India Strategy (Anatomy of A Market Bottom) 20200305

Strategy
India strategy
Vikash Kumar Jain

Anatomy of a market bottom
Period of lower price falls and a longer correction likely before the bottom
vikash.jain@clsa.com
+91 22 6650 5015 The ongoing decline is the 19th instance of an over 10% fall in the Nifty since 1992.
The Nifty’s earnings yield minus the 10-year bond yield is now near levels which have
coincided with historical Nifty bottoms. The recent Nifty peak misses a final flourish
which had preceded all seven instances of over 25% cuts. This supports our conjecture
of a shallower correction unless Covid-19 has a much deeper and longer impact. In
this context, Nifty’s PE of 16.4x has reached close to the bottom of past three falls of
over 10%. However, the top seven momentum indicators, which have an accuracy of
67%-100% in predicting previous bottoms, are yet to signal a final low. Possibly, a
large part of price fall may have played out but we may see a longer correction period.
5 March 2020
Equities versus debt near levels of some previous Nifty bottoms
India q The ongoing correction is the 19th instance in the past 28 years when the Nifty has fallen
over 10% (using closing prices) from new highs. Due to data limitations, we focus on the
Market Strategy past 10 instances since 2005 to determine the typical characteristics of a market bottom.
q In three of the past 10 bottoms, the Nifty earnings yield went notably below the 10-year
bond yield. The 12-year avg. for the Nifty earnings yield minus the bond yield is 1.2ppt.
q The Nifty’s earnings yield is now only 0.2ppt above the 10-year bond yield which suggests
a rising attractiveness of equities versus debt. Historically, when the earnings yield nearly
equates to the 10-year bond yield it has been a good indicator of a Nifty bottom.
Nifty consensus PE near a level similar to the bottom of the recent three corrections
q This is the fourth instance of an over-10% decline in the Nifty in two years. The last three
corrections saw the Nifty bottom at a 12-month forward PE of 16.0-16.6x. The most
recent closing low of this correction (Nifty at 11,133) on 2 March, the Nifty PE had already
hit this range at 16.4x. If this does not become a more intense fall with much bigger worries
over Covid-19, such levels may see buying interest as we saw over the past two years.
q We concede 16x has historically led to only mediocre equity returns in the longer term (5
years) & also note the recent Nifty top (18.6x PE) was within 10% of its all-time high PE.
This level is also above the 15-year average PE of 15.2x.
q However, four corrections of over 10% makes us categorise the last two years as a rather
choppy period. All seven instances of deeper (over 25%) declines in the Nifty since 1992
have come after strong upward price thrusts. Numerically, in all of these instances, the
Nifty topped at above 17% of its 200DMA, which suggests a big overshoot. The recent top
happened at only 6.4% above its 200DMA, which makes it an unenthusiastic top.
q The absence of final flourish makes us conjecture this may not be a deeper, 25%+ fall.
Market bottoms are made in a period of apathy after there is ‘blood on street’
q Although valuations are close to levels where the Nifty may bottom if it is a small fall,
volume, volatility, momentum and breadth indicators have yet to confirm a low.
q We look at seven key indicators which have exhibited an accuracy of 67%-100% in
predicting bottoms by not confirming to final price low of the past 10 bottoms.
q Empirical evidence shows the final bottom in a correction is made in a period of relative
apathy following a point which one could mark as ‘blood on the street’.
q Daily volume (DII+FII and total), volatility (VIX) and selling intensity (Net FII daily selling
value) peak before the final price bottom and are lower than this peak when the actual
Nifty price bottom takes place. Similarly, breadth (NSE advance-decline and proportion of
Nifty stocks above 200DMA) and the rate of the price fall (RSI) hit a bottom before the final
low and show a higher reading when a final price bottom happens.
q These indicators have yet to convincingly signal a Nifty bottom in the decline phase.
Not the bottom yet: more correction time and a lower price fall the best case
q With valuations (PE and vs the 10-year bond) supportive but momentum indicators yet to
signal a bottom, we expect a correction period before a final bottom is made.
q Typically, bull markets see buyers return before a final, major low. Therefore, if our premise
of this not being a deeper correction is true, buying should emerge before the last Nifty
bottom of 10,600 (ie 10,600-11,100). Obviously, this premise assumes Covid-19 does not
have a much longer and a much deeper impact on the economy.
www.clsa.com
CLSA and CL Securities Taiwan Co., Ltd. (“CLST”) do and seek to do business with companies covered in its research reports. As such,
investors should be aware that there may be conflicts of interest which could affect the objectivity of the report. Investors should consider
this report as only a single factor in making their investment decisions. For important disclosures please refer to page 37.

