2.7 DII (excl MF) [Equity] Sep-19 203 - - 1,215 (2,311)
Fuel ^ Sep-19 100 (0.5) (7.1) (1.9) 11.5 FDI Aug-19 2,732 - - 24,849 40,507
C P I Re t ai l (% ) ^ Sep-19 146 0 .6 4 .0 3 .3 3 .4 Fi scal B al an ce (I NR b n ) *
For e i gn Tr ade (U SD b n ) Tax revenue Aug-19 659 - - 4,046 13,170
Exports Sep-19 26 (0.4) (6.6) (2.6) 8.7 Total expenditure Aug-19 2,280 - - 11,753 23,114
Imports Sep-19 37 (6.8) (13.8) (6.6) 9.9 Fiscal deficit Aug-19 62 - - 5,538 6,454
Trade Balance * Sep-19 (11) (13) (15) (84) (179)
Forex Reserves * Sep-19 434 429 401 - 412

Source: Bloomberg, SEBI Note: * Abs. figures in that period; ^ FY20 (YTD) are avg; NM = Not meaningful

USD 25bn in FDI so far versus USD 40bn in FY19

22 OCT 2019 35
GDP growth estimates
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

M ar- 17 J un- 17 S ep - 17 Dec - 17 M ar- 18 J un- 18 S ep - 18 Dec - 18 M ar- 19 J un- 19 F Y18 F Y19 F Y20E
GDP
Econ om i c act i vi t y (Y oY % )
Agriculture 7.4 4.2 4.5 4.6 6.5 5.1 4.9 2.8 (0.1) 2.0 5.0 2.9 1.8
Industry* 6.0 0.8 6.9 8.0 8.1 9.8 6.7 7.0 4.2 2.7 5.9 6.9 3.0
Services 6.9 9.4 6.8 8.0 8.2 7.1 7.3 7.2 8.4 6.9 8.1 7.5 8.3
Re al GV A 6 .7 5 .9 6 .6 7 .3 7 .9 7 .7 6 .9 6 .3 5 .7 4 .9 6 .9 6 .6 5 .7
Exp e n di t u r e (Y oY % )
PFCE 5.4 10.1 6.0 5.0 8.8 7.3 9.8 8.1 7.2 3.1 7.4 8.1 5.5
GFCE 15.6 21.9 7.6 10.8 21.1 6.6 10.9 6.5 13.1 8.8 15.0 9.2 8.8
GFCF 5.5 3.9 9.3 12.2 11.8 13.3 11.8 11.7 3.6 4.0 9.3 10.0 8.0
Exports 7.1 4.9 5.8 5.3 2.8 10.2 12.7 16.7 10.6 5.7 4.7 12.5 6.0
Imports 7.0 23.9 15.0 15.8 16.2 11.0 22.9 14.5 13.3 4.2 17.6 15.4 8.0
Re al GDP (Y oY % ) 7 .0 6 .0 6 .8 7 .7 8 .1 8 .0 7 .0 6 .6 5 .8 5 .0 7 .2 6 .8 6 .0

I n fl at i on
CPI (Avg YoY% ) 3.6 2.2 3.0 4.6 4.6 4.8 3.9 2.6 2.5 3.1 3.6 3.4 3.9
Core CPI (Avg YoY% ) 5.0 4.1 4.4 4.9 5.2 6.3 6.0 5.9 5.2 4.3 4.6 5.8 4.0

Cu r r e n cy
INR vs USD (Avg) 67.0 64.5 64.3 64.7 64.3 67.1 70.1 72.1 70.5 69.6 64.5 69.9 69.7
Source: CMIE, Bloomberg, Axis Capital estimates *includes construction

GDP growth update: We revise down FY20 GDP growth to 6% from 7.1% while GVA growth is seen at 5.7%
versus 6.9% previously. Demand slump is likely to take more time to recover since monetary policy transmission is
impaired by credit risk aversion. GFCF recovery has support from favorable tax cut, but uptick will be backdated

USD/INR forecast update: Weak domestic and external demand has stemmed the slide in trade deficit.
Improvement in growth outlook supports the Rupee for now, fiscal outlook remains the key risk for Rupee

22 OCT 2019 36
BoP estimates
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

US D b n Dec 18 M ar- 18 J un 18 S ep 18 Dec 19 M ar 19 J un 19 F Y17 F Y18 F Y19 F Y20E

