India thematic

Market outlook

Indranil Sen Gupta

indranil.sengupta@clsa.com
+91 22 6650 5060
A virtuous INR cycle
High FX reserves equal a stable rupee and higher FX flows
We introduce the first of our India themes, A virtuous INR cycle, for investors. RBI
governor Das’ 6% of GDP in FX purchases are stabilising the rupee to step up FX flows.
The RBI will likely still buy FX when the US dollar weakens and allow for Rs75:US$1
when it strengthens. On balance, we estimate the rupee to trade at Rs73-76.50:US$1
in FY22-23CL. This means large depreciation, such as in 2011, 2013 and 2018, is past,
even if the Fed tapers. Second, this should treble FPI inflow to an average 1% of GDP.
Finally, Indian corporates should be able to borrow cheaper abroad.

What’s different? Rupee stabilising, but the Fed and UP polls swing factors
q The rupee should trade in a stable range of Rs73-76.50:US$1 (CLSA: US dollar forecast of
14 September 2021
1.10/euro by end-2022) in FY22-23CL. Depreciation should slow to an average 2% a year
India from 5.2% over FY13-20. See the impact on IT stocks from Pankaj Kapoor on page 14.
q Das’ spot/forward purchase of about US$200bn has returned the RBI to adequate FX
Thematics reserves after eight years. The RBI has taken its FX reserves to US$680bn (including
forwards), higher than our adequate US$600bn estimate, seizing the opportunity from
rising global liquidity and falling imports from the Covid-19 shock.
q Relatively benign Brent prices (US$68.7/bbl 21CL & US$72/bbl 22CL) should contain the
current account deficit at 1-1.5% of GDP, within the 2.5% sustainable level.

Why? High FX reserves fortifying balance of payments indicators

q Import cover has doubled to a normalised 11.7 months 1-year forward from 7 in the FY14
taper year. Experience suggests the rupee depreciates if it falls below 8 months.
q FPI cover: FPI investments/FX reserves have climbed to 93%, from 78% in FY14.
q External debt cover: FX reserves/short-term external debt of one year residual maturity
has risen to 2.4x, from 1.7x in 2013, well above the 1x Greenspan-Guidotti rule.

So what? Step up in FPI flow as depreciation fears fade

q Stable rupee: the large depreciation of 2011, 2013 and 2018 are history. Not surprisingly,
the rupee outperformed EM peers like the Brazilian real and Russian ruble during the Covid
19 shock. The rupee should also similarly do better in any correction on Fed tapering.
q Step up in FX flows: We expect FPI flows double to 1% of GDP on a stable INR from 0.3%
during FY14-20.
q Cheaper project finance: as corporates will raise long-term money abroad cheaper.

RBI can sell US$50bn to defend the rupee: US$600bn adequate for FX reserves
q 10x import cover works out to about US$580bn taking imports at 20% of GDP and
normalising FY21-22 nominal growth at 10% in US dollar terms.
q 1x FPI cover works out to about US$650bn.
q 2x short-term debt cover works out to US$590bn, including the FPIs’ debt book.
Rising FX reserves will anchor the rupee to attract FX flows

www.clsa.com Source: CLSA

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The rupee to trade in a
stable Rs73-76.50:US$1
range in FY22-23
Figure 1
The rupee should stabilise. . .
Source: CLSA, Bloomberg
Depreciation should slow to
an average 2% annually
from 5.2% in FY13-20
Find CLSA research on Bloomberg, Thomson Reuters, FactSet and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
14 September 2021
A virtuous INR cycle India thematic
1. What’s different? INR is stabilising: Fed & UP polls swing factors
We expect INR to trade in a stable range of Rs73-76.50:US$1 in FY22-23
underpinning our INR virtuous cycle call on high FX reserves (Figure 1). Eric
Fishwick, our chief economist, expects Fed tapering from December 2021 if the
Covid 19 outbreak subsides (Figure 2). The FOMC could hike rates from 2023. Eric
sees the US Dollar strengthening to 1.10/euro by end-2022 from 1.17/euro today
(Rebalancing, tightening & critical mass), Markets will also track the results of the
critical assembly elections in Uttar Pradesh (8%/17% of India’s GDP/population) in
early 2021. Opinion polls currently show the ruling BJP government returning to
power.
Figure 2
. . . although a rising US dollar is an immediate risk. . .
Source: CLSA, Bloomberg
RBI is building high FX reserves to stabilise rupee expectations
At the heart of our view of an INR virtuous cycle lies the RBI’s recouping of FX
reserves after 8 years (Figure 3). It has certainly fully seized the opportunity offered
by the surge in global liquidity, fall in oil prices and collapse in domestic import
demand due to the Covid 19 shock. The RBI has bought an estimated US$180+bn
in spot as well as in forwards since March 2020. On our part, we see INR
depreciation slowing to an average 2% a year from 5.2% in FY13-20 with higher FX
reserves fending off speculative attacks.
This begs the question, why are FX reserves so important? Because INR is
vulnerable to speculative attacks given India’s chronic and often large current
account deficit. It is but natural that investors want to make sure that their
investments are not eroded by high depreciation. High FX reserves provide the
comfort that the RBI will be able to fund any outflow without any runaway
depreciation. Experience tells us that bullet issuances of foreign currency deposits
with a government/RBI exchange rate guarantee - Resurgent India Bonds (1998),
India Millennium Deposits (2001) and FCNRB deposits with swap subsidy (2013) –
to boost FX reserves were all successful in containing INR crises.
indranil.sengupta@clsa.com 2