Anatomy of a market bottom Strategy
We would like to thank Evalueserve for its help in preparing our research reports. Bhavik Mehta (IT); Kushal Shah (Midcaps); Shreya Shivani (BFSI) and Akshay
Chandak (Strategy) provide research support services to CLSA.
This is the 19th occasion of an over-10% fall from a Nifty peak since 1992
Figure 1
The ongoing correction is Occasions where the Nifty fell over 10% from its peak since 1992
the 19th instance in the Period Peak Bottom More than 10%
past 28 years where the fall from peak to
Nifty has fallen over 10% bottom
(using closing prices) from a Apr'92-Apr 93 1,281 600 (53)
new high Feb'94-May'94 1,349 1,122 (17)
Sep'94-Dec'96 1,385 788 (43)
Oct'99-Nov'99 1,505 1,270 (16)
Feb'00-Sep'01 1,756 854 (51)
Jan'04-May'04 1,982 1,389 (30)
Mar'05-Apr'05 2,169 1,903 (12)
Oct'05-Oct'05 2,663 2,316 (13)
May'06-Jun'06 3,754 2,633 (30)
Feb'07-Mar'07 4,224 3,577 (15)
Jul'07-Aug'07 4,621 4,075 (12)
Jan'08-Oct'08 6,279 2,524 (60)
Nov'10-Dec'11 6,312 4,544 (28)
Mar'15-Feb'16 8,996 6,971 (23)
Jan'18-Mar'18 11,130 9,998 (10)
Aug'18-Oct'18 11,739 10,030 (15)
Jun'19-Sep'19 12,089 10,705 (11)
Jan'20-Ongoing 12,362 11,133 (10)
Source: CLSA, Bloomberg
Figure 2
This is the fourth instance Nifty corrections from peaks since 1992
of an over-10% decline in
the Nifty in two years
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
5 March 2020 vikash.jain@clsa.com 2

The Nifty earnings yield versus the 10-year bond yield is near historical bottoms
Figure 3
The 10-year bond yield The Nifty versus the 10-year bond yield
have declined notably over
the past 18 months
Figure 4
The past 12-year average Bond yield minus the Nifty’s earning yield
for the Nifty’s earnings
yield minus the bond yield
has been 1.2ppt
Figure 5
In only 3 of the past10 Bond yield at its peak and the bottom of Nifty in recent corrections of over 10% for the Nifty
bottoms, the Nifty earnings
yield went notably below
the 10-year bond yield
The Nifty’s earnings yield is

now only 0.2ppt above the
10-year bond yield which is
near levels where the Nifty
has bottomed on the past
few occasions

Nifty consensus PE is near levels of the past three bottoms after a 10%+ fall
Figure 6
The Nifty remains above its Bloomberg consensus 12-month forward Nifty PE
15-year average PE of 15.2x
even after the recent
correction. . .
Figure 7
. . . but its PE has fallen near Nifty Bloomberg one-year forward consensus PE at the peak and bottom of recent 10%+ declines
the bottom during the past
three corrections where it
bottomed at a 12-month
forward PE of 16x-16.6x
Figure 8
We concede that a 16x PE Average return of Nifty from various PE ranges

has usually led to only a
mediocre equity return in
the longer term

Figure 9
All seven instances of Premium of the Nifty to the 200DMA at peaks preceding over 25% declines
deeper (over 25%) declines
in the Nifty since 1992 have
come after strong upward
price thrusts. Numerically,
in all of these instances the
Nifty topped at 17% above
the 200DMA- which
suggests a big overshoot
Figure 10
The recent top happened at Premium of the Nifty to the 200DMA at peaks preceding 10%-25% declines
only 6.4% above its
200DMA which makes it an
unenthusiastic top and
supports our conjecture this
may not be a deeper 25%+
fall