Current Account (14) (13) (16) (19) (18) (5) (14) (14) (49) (57) (58)
% of GDP (2.1) (1.8) (2.3) (2.9) (2.7) (0.7) (2.0) (0.6) (1.8) (2.1) (2.0)
Goods trade balance (44) (42) (46) (50) (49) (35) (46) (112) (160) (180) (180)
- Exports 78 82 83 83 83 87 83 280 309 337 336
Of which oil 10 11 12 12 13 10 11 32 37 47 51
- Imports 122 124 129 133 132 123 129 393 469 518 516
Of which oil 29 33 35 35 38 32 35 87 109 141 139
Of which gold 10 7 8 9 7 8 11 28 34 33 41
Services 21 20 19 20 22 21 20 68 78 82 83
Transfers 16 16 17 19 17 16 18 56 62 70 70
Income (6) (8) (6) (9) (8) (7) (6) (26) (29) (29) (30)
Capital Account 23 25 5 17 14 19 28 36 91 54 77
% of GDP 3.4 3.5 0.7 2.5 2.1 2.7 4.0 1.6 3.4 2.0 2.6
- FDI 4 6 10 7 7 6 14 36 30 31 38
- Portfolio Investment 5 2 (8) 0 (2) 9 5 8 22 (1) 12
- Others 13 16 3 9 9 3 9 (7) 39 24 27
Errors & Omissions 1 1 (0) 1 (0) (0) 0 (0) 1 (0) 0
Overall balance 9 13 (11) (2) (4) 15 14 22 44 (3) 19
Source: CEIC RBI, Axis Capital estimates

FY20 BoP balance looks well funded, assuming turn in growth and fiscal risks are contained

22 OCT 2019 37
 Fiscal position
(prithviraj.srinivas@axiscap.in; 91 22 4325 1108)

Central government fiscal position State governments fiscal position

% of GDP FY 1 8 FY 1 9 P r ov. FY 2 0 B E FY 2 0 (A xi scap ) % of GDP FY 1 8 FY 1 9 (p r ov) FY 2 0 B E FY B E (A xi scap )

Tot al r e ve n u e s 9 .2 % 8 .8 % 9 .9 % 9 .4 % Tot al r e ve n u e s 1 3 .8 % 1 5 .4 % 1 5 .3 % 1 4 .8 %

Tax revenue 7.4% 6.9% 7.8% 6.8% - Tax receipts 10.1% 10.7% 10.7% 10.2%

Non tax revenue 1.1% 1.3% 1.5% 1.8% - Non-tax receipts 3.5% 4.4% 4.3% 4.3%

Non-debt capital receipts 0.7% 0.5% 0.6% 0.8% - Non-debt capital receipts 0.2% 0.3% 0.3% 0.3%

Tot al e xp e n di t u r e 1 2 .8 % 1 2 .2 % 1 3 .2 % 1 3 .4 % Tot al e xp e n di t u r e 1 6 .2 % 1 8 .2 % 1 7 .8 % 1 7 .8 %

Revenue expenditure 11.2% 10.6% 11.6% 11.8% - Revenue expenditure 13.7% 15.1% 14.9% 14.9%

- o/w interest payment 3.2% 3.1% 3.1% 3.2% - o/w interest payment 1.7% 1.7% 1.7% 1.7%

Capital expenditure 1.6% 1.6% 1.6% 1.6% - Capital expenditure 2.5% 3.1% 2.9% 2.9%

Fi scal de fi ci t - 3 .5 % - 3 .4 % - 3 .3 % - 4 .0 % Fi scal de fi ci t - 2 .4 % - 2 .8 % - 2 .5 % - 3 .0 %

Revenue deficit -2.6% -2.3% -2.3% -3.2% Revenue deficit -0.1% 0.0% 0.1% -0.4%

Primary deficit -0.4% -0.3% -0.2% -0.8% Primary deficit -0.7% -1.1% -0.8% -1.3%
Fiscal deficit (ex. UDAY) -2.5%
Source: Union budget documents, CEIC RBI, Axis Capital
Primary deficit (ex. UDAY) -0.7%
% of GDP FY 1 8 FY 1 9 (P r ov) FY 2 0 B E FY B E (A xi scap )
General govt. fiscal deficit -5.9% -6.2% -5.8% -7.0%
General govt. fiscal deficit (ex. UDAY)
-6.0% -6.2% -5.8% -7.0%

Source: CEIC, CGA, RBI, Axis Capital, State Budget Documents

Due to corporate tax giveaway and weak growth, general government fiscal deficit likely to be near 7%. If
crowding out is to be avoided then government has no choice but to issue USD sovereigns or sovereign masala
bonds

22 OCT 2019 38
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Ratings Expected absolute returns over 12 months

BUY More than 15%

ADD Between 5% to 15%

REDUCE Between 5% to -10 %

SELL More than -10%

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