Figure 3
. . . on high forex reserves
Source: CLSA, RBI
RBI Governor Das will keep
building FX reserves to
guard against contagion
India unlikely to make the
currency manipulator’s list
14 September 2021
A virtuous INR cycle India thematic
Figure 4
Current account deficit below the 2-2.5% of GDP sustainable level
Source: CLSA, RBI
Governor Das has shifted to an explicit policy of building FX reserves from the
earlier ‘official’ policy of intervening to smoothen INR volatility:
‘. . . sustained accretion to foreign exchange reserves has improved reserve
adequacy… Sound external sector indicators augur well for limiting the impact
of spillovers of possible global shocks and financial stability concerns as
investors and markets are credibly assured of the buffer against potential
contagion… Under uncertain global economic environment, EMEs typically
remain at the receiving end. In order to mitigate global spill-overs, they have no
recourse but to build their own forex reserve buffers, even though at the cost of
being included in currency manipulators list or monitoring list of the US
Treasury. . .”
We are not surprised that the RBI is building up FX reserves to strengthen external
stability despite being put on the US currency manipulator watch list. It is unlikely
that the RBI will ever attract the three criteria for currency manipulator: a. bilateral
trade surplus with the US of more than $20 billion; b. current account surplus of at
least 3 percent of Gross Domestic Product (GDP); and c. net purchases of foreign
currency of 2 percent of GDP over 12 months.
indranil.sengupta@clsa.com 3
 A virtuous INR cycle India thematic

Manageable current account deficit

Current account deficit well
within the sustainable 2-
2.5% of GDP level
We expect the current account deficit, at 1-1.5% of GDP during FY22-23, to
remain well within the sustainable 2-2.5% reported by several studies (Figures 4-
5). It should rise to -0.8% of GDP in FY22 and -1.2% in FY23 from 0.9% surplus in
FY21 with the normalization of economic activity. This builds in our relatively
benign house view of Dated Brent prices of US$68.7/bbl 2021/US$72.0/bbl 2022
CL.

Figure 5

RBI set to buy US$30bn in FY22

US$b FY21 FY22CL
We expect the current A Current Account (A.1+A.4) 24 (25)
account deficit to rise to % of GDP 0.9 (0.8)
0.8% of GDP in FY22 and A.1 Trade deficit (A.2-A.3) (102) (158)
1.2% of GDP in FY23 A.2 Exports 296 320
A.3 Imports 399 478
A.4 Services 126 133
A.4.1 RBI income on foreign assets 10.8 15

We conservatively build-in B Capital Account (B.1+B.2+B.3+B.4+B.5) 64 75

a lower capital account B.1 Foreign investment (B.1.1+B.1.2) 80 60
surplus B.1.1 FDI 44 40
B.1.2 FPI 36 15
B.2 External commercial borrowings (4) 0
B.3 Banking capital (21) 10
B.4 External assistance 11 5
B.5 Others (2) 0

C. Balance of payments (A+B) 88 50

D. RBI FX intervention (C-A.4.1-B.4) 68 25
Source: CLSA

Oil prices, FPI flows and the Will higher than expected oil prices hurt INR? It really depends (Figures 6-7). The
rupee often move together very risk on/off that drives up/pulls down oil prices also typically brings in/drives
out FPI flows to EMs like India. It is really at extremes that investors shift to/from
China and India to Brazil and Russia.

Figure 6 Figure 7

Oil prices, Rs:US$ and. . . . . . FPI equity inflows typically move on risk on and risk off