Key indicators with 67%-100% accuracy yet to convincingly confirm a bottom

Figure 11
The accuracy of seven key momentum indicators in predicting a Nifty bottom in corrections of over 10%
Period Jan'04- Mar'05- Oct'05- May'06- Feb'07- Jul'07- Jan'08- Nov'10- Mar'15- Jan'18- Aug'18- Jun'19- Total Success
May'04 Apr'05 Oct'05 Jun'06 Mar'07 Aug'07 Oct'08 Dec'11 Feb'16 Mar'18 Oct'18 Sep'19 instances ratio (%)
(#)
# of days from top to 124 52 24 35 26 28 294 410 359 53 59 108
bottom
% decline from closing top (30) (12) (13) (30) (15) (12) (60) (28) (23) (10) (15) (11)
to closing bottom
Price momentum
14 day RSI N Y N Y N Y Y Y Y Y Y Y 12 75
Implied volatility
Nifty VIX NA NA NA NA NA NA N Y Y Y Y Y 6 83
Selling intensity
Total daily trading value Y Y Y Y Y Y Y Y Y Y Y Y 12 100
Total daily institutional NA NA NA Y Y Y Y Y Y Y Y Y 9 100
trading value
Total daily FII trading value NA NA NA Y Y Y Y Y Y Y Y Y 9 100
Net daily FII selling value NA NA NA Y Y Y Y Y Y Y Y Y 9 100
Breadth
NSE Advance Decline NA NA NA NA NA NA NA Y Y Y Y Y 5 100
% of Nifty stocks above N Y N N Y Y N Y Y Y Y Y 12 67
200DMA
Source: Bloomberg, CLSA

Momentum indicator trends in an ongoing correction

Figure 12
The Nifty has already Nifty price

declined 10% in the ongoing
fall
Figure 13
The VIX has yet to show a Move in India’s VIX

divergence
Figure 14
The rate of price change Nifty’s 14-day RSI

measured by the RSI has yet
to show a divergence

Figure 15
The net FII selling value is Daily net selling value of FIIs
the only indicator which
seems to be showing a
divergence
Figure 16
No clear divergence in total Daily FII gross trading value

trading value of FII
Figure 17
No clear divergence in total Daily institutional gross trading value

gross daily institutional
trading value yet

Figure 18
No divergence yet on total Daily total market wide gross trading value
daily traded value
Figure 19
Breadth of the correction Daily trend in NSE’s advancing minus declining stock
has yet to show any notable
improvement
Figure 20
Participation of Nifty stocks Nifty participants trading above their respective 200DMA
in the decline has not
declined yet

Momentum indicators during the June 2019-September 2019 correction

Figure 21
The 11% decline in the Nifty price

Nifty ended in September
2019
Figure 22
At the bottom volatility was Move in India VIX

lower than the earlier peak
hit during this decline-
showing a useful divergence
to confirm a bottom
Figure 23
At the bottom RSI was Nifty’s 14-day RSI

higher than the earlier low
to confirm a bottom

Figure 24
At the bottom net selling by Daily net selling value of FIIs

FIIs was lower than the
earlier peak hit during this
decline showing a useful
divergence to confirm a
bottom
Figure 25
At the bottom the total FII Daily FII gross trading value
traded value was lower than
the earlier peak hit during
this decline showing lesser
selling pressure and a useful
bottom
Figure 26
At the bottom the total Daily institutional gross trading value

institutional traded value
was lower than the earlier
peak hit during this decline
showing lesser selling
pressure and a useful
bottom

Figure 27
At the bottom the total Daily total market-wide gross trading value
market-wide traded value
divergence to confirm the
bottom
Figure 28
At the bottom the breadth Daily trend in NSE’s advancing minus declining stock
of stocks rising minus
declining was better than
the earlier low hit during
this decline showing
reduced negative
participation and a useful
bottom
Figure 29
At the bottom the Nifty participants trading above their respective 200DMAs
proportion of Nifty stocks
below their 200DMAs
improved versus the earlier
low hit during this decline
showing reduced negative
bottom

Momentum indicators during the August 2018 to October 2018 correction

Figure 30
The 15% decline in Nifty Nifty price

ended in October 2018
Figure 31

to confirm a bottom
Figure 32
At the bottom the RSI was Nifty’s 14 day RSI

to confirm the bottom

Figure 33

bottom
Figure 34
At the bottom thetotal FII Daily FII gross trading value

bottom
Figure 35

bottom

Figure 36
bottom
Figure 37
reduced negative
bottom
Figure 38
below their respective
200DMAs improved versus
reduced negative
bottom

Momentum indicators during the January 2018 to March 2018 correction

Figure 39

ended in March 2018
Figure 40

hit during this decline
to confirm a bottom
Figure 41
At the bottom the RSI was Nifty’s 14-day RSI

to confirm a bottom

Figure 42

bottom
Figure 43
bottom
Figure 44

bottom

Figure 45
At the bottom the total Daily total market wide gross trading value
bottom
Figure 46
reduced negative
bottom
Figure 47
reduced negative
bottom

Momentum indicators during the March 2015 to February 2016 correction

Figure 48

Nifty ended in February
2016
Figure 49

to confirm a bottom
Figure 50

to confirm a bottom

Figure 51

bottom
Figure 52
bottom
Figure 53

bottom

Figure 54
bottom
Figure 55
reduced negative
bottom
Figure 56
below their 200DMAs
improved versus the earlier
low hit during this decline
showing reduced negative
bottom

Momentum indicators during the November 2010 to December 2011 correction

Figure 57

ended in December 2011
Figure 58

to confirm a bottom
Figure 59

to confirm a bottom

Figure 60

bottom
Figure 61
bottom
Figure 62

bottom

Figure 63
bottom
Figure 64
reduced negative
bottom
Figure 65
reduced negative
bottom

Momentum indicators during the January 2008 to October 2008 correction

Figure 66

Nifty ended in October
2008
Figure 67
Volatility could not confirm Move in India VIX

the bottom
Figure 68
At the bottom RSI was Nifty’s 14 day RSI

to confirm a bottom

Figure 69

bottom
Figure 70
bottom
Figure 71

bottom

Figure 72
bottom
Figure 73
Nifty stocks below their Trend in Nifty participants trading above their respective 200DMAs
respective 200DMAs could
not confirmed a bottom

Momentum indicators during July 2007 to August 2007 correction

Figure 74
A 28% decline in Nifty Nifty price

ended in Aug’07
Figure 75

to confirm a bottom
Figure 76

bottom

Figure 77
bottom
Figure 78

bottom
Figure 79
market wide traded value
bottom

Figure 80
reduced negative
bottom

Momentum indicators during the February 2007 to March 2007 correction

Figure 81

Nifty ended in March 2007
Figure 82
The RSI could not confirm a Nifty’s 14 day RSI

bottom
Figure 83

bottom

Figure 84
bottom
Figure 85

bottom
Figure 86
bottom

Figure 87
The proportion of Nifty Nifty participants trading above their respective 200DMA
stocks below their
not confirm a bottom

Momentum indicators during the May 2006 to June 2006 correction

Figure 88

Nifty ended in June 2006
Figure 89

to confirm a bottom
Figure 90
At the bottom the net Daily net selling value of FIIs

selling by FIIs was lower
than the earlier peak hit
during this decline showing
a useful divergence to
confirm a bottom

Figure 91
bottom
Figure 92

bottom
Figure 93
bottom

Figure 94
The proportion of Nifty Nifty participants trading above their respective 200DMAs
stocks below their
not confirm a bottom