Source: CLSA, Bloomberg Source: CLSA, Bloomberg

14 September 2021 indranil.sengupta@clsa.com 4


High valuations limit equity
FPI flows; rising rates debt
FPI flows
Debt FPIs will stagger flows
even if India lists in the JPM
EMBI Diversified Index
Figure 8
FPI debt flows seldom come in when the fiscal deficit is high
Source: CLSA, Bloomberg. Note: Fiscal deficit for FY21 is based on revised
estimates and for FY22 is based on budged estimates as presented in the
Union budget.
14 September 2021
A virtuous INR cycle India thematic
Capital account surplus expected to moderate
We have conservatively built in a lower capital account surplus in FY22-23. We
expect FPI equity flows to come off on rising valuations, with the Nifty trading at a
peak of 22.1x 1-year forward. Second, we also do not expect any resumption of FPI
debt flows given that the interest rate cycle is likely to turn up on (1) a high fiscal
deficit, at a time high money market liquidity constrains RBI OMO; and (2) RBI rate
hikes (100bp in FY23CL) and (3) appreciation gains unlikely due to RBI FX
intervention (Figure 8). Finally, we do not see any further increase in net FDI with
the Fed likely to drain out liquidity in FY23.
We welcome any measure by the RBI to remove caps on debt FPI investors to list
in the JP Morgan EM Diversified Bond Index. India’s likely 10% weight should
attract US$30+bn inflow. At the same time, we think debt FPI investors will likely
wait for better entry points given that the rate cycle is turning up and the RBI’s
policy of buying FX reserves is unlikely to allow appreciation.
Understanding seasonality
We need to factor in trade seasonality in understanding INR movements (Figure 9).
Production and exports typically slacken during the summer and monsoon in the
‘slack’ April – September season. This, in turn, weakens the INR. Better weather
leads to a pick-up in production and exports in the ‘busy’ October-March season.
This, in turn, strengthens the INR.
Figure 9
The rupee is seasonally weak in Apr-Sep and strong in Oct-Mar
Source: CLSA, RBI. Note: We take the Average of last ten years’ monthly
seasonal factors to determine seasonality for the month. Deviation from 100
indicates presence of seasonal fluctuations.
indranil.sengupta@clsa.com 5
 A virtuous INR cycle India thematic

Indian exceptionalism: rate hikes hurt the rupee

Equity FPI flows drive the
rupee; debt FPI flows follow
How will RBI rate hikes impact INR? It is important to appreciate the Indian
‘exceptionalism’ of RBI rate hikes/cuts hurting/benefiting INR. This is because FPI
equity investments are 16x of FPI debt investments. When the RBI hikes/cuts rates,
FPI equity flows leave/come in as growth prospects worsen/improve. Second, FPI
debt flows also follow equity outflows as debt investors do not want to take INR
risks. Finally, higher RBI rates also dissuade FPI debt investors due to fear of capital
losses on their existing portfolio.

Twin deficit risks are overdone

Debt FPIs hold a minor We think that INR’s twin deficit risks are overdone. As noted above, the current
1.9% of India’s central account deficit remains well within sustainable levels. Second, while the fiscal
government securities deficit has certainly shot up due to the Covid-19 shock, this is true of many
countries. Finally, debt FPIs hold a minor 1.9% of India’s central government
securities.

14 September 2021 indranil.sengupta@clsa.com 6

 A virtuous INR cycle India thematic

No.2. Why? FX reserves fortifying balance of payment indicators

High forex reserves provide
comfort for managing
imports, FPI flows and
external debt risk
Import cover has risen to 17.5 months 1-year forward from 7 months during the
2013 taper. To mitigate data distortions due to the Covid-19 shock, we have
assumed also calculated import cover by assuming a normalized annual 10% growth
in imports in FY21-22. This reduces the import cover to a still healthy 11.7.
Experience suggests that the INR depreciates if the import cover falls below 8
months (Figure 10).

FPI cover: FPI investments/FX reserves has climbed to 93% from 78% in FY14
(Figure 11).

Figure 10 Figure 11

The rupee should stabilise on high import cover. . . . . . and rising FPI cover

Source: CLSA, RBI, Bloomberg. Note: adjusting for the weak base in FY21, Source: CLSA, RBI
one-year forward import cover for FY21 is 17.5 months

External debt cover: FX reserves/short-term external debt of 1 year residual

maturity has climbed to 2.4x from 1.7x in 2013, well above the 1x Greenspan-
Guidotti rule (Figures 12-14).

Figure 12 Figure 13

Debt cover is rising back up External debt/GDP has also come off

Source: CLSA, RBI Source: CLSA, RBI

14 September 2021 indranil.sengupta@clsa.com 7

 A virtuous INR cycle India thematic

Figure 14

Short-term external debt (of 1-year residual maturity) comfortable

Sector (US$b)/March 31 Short-term 1 to 2 2 to 3 More Total
up to one years years than 3
year years