Important disclosures Strategy
Research subscriptions
To change your report distribution requirements, please contact your CLSA sales representative or email us at cib@clsa.com.
You can also fine-tune your Research Alert email preferences at https://www.clsa.com/member/tools/email_alert/.
Companies mentioned
Analyst certification
The analyst(s) of this report 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 research report.
Important disclosures
The policy of CLSA and CL Securities Taiwan Co., Ltd. (“CLST”) is to Key to CLSA/CLST investment rankings: BUY: Total stock return
only publish research that is impartial, independent, clear, fair, and not (including dividends) expected to exceed 20%; O-PF: Total expected
misleading. Regulations or market practice of some return below 20% but exceeding market return; U-PF: Total expected
jurisdictions/markets prescribe certain disclosures to be made for return positive but below market return; SELL: Total return expected
certain actual, potential or perceived conflicts of interests relating to to be negative. For relative performance, we benchmark the 12-
a research report as below. This research disclosure should be read in month total forecast return (including dividends) for the stock against
conjunction with the research disclaimer as set out at the 12-month forecast return (including dividends) for the market on
www.clsa.com/disclaimer.html and the applicable regulation of the which the stock trades.
concerned market where the analyst is stationed and hence subject We define as “Double Baggers” stocks we expect to yield 100%
to. Investors are strongly encouraged to review this disclaimer before or more (including dividends) within three years at the time the stocks
investing. are introduced to our “Double Bagger” list. "High Conviction" Ideas
Neither analysts nor their household members/associates/may are not necessarily stocks with the most upside/downside, but those
have a financial interest in, or be an officer, director or advisory board where the Research Head/Strategist believes there is the highest
member of companies covered by the analyst unless disclosed herein. likelihood of positive/negative returns. The list for each market is
In circumstances where an analyst has a pre-existing holding in any monitored weekly.
securities under coverage, those holdings are grandfathered and the Overall rating distribution for CLSA (exclude CLST) only Universe:
analyst is prohibited from trading such securities. Overall rating distribution: BUY / Outperform - CLSA: 70.65%,
Unless specified otherwise, CLSA/CLST or its respective affiliates, Underperform / SELL - CLSA: 29.16%, Restricted - CLSA: 0.19%; Data
did not receive investment banking/non-investment banking income as of 31 Dec 2019. Investment banking clients as a % of rating
from, and did not manage/co-manage a public offering for, the listed category: BUY / Outperform - CLSA: 4.21%, Underperform / SELL -
company during the past 12 months, and it does not expect to receive CLSA: 0.47%; Restricted - CLSA: 0.28%. Data for 12-month period
investment banking compensation from the listed company within the ending 31 Dec 2019.
coming three months. Unless mentioned otherwise, CLSA/CLST does Overall rating distribution for CLST only Universe: Overall rating
not own 1% or more of any class of securities of the subject company, distribution: BUY / Outperform - CLST: 77.19%, Underperform / SELL
and does not make a market, in the securities. (For full disclosure of - CLST: 22.81%, Restricted - CLST: 0.00%. Data as of 31 Dec 2019.
interest for all companies mention on this report, please refer to Investment banking clients as a % of rating category: BUY /
http://www.clsa.com/member/research_disclosures/ for details.) Outperform - CLST: 0.00%, Underperform / SELL - CLST: 0.00%,
The analysts included herein hereby confirm that they have not Restricted - CLST: 0.00%. Data for 12-month period ending 31 Dec
been placed under any undue influence, intervention or pressure by 2019.
any person/s in compiling this research report. In addition, the There are no numbers for Hold/Neutral as CLSA/CLST do not
analysts attest that they were not in possession of any material, non- have such investment rankings. For a history of the recommendation,
public information regarding the subject company at the time of price targets and disclosure information for companies mentioned in
publication of the report. Save from the disclosure below (if any), the this report please write to: CLSA Group Compliance, 18/F, One Pacific
analyst(s) is/are not aware of any material conflict of interest. Place, 88 Queensway, Hong Kong and/or; (c) CLST Compliance (27/F,
As analyst(s) of this report, I/we hereby certify that the views 95, Section 2 Dun Hua South Road, Taipei 10682, Taiwan, telephone
expressed in this research report accurately reflect my/our own (886) 2 2326 8188). EVA® is a registered trademark of Stern, Stewart
personal views about the securities and/or the issuers and that no & Co. "CL" in charts and tables stands for CLSA estimates, “CT” stands
part of my/our compensation was, is, or will be directly or indirectly for CLST estimates, "CRR" stands for CRR Research estimates and
related to the specific recommendation or views contained in this “CS” for Citic Securities estimates unless otherwise noted in the
report or to any investment banking relationship with the subject source.
company covered in this report (for the past one year) or otherwise This publication/communication is subject to and incorporates
any other relationship with such company which leads to receipt of the terms and conditions of use set out on the www.clsa.com website
fees from the company except in ordinary course of business of the (https://www.clsa.com/disclaimer.html). Neither the
company. The analyst/s also state/s and confirm/s that he/she/they publication/communication nor any portion hereof may be reprinted,
has/have not been placed under any undue influence, intervention or sold, resold, copied, reproduced, distributed, redistributed, published,
pressure by any person/s in compiling this research report. In republished, displayed, posted or transmitted in any form or media or
addition, the analysts included herein attest that they were not in by any means without the written consent of CLSA and/or CLST.
possession of any material, nonpublic information regarding the CLSA and/or CLST has/have produced this
subject company at the time of publication of the report. The analysts publication/communication for private circulation to professional,
further confirm that none of the information used in this report was institutional and/or wholesale clients only, and may not be distributed
received from CLSA's Corporate Finance department or CLSA's Sales to retail investors. The information, opinions and estimates herein are
and Trading business. Save from the disclosure below (if any), the not directed at, or intended for distribution to or use by, any person
analyst(s) is/are not aware of any material conflict of interest. or entity in any jurisdiction where doing so would be contrary to law