A. General Government 6 8 8 85 107

A.1. Short-term Debt 0 0
A.2. Long-term Debt 6 8 8 85 107
B. Central Bank 0 - - - 0
B.1. Short-term Debt 0 0
B.2. Long-term Debt - - - - -
C. Deposit-taking Corporations, except the 108 20 10 23 161
Central Bank
C.1. Short-term Debt 2 2
C.2. Long-term Debt 107 20 10 23 159
D. Other Sectors 134 27 31 85 277
D.1. Short-term Debt 99 99
D.1.1. Other financial corporations 2 2
D.1.2. Non-financial corporations 97 97
D.1.3. Households and nonprofit institutions - -
serving households (NPISHs)
D.2. Long-term Debt 35 27 31 85 178
D.2.1. Other financial corporations 4 9 11 20 45
D.2.2. Non-financial corporations 31 18 20 64 133
D.2.3. Households and nonprofit institutions - - - - -
serving households (NPISHs)
E. Direct Investment: Intercompany Lending 6 3 3 14 25
Total short-term debt F. Total Short-term Debt (A.1+B.1+C.1+D.1) 101 101
accounts for 11% of GDP G. Total Long-term Debt (A.2+B.2+C.2+D.2) 153 58 52 206 469
including FPI debt H. Total Debt (F+G) 254 58 52 206 570
investments % of GDP 9.6 2.2 2.0 7.7 21.4
Source: CLSA, RBI

14 September 2021 indranil.sengupta@clsa.com 8

 A virtuous INR cycle India thematic

Figure 15

International investor position also reasonable

Item/March 2020R 2021R
Net IIP (A-B) (375) (353)

A. Assets (A.1+A.2+A.3+A.4) 717 858

A.1. Direct Investment 183 194
A.2. Portfolio Investment (A.2.1+A.2.2) 4 6
A.2.1 Equity Securities 1 1
A.2.2 Debt Securities 3 6
A.3. Other Investment (A.3.1+A.3.2+A.3.3+A.3.4) 52 81
A.3.1 Trade Credits 2 6
A.3.2 Loans 7 13
A.3.3 Currency and Deposits 26 42
A.3.4 Other Assets 18 20
A.4. Reserve Assets 478 577

B. Liabilities (B.1+B.2+B.3) 1,092 1,211

B.1. Direct Investment 418 482
B.2. Portfolio Investment (B.2.1+B.2.2) 247 282
B.2.1 Equity Securities 135 177
B.2.2 Debt securities 112 105
B.3. Other Investment (B.3.1+B.3.2+B.3.3+B.3.4) 428 447
B.3.1 Trade Credits 104 100
B.3.2 Loans 180 190
B.3.3 Currency and Deposits 131 142
B.3.4 Other Liabilities 13 14

Assets to Liability Ratio (%) 66 71

Source: CLSA, RBI. Note: R denotes revised and P denotes Provisional

14 September 2021 indranil.sengupta@clsa.com 9


The rupee will continue to
outperform peers resulting
in a step up in FPI flows and
cheaper project finance
Figure 16
INR is outperforming BRIC peers like BRL/RUB
Source: CLSA, Bloomberg
14 September 2021
A virtuous INR cycle India thematic
No.3. So, what? Stable rupee to step up FX flows
Stable INR: Large depreciations of 2011, 2013 and 2018 are history. Not
surprisingly, INR (6% depreciation) outperformed EM peers like BRL (14%) and RUB
(33%) during the Covid 19 shock (Figure 16). We agree with our India strategist,
Vikash Jain, that the rupee will do better in case of a valuation correction due to
Fed tapering (Indian markets as the Fed tapers. . . ).
Step up in FX flows: We expect FPI flows to rise to 1% of GDP on a stable INR
from 0.3% during FY14-20 (Figure 17).
Cheaper project finance as Indian corporates will be able to raise long-term money
far cheaper.
Figure 17
Stable INR should step up FII equity flows
Source: CLSA, Bloomberg
indranil.sengupta@clsa.com 10

The RBI has a policy
preference for a weaker
rupee to support textile
exports
Figure 18
Rupee REER remains relatively strong. . .
Source: CLSA, RBI. Note: Index base year is FY05. Index is based on CPI
inflation.
The relationship between
the rupee and export
performance is weak
because of India’s large
diverse export basket
14 September 2021
A virtuous INR cycle India thematic
The RBI will keep buying FX reserves: US$600bn adequate
We expect RBI Governor Das to continue to build FX reserves to guard against
contagion in an uncertain world. The RBI should continue to buy FX reserves when
the USD weakens. It will let the INR weaken when the USD strengthens.
This begs the question, how much of FX reserves should the RBI target? We prefer
to pitch ‘adequate’ FX reserves at US$600bn based on the following criteria:
10 months import cover: This works out to US$590bn, estimated by taking imports
at 20% of GDP, at a normalized growth of 10% nominal GDP growth in FY21-22.
1x FPI investments/FX reserves: This works out to about US$635bn at 1x.
2x short-term debt cover: This works out to US$580bn adjusting short-term
external debt of 1-year residual maturity.
RBI will not want rupee appreciation
We think that the RBI has a policy preference for a weaker INR. Although appreciation
will attract capital flows, the cotton export industry is a major employer. As it is, the
INR real effective exchange rate is strong relative to history (Figures 18-19). Further,
INR appreciation will also lead to mark-to-market hits on the RBI balance sheet. At
present, the RBI’s revaluation reserves cover for 20% appreciation. Finally, a policy of
appreciating INR at the cost of building FX reserves in 2009-2011 landed the Indian
economy into a series of FX crises for eight years.
Figure 19
. . . although NEER is weakening
Source: CLSA, RBI. Note: Index base year is FY05.
The RBI will not want large-scale depreciation either
We think that the RBI will not favour large-scale depreciation as that will hurt
capital flows that are the mainstay of funding a chronic current account deficit.
Most studies do not show much relationship between weaker INR and export
performance. This is largely because India has a fairly diversified trade basket
(Charts 20-23). Similarly, it will be seen that most of the increase in exports in the
past 20 years came from innovations and diversification (Figure 24).
indranil.sengupta@clsa.com 11
 A virtuous INR cycle India thematic