or regulation or which would subject CLSA, and/or CLST to any services to, the entities referred to herein, their advisors and/or any
additional registration or licensing requirement within such other connected parties. As a result, you should be aware that CLSA
jurisdiction. The information and statistical data herein have been and/or CLST and/or their respective affiliates, officers, directors or
obtained from sources we believe to be reliable. Such information has employees may have one or more conflicts of interest. Regulations or
not been independently verified and we make no representation or market practice of some jurisdictions/markets prescribe certain
warranty as to its accuracy, completeness or correctness. Any disclosures to be made for certain actual, potential or perceived
opinions or estimates herein reflect the judgment of CLSA and/or conflicts of interests relating to research reports. Details of the
CLST at the date of this publication/communication and are subject disclosable interest can be found in certain reports as required by the
to change at any time without notice. Where any part of the relevant rules and regulation and the full details are available at
information, opinions or estimates contained herein reflects the views http://www.clsa.com/member/research_disclosures/. Disclosures
and opinions of a sales person or a non-analyst, such views and therein include the position of CLSA and CLST only. Unless specified
opinions may not correspond to the published view of CLSA and/or otherwise, CLSA did not receive any compensation or other benefits
CLST. Any price target given in the report may be projected from one from the subject company, covered in this
or more valuation models and hence any price target may be subject publication/communication, or from any third party. If investors have
to the inherent risk of the selected model as well as other external any difficulty accessing this website, please contact
risk factors. Where the publication does not contain ratings, the webadmin@clsa.com on +852 2600 8111. If you require disclosure
material should not be construed as research but is offered as factual information on previous dates, please contact
commentary. It is not intended to, nor should it be used to form an compliance_hk@clsa.com.
investment opinion about the non-rated companies. This publication/communication is distributed for and on behalf
This publication/communication is for information purposes only of CLSA (for research compiled by non-US and non-Taiwan analyst(s)),
and it does not constitute or contain, and should not be considered as and/or CLST (for research compiled by Taiwan analyst(s)) in Australia
an offer or invitation to sell, or any solicitation or invitation of any by CLSA Australia Pty Ltd (AFSL License No: 350159); in Hong Kong
offer to subscribe for or purchase any securities in any jurisdiction by CLSA Limited (Incorporated in Hong Kong with limited liability); in
and recipient of this publication/communication must make its own India by CLSA India Private Limited, (Address: 8/F, Dalamal House,
independent decisions regarding any securities or financial Nariman Point, Mumbai 400021. Tel No: +91-22-66505050. Fax No:
instruments mentioned herein. This is not intended to provide +91-22-22840271; CIN: U67120MH1994PLC083118; SEBI
professional, investment or any other type of advice or Registration No: INZ000001735 as Stock Broker, INM000010619 as
recommendation and does not take into account the particular Merchant Banker and INH000001113 as Research Analyst,; in
investment objectives, financial situation or needs of individual Indonesia by PT CLSA Sekuritas Indonesia; in Japan by CLSA
recipients. Before acting on any information in this Securities Japan Co., Ltd.; in Korea by CLSA Securities Korea Ltd.; in
publication/communication, you should consider whether it is Malaysia by CLSA Securities Malaysia Sdn. Bhd.; in the Philippines by
suitable for your particular circumstances and, if appropriate, seek CLSA Philippines Inc (a member of Philippine Stock Exchange and
professional advice, including tax advice. Investments involve risks, Securities Investors Protection Fund); in Singapore by CLSA
and investors should exercise prudence and their own judgment in Singapore Pte Ltd and solely to persons who qualify as an
making their investment decisions. The value of any investment or "Institutional Investor", "Accredited Investor" or "Expert Investor"
income my go down as well as up, and investors may not get back the MCI (P) 086/12/2019; in Thailand by CLSA Securities (Thailand)
full (or any) amount invested. Past performance is not necessarily a Limited; in Taiwan by CLST and in the EU and United Kingdom by
guide to future performance. CLSA and/or CLST do/does not accept CLSA Europe BV or CLSA (UK).
any responsibility and cannot be held liable for any person’s use of or United States of America: Where any section is compiled by non-
reliance on the information and opinions contained herein. To the US analyst(s), it is distributed into the United States by CLSA solely to
extent permitted by applicable securities laws and regulations, CLSA persons who qualify as "Major US Institutional Investors" as defined
and/or CLST accept(s) no liability whatsoever for any direct or in Rule 15a-6 under the Securities and Exchange Act of 1934 and who
consequential loss arising from the use of this deal with CLSA Americas. However, the delivery of this research
publication/communication or its contents. report to any person in the United States shall not be deemed a
To maintain the independence and integrity of our research, our recommendation to effect any transactions in the securities discussed
Corporate Finance, Sales Trading, Asset Management and Research herein or an endorsement of any opinion expressed herein. Any
business lines are distinct from one another. This means that CLSA’s recipient of this research in the United States wishing to effect a
Research department is not part of and does not report to CLSA transaction in any security mentioned herein should do so by
Corporate Finance department or CLSA’s Sales and Trading business. contacting CLSA Americas.
Accordingly, neither the Corporate Finance nor the Sales and Trading The European Union (“EU”) and the United Kingdom: In these
department supervises or controls the activities of CLSA’s research jurisdictions, this research is a marketing communication. It has not
analysts. CLSA’s research analysts report to the management of the been prepared in accordance with the legal requirements designed to
Research department, who in turn report to CLSA’s senior promote the independence of investment research, and is not subject
management. CLSA has put in place a number of internal controls to any prohibition on dealing ahead of the dissemination of
designed to manage conflicts of interest that may arise as a result of investment research. The research is disseminated in these countries
CLSA engaging in Corporate Finance, Sales and Trading, Asset by either CLSA (UK) or CLSA Europe BV. CLSA (UK) is authorised and
Management and Research activities. Some examples of these regulated by the Financial Conduct Authority. CLSA Europe BV is
controls include: the use of information barriers and other controls authorised and regulated by the Authority for Financial Markets in the
designed to ensure that confidential information is only shared on a Netherlands. This document is directed at persons having
“need to know” basis and in compliance with CLSA’s Chinese Wall professional experience in matters relating to investments as defined
policies and procedures; measures designed to ensure that in the relevant applicable local regulations. Any investment activity to
interactions that may occur among CLSA’s Research personnel, which it relates is only available to such persons. If you do not have
Corporate Finance, Asset Management, and Sales and Trading professional experience in matters relating to investments you should
personnel, CLSA’s financial product issuers and CLSA’s research not rely on this document. Where the research material is compiled
analysts do not compromise the integrity and independence of CLSA’s by the UK analyst(s), it is produced and disseminated by CLSA (UK)
research. and CLSA Europe BV. For the purposes of the Financial Conduct Rules
Subject to any applicable laws and regulations at any given time, in the United Kingdom and MIFID II in other European jurisdictions
CLSA, CLST, their respective affiliates, officers, directors or this research is prepared and intended as substantive research
employees may have used the information contained herein before material.
publication and may have positions in, or may from time to time For all other jurisdiction-specific disclaimers please refer to
purchase or sell or have a material interest in any of the securities https://www.clsa.com/disclaimer.html. The analysts/contributors to
mentioned or related securities, or may currently or in future have or this publication/communication may be employed by any relevant
have had a business or financial relationship with, or may provide or CLSA entity or CLST, which is different from the entity that
have provided corporate finance/capital markets and/or other distributes the publication/communication in the respective