Figure 20 Figure 21

India’s exports are fairly diversified. . . . . . as are imports

Source: CLSA, RBI Source: CLSA, RBI

Figure 22 Figure 23
……

India’s export markets are diversified. . . . . . as are sources of imports

Source: CLSA, RBI Source: CLSA, RBI

Figure 24

Increase in exports over the Increase in exports reflect new products

past 20 years have come FY01 FY10 FY20
from innovation and Commodity Export as a Commodity Export as a Commodity Export as a
diversification % of GDP % of GDP % of GDP
Gems & jewellery 2.0 Engineering goods 2.4 Engineering goods 2.6
Agricultural & 0.6 Gems & jewellery 2.2 Chemicals & 1.6
allied products related products
Textiles 0.6 Petroleum & crude 2.1 Petroleum & crude 1.4
products products
Engineering 0.5 Agricultural & 1.3 Gems & jewellery 1.2
goods allied products
Readymade 0.4 Chemicals & 1.3 Agricultural & 1.2
garments related products allied products
Total 4.0 Total 9.3 Total 8.1
Source: CLSA, RBI

14 September 2021 indranil.sengupta@clsa.com 12


While India’s G-sec and UST
yields have fallen by a
similar extent, the rupee has
also depreciated
Our adequate FX reserves
estimates factors assume
‘normal’ conditions
Present FX reserves policy
is sufficient, even without
import compression
14 September 2021
A virtuous INR cycle India thematic
Stress testing our virtuous INR cycle call
Sterilisation costs are affordable still
Can the RBI afford to maintain sterilization costs of high FX reserves? We believe
that sterilization costs are manageable if we weigh them against the cost of
depreciation. In any case, the Indian 10-year yield (123bp) and the US 10 year yield
(136bp) have come off broadly to a similar extent since December 2018. At the
same time, INR has depreciated 5.7% during the same time period.
Higher import demand after recovery is factored in
Can our INR virtuous cycle withstand the increase in import demand after
recovery? We have calculated optimal FX reserves using import cover based on
import demand at a reasonably high 20% of GDP after normalizing FY21-22 growth
at 10%. We are also assuming that the RBI will continue to buy FX reserves at every
opportunity.
Import substitution not assumed; icing on the cake if it happens
Can our INR virtuous cycle hold without reduction in imports by developing
production of electronics and/or reducing dependence on oil by promoting
alternate sources of energy? We think a steady RBI policy of FX purchases is
sufficient as Gov Das has already built a buffer.
indranil.sengupta@clsa.com 13
 A virtuous INR cycle India thematic

Virtuous INR cycle: implications for the IT services sector

Pankaj Kapoor Our current forecasts for IT and engineering services companies in our coverage
pankaj.kapoor@clsa.com are based on stable currency assumptions at 75 INR/USD over FY23-24. A modest
+91 22 6650 5065
2% annual depreciation from FY22 levels – in line with the virtuous INR cycle theme
highlighted by Indranil Sen Gupta, our India thematic analyst - could provide a 3-
4% upside to our FY23 and 6-8% upside to our FY24 EPS forecasts.

A 1% change in Rs:US$ Typically, every 1% change in INR/USD exchange rate assumption (and no change
typically has a 20-30bps in cross-currency impact) has a 20-30bps impact on Ebit margin and 1.8-2.8ppt
impact on Ebit margins impact on EPS of Indian IT services companies, as per our estimates. (The sensitivity
may have gone up marginally over FY21-22 due to increased offshore delivery share
post the pandemic.) Reduced volatility in INR/USD rates should help IT companies
in their FX hedging and also normalise the translation impact. In a high volatility
scenario if movement in quarter-close rates are higher than quarter average rates,
translation gain/loss on foreign currency based assets/liabilities are inverse of
hedge-related gain/loss.

Our EPS impact analysis assumes a) only 50% pass-through of the currency
sensitivity into margins as currency gain are typically either shared with the clients
or invested for higher revenue growth; and b) lower FX hedge gains versus our
previous assumptions (due to realised rates moving closer to hedged rates) (see
Figure 1).

Figure 1

CLSA IT & ER&D services coverage: EPS impact of Rs:US$ movement

Sensitivity FY23CL EPS FY24CL EPS
(1% INR/USD move) Existing Scenario Difference Existing Scenario Difference
Ebit margin EPS (75.0 INR/USD) (76.5 INR/USD) (75.0 INR/USD) (78.0 INR/USD)
TCS 25-30bps 1.8% 119.8 123.3 2.9% 127.8 135.4 6.0%
Infosys 20-25bps 1.7% 60.8 62.6 2.8% 67.9 71.8 5.7%
HCL 25-30bps 1.9% 59.4 61.2 3.0% 68.4 72.6 6.1%
Wipro 25-30bps 1.8% 24.9 25.6 2.9% 28.4 30.1 5.9%
TechM 25-30bps 2.5% 61.8 63.9 3.3% 68.2 72.7 6.7%
LTTS 30bps 2.0% 97.3 100.9 3.7% 112.0 120.3 7.5%
Persistent 35bps 2.8% 118.1 122.0 3.3% 124.5 132.4 6.3%
Source: CLSA

Figure 2

How currency movement impacts the income statements of IT services companies

Source: CLSA

14 September 2021 indranil.sengupta@clsa.com 14

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Companies mentioned
HCL Tech (HCLT IB - RS1,207.6 - BUY)
Infosys (INFO IB - RS1,691.0 - BUY)
JP Morgan Asset Management (N-R)
L&T Tech (LTTS IS - RS4,373.2 - O-PF)
Persistent Systems (PSYS IN - RS3,586.4 - SELL)
Tata Consultancy (TCS IB - RS3,843.9 - O-PF)
Tech Mahindra (TECHM IB - RS1,428.5 - BUY)
Wipro (WPRO IB - RS670.8 - U-PF)
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http://www.clsa.com/member/research_disclosures/ for details.)
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been placed under any undue influence, intervention or pressure by
any person/s in compiling this research report. In addition, the
analysts attest that they were not in possession of any material, non-
public information regarding the subject company at the time of
publication of the report. Save from the disclosure below (if any), the
analyst(s) is/are not aware of any material conflict of interest.
As analyst(s) of this report, I/we hereby certify that the views
expressed in this research report accurately reflect my/our own
personal views about the securities and/or the issuers and that no
part of my/our compensation was, is, or will be directly or indirectly
related to the specific recommendation or views contained in this
report or to any investment banking relationship with the subject
company covered in this report (for the past one year) or otherwise
any other relationship with such company which leads to receipt of
fees from the company except in ordinary course of business of the
company. The analyst/s also state/s and confirm/s that he/she/they
has/have not been placed under any undue influence, intervention or
pressure by any person/s in compiling this research report. In
addition, the analysts included herein attest that they were not in
possession of any material, nonpublic information regarding the
subject company at the time of publication of the report. The analysts
14 September 2021 indranil.sengupta@clsa.com
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further confirm that none of the information used in this report was
received from CLSA's Corporate Finance department or CLSA's Sales
and Trading business. Save from the disclosure below (if any), the
analyst(s) is/are not aware of any material conflict of interest.
Key to CLSA/CLSA Americas/CLST investment rankings: BUY:
Total stock return (including dividends) expected to exceed 20%; O-
PF (aka ACCUMULATE): Total expected return below 20% but
exceeding market return; U-PF (aka REDUCE): Total expected return
positive but below market return; SELL: Total return expected to be
negative. For relative performance, we benchmark the 12-month total
forecast return (including dividends) for the stock against the 12-
month forecast return (including dividends) for the market on which
the stock trades.
"High Conviction" Ideas are not necessarily stocks with the most
upside/downside, but those where the Research Head/Strategist
believes there is the highest likelihood of positive/negative returns.
The list for each market is monitored weekly.
Overall rating distribution for CLSA (exclude CLST) only Universe:
Overall rating distribution: BUY / Outperform - CLSA: 77.02%,
Underperform / SELL - CLSA: 22.98%, Restricted - CLSA: 0.18%; Data
as of 30 Jun 2021. Investment banking clients as a % of rating
category: BUY / Outperform - CLSA: 12.59%, Underperform / SELL -
CLSA: 1.76%; Restricted - CLSA: 0.18%. Data for 12-month period
ending 30 Jun 2021.
Overall rating distribution for CLST only Universe: Overall rating
distribution: BUY / Outperform - CLST: 93.44%, Underperform / SELL
- CLST: 6.56%, Restricted - CLST: 0.00%. Data as of 30 Jun 2021.
Investment banking clients as a % of rating category: BUY /
Outperform - CLST: 0.00%, Underperform / SELL - CLST: 0.00%,
Restricted - CLST: 0.00%. Data for 12-month period ending 30 Jun
2021.
There are no numbers for Hold/Neutral as CLSA/CLST do not
have such investment rankings. For a history of the recommendation,
price targets and disclosure information for companies mentioned in
this report please write to: CLSA Group Compliance, 18/F, One Pacific
Place, 88 Queensway, Hong Kong and/or; (c) CLST Compliance (27/F,
95, Section 2 Dun Hua South Road, Taipei 10682, Taiwan, telephone
(886) 2 2326 8188). EVA® is a registered trademark of Stern, Stewart
& Co. "CL" in charts and tables stands for CLSA estimates, “CT” stands
for CLST estimates, "CRR" stands for CRR Research estimates and
“CS” for Citic Securities estimates unless otherwise noted in the
source.
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 Important disclosures
Charts and tables sourced to CLSA in this report may include data
extracted from CLSA’s automated databases, which derive their
original data from a range of sources. These can include: companies;
analyst estimates/calculations; local exchanges and/or third-party
data or market pricing providers such as Bloomberg, FactSet or IBES.
Additional information on data sources for specific charts or tables