jurisdictions.© 2020 CLSA and/or CL Securities Taiwan Co., Ltd. (“CLST”).

India Strategy (Anatomy of A Market Bottom) 20200305

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

India Strategy (Anatomy of A Market Bottom) 20200305

Uploaded by

Copyright:

Available Formats

Strategy

Vikash Kumar Jain

Source: CLSA, Bloomberg

5 March 2020 vikash.jain@clsa.com 2

Source: CLSA, Bloomberg

Source: CLSA, Bloomberg

The Nifty’s earnings yield is

Source: CLSA, Bloomberg

5 March 2020 vikash.jain@clsa.com 3

Source: CLSA, Bloomberg

Source: CLSA, Bloomberg

We concede that a 16x PE Average return of Nifty from various PE ranges

Source: CLSA, Bloomberg

5 March 2020 vikash.jain@clsa.com 4

Source: CLSA, Bloomberg

Source: CLSA, Bloomberg

5 March 2020 vikash.jain@clsa.com 5

Key indicators with 67%-100% accuracy yet to convincingly confirm a bottom

5 March 2020 vikash.jain@clsa.com 6

Momentum indicator trends in an ongoing correction

The Nifty has already Nifty price

Source: CLSA, Bloomberg

The VIX has yet to show a Move in India’s VIX

Source: CLSA, Bloomberg

The rate of price change Nifty’s 14-day RSI

Source: CLSA, Bloomberg

5 March 2020 vikash.jain@clsa.com 7

Source: CLSA, Bloomberg

No clear divergence in total Daily FII gross trading value

Source: CLSA, Bloomberg

No clear divergence in total Daily institutional gross trading value

Source: CLSA, Bloomberg

5 March 2020 vikash.jain@clsa.com 8

Source: CLSA, Bloomberg

Source: CLSA, Bloomberg

Source: CLSA, Bloomberg

5 March 2020 vikash.jain@clsa.com 9

Momentum indicators during the June 2019-September 2019 correction

The 11% decline in the Nifty price

Source: CLSA, Bloomberg

At the bottom volatility was Move in India VIX

Source: CLSA, Bloomberg

At the bottom RSI was Nifty’s 14-day RSI

Source: CLSA, Bloomberg

5 March 2020 vikash.jain@clsa.com 10

At the bottom net selling by Daily net selling value of FIIs

Source: CLSA, Bloomberg

Source: CLSA, Bloomberg

At the bottom the total Daily institutional gross trading value

Source: CLSA, Bloomberg

5 March 2020 vikash.jain@clsa.com 11

Source: CLSA, Bloomberg

Source: CLSA, Bloomberg

Source: CLSA, Bloomberg

5 March 2020 vikash.jain@clsa.com 12

Momentum indicators during the August 2018 to October 2018 correction

The 15% decline in Nifty Nifty price

Source: CLSA, Bloomberg

At the bottom volatility was Move in India VIX

Source: CLSA, Bloomberg

At the bottom the RSI was Nifty’s 14 day RSI

Source: CLSA, Bloomberg

5 March 2020 vikash.jain@clsa.com 13