can be obtained by contacting the publishing analysts.
This publication/communication is subject to and incorporates
the terms and conditions of use set out on the www.clsa.com website
(https://www.clsa.com/disclaimer.html). Neither the
publication/communication nor any portion hereof may be reprinted,
sold, resold, copied, reproduced, distributed, redistributed, published,
republished, displayed, posted or transmitted in any form or media or
by any means without the written consent of CLSA, CLSA Americas
and/or CLST. CLSA, CLSA Americas and/or CLST has/have produced
this publication/communication for private circulation to
professional, institutional and/or wholesale clients only, and may not
be distributed to retail investors. The information, opinions and
estimates herein are not directed at, or intended for distribution to or
use by, any person or entity in any jurisdiction where doing so would
be contrary to law or regulation or which would subject CLSA, CLSA
Americas, and/or CLST to any additional registration or licensing
requirement within such jurisdiction. The information and statistical
data herein have been obtained from sources we believe to be
reliable. Such information has not been independently verified and we
make no representation or warranty as to its accuracy, completeness
or correctness. Any opinions or estimates herein reflect the judgment
of CLSA, CLSA Americas, and/or CLST at the date of this
publication/communication and are subject to change at any time
without notice. Where any part of the information, opinions or
estimates contained herein reflects the views and opinions of a sales
person or a non-analyst, such views and opinions may not correspond
to the published view of CLSA, CLSA Americas, and/or CLST. Any
price target given in the report may be projected from one or more
valuation models and hence any price target may be subject to the
inherent risk of the selected model as well as other external risk
factors. Where the publication does not contain ratings, the material
should not be construed as research but is offered as factual
commentary. It is not intended to, nor should it be used to form an
investment opinion about the non-rated companies.
This publication/communication is for information purposes only
and it does not constitute or contain, and should not be considered as
an offer or invitation to sell, or any solicitation or invitation of any
offer to subscribe for or purchase any securities in any jurisdiction
and recipient of this publication/communication must make its own
independent decisions regarding any securities or financial
instruments mentioned herein. This is not intended to provide
professional, investment or any other type of advice or
recommendation and does not take into account the particular
investment objectives, financial situation or needs of individual
recipients. Before acting on any information in this
publication/communication, you should consider whether it is
suitable for your particular circumstances and, if appropriate, seek
professional advice, including tax advice. Investments involve risks,
and investors should exercise prudence and their own judgment in
making their investment decisions. The value of any investment or
income my go down as well as up, and investors may not get back the
full (or any) amount invested. Past performance is not necessarily a
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do/does not accept any responsibility and cannot be held liable for
any person’s use of or reliance on the information and opinions
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the use of this publication/communication or its contents.
To maintain the independence and integrity of our research, our
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Accordingly, neither the Corporate Finance nor the Sales and Trading
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Research department, who in turn report to CLSA’s senior
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management. CLSA has put in place a number of internal controls
designed to manage conflicts of interest that may arise as a result of
CLSA engaging in Corporate Finance, Sales and Trading, Asset
Management and Research activities. Some examples of these
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designed to ensure that confidential information is only shared on a
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interactions that may occur among CLSA’s Research personnel,
Corporate Finance, Asset Management, and Sales and Trading
personnel, CLSA’s financial product issuers and CLSA’s research
analysts do not compromise the integrity and independence of CLSA’s
research.
Subject to any applicable laws and regulations at any given time,
CLSA, CLSA Americas, CLST, their respective affiliates, officers,
directors or employees may have used the information contained
herein before publication and may have positions in, or may from time
to time purchase or sell or have a material interest in any of the
securities mentioned or related securities, or may currently or in
future have or have had a business or financial relationship with, or
may provide or have provided corporate finance/capital markets
and/or other services to, the entities referred to herein, their advisors
and/or any other connected parties. As a result, you should be aware
that CLSA, CLSA Americas, and/or CLST and/or their respective
affiliates, officers, directors or employees may have one or more
conflicts of interest. Regulations or market practice of some
jurisdictions/markets prescribe certain disclosures to be made for
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certain reports as required by the relevant rules and regulation and
the full details are available at
http://www.clsa.com/member/research_disclosures/. Disclosures
therein include the position of CLSA, CLSA Americas, and CLST only.
Unless specified otherwise, CLSA did not receive any compensation
or other benefits from the subject company, covered in this
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This publication/communication is distributed for and on behalf
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CLSA Americas, and/or CLST (for research compiled by Taiwan
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331/AFSL License No: 350159); in Hong Kong by CLSA Limited
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CLSA Securities (Thailand) Limited; in Taiwan by CLST and in the EU
and United Kingdom by CLSA Europe BV or CLSA (UK).
Australia: CLSA Australia Pty Ltd (“CAPL”) (ABN 53 139 992
331/AFS License No: 350159) is regulated by ASIC and is a Market
Participant of ASX Limited and CHI-X. This material is issued and
distributed by CAPL in Australia to "wholesale clients" only. This
material does not take into account the specific investment
objectives, financial situation or particular needs of the recipient. The
recipient of this material must not distribute it to any third party
without the prior written consent of CAPL. For the purposes of this
paragraph the term "wholesale client" has the meaning given in
section 761G of the Corporations Act 2001. CAPL’s research
coverage universe spans listed securities across the ASX All
Ordinaries index, securities listed on offshore markets, unlisted
issuers and investment products which Research management deem
to be relevant to the investor base from time to time. CAPL seeks to
16
 Important disclosures
cover companies of relevance to its domestic and international
investor base across a variety of sectors.
India: CLSA India Private Limited, incorporated in November 1994
provides equity brokerage services (SEBI Registration No:
INZ000001735), research services (SEBI Registration No:
INH000001113) and merchant banking services (SEBI Registration
No.INM000010619) to global institutional investors, pension funds
and corporates. CLSA and its associates may have debt holdings in the
subject company. Further, CLSA and its associates, in the past 12
months, may have received compensation for non-investment
banking securities and/or non-securities related services from the
subject company. For further details of “associates” of CLSA India
please contact Compliance-India@clsa.com.
Singapore: This report is distributed in Singapore by CLSA
Singapore Pte Ltd to institutional investors, accredited investors or
expert investors (each as defined under the Financial Advisers
Regulations) only. Singapore recipients should contact CLSA
Singapore Pte Ltd, 80 Raffles Place, #18-01, UOB Plaza 1, Singapore
048624, Tel: +65 6416 7888, in respect of any matters arising from,
or in connection with, the analysis or report. By virtue of your status
as an institutional investor, accredited investor or expert investor,
CLSA Singapore Pte Ltd is exempted from complying with certain
requirements under the Financial Advisers Act (Chapter 110), the
Financial Advisers Regulations and the relevant Notices and
Guidelines issued thereunder (as disclosed in Part C of the Securities
Dealing Services – Singapore Annex of the CLSA terms of business),
in respect of any financial advisory services that CLSA Singapore Pte
Ltd may provide to you. MCI (P) 024/12/2020
United States of America: Where any section of the research is
compiled by US analyst(s), it is distributed by CLSA Americas. Where
any section is compiled by non-US analyst(s), it is distributed into the
United States by CLSA solely to persons who qualify as "Major US
Institutional Investors" as defined in Rule 15a-6 under the Securities
and Exchange Act of 1934 and who deal with CLSA Americas.
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However, the delivery of this research report to any person in the
United States shall not be deemed a recommendation to effect any
transactions in the securities discussed herein or an endorsement of
any opinion expressed herein. Any recipient of this research in the
United States wishing to effect a transaction in any security
mentioned herein should do so by contacting CLSA Americas.
The European Union (“EU”) and the United Kingdom: In these
jurisdictions, this research is a marketing communication. It has not
been prepared in accordance with the legal requirements designed to
promote the independence of investment research, and is not subject
to any prohibition on dealing ahead of the dissemination of
investment research. The research is disseminated in these countries
by either CLSA (UK) or CLSA Europe BV. CLSA (UK) is authorised and
regulated by the Financial Conduct Authority. CLSA Europe BV is
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Netherlands. This document is directed at persons having
professional experience in matters relating to investments as defined
in the relevant applicable local regulations. Any investment activity to
which it relates is only available to such persons. If you do not have
professional experience in matters relating to investments you should
not rely on this document. Where the research material is compiled
by the UK analyst(s), it is produced and disseminated by CLSA (UK)
and CLSA Europe BV. For the purposes of the Financial Conduct Rules
in the United Kingdom and MIFID II in other European jurisdictions
this research is prepared and intended as substantive research
material.
For all other jurisdiction-specific disclaimers please refer to
https://www.clsa.com/disclaimer.html. The analysts/contributors to
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CLSA entity or CLST, which is different from the entity that
distributes the publication/communication in the respective
jurisdictions.© 2021 CLSA and/or CL Securities Taiwan Co., Ltd.
(“CLST”).
17