Markets Research
Asia Strategy Date
9 January 2017
India
India Equity Strategy
Strategy Update
Abhay Laijawala
Research Analyst (+91) 22
7180-4031
abhay.laijawala@db.com
the most determining global factor particularly for FII liquidity followed by the outcome of
the French and German elections, how the UK manages ‘Brexit’ and the path of CNY.
Domestically, verdict of 5 state elections in Mar’17, Union Budget in early Feb’17,
developments over roll out of GST and other executive actions hold key to earnings and
sentiments. We are setting Dec’17 Sensex target of 29,000 (~8% upside) implying PE of 16.4x
on FY18 EPS.
Key themes: US$/global growth plays, rate-sensitives and pro poor/rural plays Key
investment themes in 2017: (1) beneficiaries of a stronger global banking sector and
appreciating US$ - IT Services (2) global growth beneficiaries – Metals, Automobiles (3)
beneficiaries of the 6 year low consumer finance interest rates and (4) aggressive
government focus on pro poor and pro rural initiatives - Automobiles, Consumer durables,
consumer staples. O-Wt: IT, Autos, Staples, Energy, Materials, Utilities; U-wt: Financials,
Healthcare, Industrials, Telecom. Our top large cap picks are: Auro Pharma, BPCL, Maruti,
NTPC, SBI, Shree Cement, Tata Motors, TCS, Tech M, Vedanta India, Yes Bk.
From monetary to fiscal policy: Will union budget be a game changer in 2017? The trinity of
elevated oil/commodity prices, strengthening US$ and rising global bond yields may
constrain the RBI in pursuing significant monetary accommodation in 2017 and hence
transfer the onus of boosting growth to the government. It may embark on a fiscal stimulus
with higher expenditure on rural infrastructure and pro-poor initiatives. It is also likely that
the government cuts direct taxes sharply to complement near 7-year low interest rates to
jumpstart aggregate demand and raise India Inc’s capacity utilization. These initiatives may
be funded by innovative taxation and a mild fiscal stretch.
Goods and Services Tax: the bitter medicine that needs to be swallowed
While we strongly believe that India must move to a GST regime, the transition is likely to be
disruptive for large sections of the economy and Small and Medium Enterprises particularly
(SME’s). The SME’s constitute 40% of GDP and are the second largest employer in the country
after agriculture. Many SME’s have been impacted very significantly following
demonetization and may be impacted further as GST is introduced. Based on the progress on
GST so far, we estimate that the GST could be implemented in 2QFY18. Consequently, we see
a high risk to consensus earnings growth expectations for FY18 which may need to be revised
downwards in 2HFY18.
DIIs will be market stabilizers; Mid caps to stay buoyant
Our global economics team sees upside risks to both US interest rate trajectory and US$,
implying that foreign institutional investors flows will be muted at least in 1QFY18. Domestic
institutional investors [DIIs] will - for the third year in succession- remain the mainstay of
institutional inflows as the conventional lure of physical assets i.e. Gold and Real estate fades.
Mid caps to stay buoyant
As DII flows are likely to predominate, mid cap stocks appear poised to outperform Sensex.
In addition, the PE premium of mid cap index has now declined sharply to 2% vs 17% at the
start of 2016. We do not rule out expansion in mid cap’s premium in 2017. Our top mid cap
picks are: CESC, Petronet LNG, Ramco Cements, REC, Shriram Trans Fin, UPL.
_______________________________________________________________________________________________________________
_
Deutsche Bank AG/Hong Kong Distributed on: 09/01/2017 18:30:45 GMT
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P)
057/04/2016.
Contents
The landscape in 2016 ..............................................................................................3
Gazing into the crystal ball – Volatile 1H, modest recovery in 2H 2017 ....................4
Domestic Institutional Investors will remain market stabilizers ................................4
Transition from monetary to fiscal policy: Will Union Budget be a game changer in
2017? ........................................................................................................................5
Model Portfolio...................................................................... 7
Top Large Cap Picks ............................................................ 10
Auro Pharma (Buy, Target Price: INR921, Upside: 33%) ........................................ 10
BPCL (Buy, Target Price: INR710, Upside: 7%) ...................................................... 10
Maruti Suzuki (Buy, Target Price: INR6,200, Upside: 10%) .................................... 11
NTPC (Buy, Target Price: INR200, Upside: 22%) .................................................... 11
Shree cement (Buy, Target Price: INR18,450, Upside: 29%) .................................. 12
State Bank of India (Buy, Target Price: INR315, Upside: 28%) ............................... 12
Tata Motors (Buy, Target Price: INR575, Upside: 15%) .......................................... 13
TCS (Buy, Target Price: INR2,900, Upside: 27%) .................................................... 13
Tech Mahindra (Buy, Target Price: INR680, Upside: 45%) ..................................... 14
Vedanta (Buy, Target Price: INR277, Upside: 20%) ................................................ 15
Yes Bank (Buy, Target Price: INR1,450, Upside: 16%) ........................................... 16
The BSE Sensex stayed rangebound (up just 2% yoy in 2016) though the mid cap index was
up 7% - a strong reflection of domestic investor flows dominating market liquidity. Domestic
Institutional Investor (DII) buying has managed to offset the sharp selling by Foreign
Institutional Investors (FII’s), particularly in Oct-Dec 2016. In Oct-Dec 2016 FII’s net sold
US$4.6bn of equities while DII’s net bought US$5.2bn, strongly insulating the market from
foreign selling. The robustness of domestic institutional inflows is attributed to the strong
resilience seen in retail flows into equity mutual funds (monthly average inflows of
US$680mn in 2016).
For the third consecutive year, corporate earnings growth has belied expectations.
Consensus earnings growth for FY17 now stands at 8.6% (was 17.5% at the beginning of the
fiscal year in April). More importantly, FY18 consensus earnings growth expectations look
unrealistically high at
19.5%. The rollout of the Goods and Services Tax remains by far the biggest determinant
for corporate earnings in FY18. While we strongly believe that India must move to a GST
regime, the transition is likely to be disruptive for large sections of the economy and
particularly Small & Medium Enterprises (SME’s). The SME’s constitute 40% of GDP and are
the second largest employer in the country after agriculture. Many SME’s have been
impacted significantly following demonetization and may be impacted further as GST is
introduced. Based on the progress of GST so far, we estimate that the GST could be
implemented in 2QFY18. Consequently, we see a risk to consensus earnings growth
expectations for FY18 which may need to be revised downwards in 2HFY18.
With subdued FII participation, all eyes will be on local investors, who have kept markets
steady over 4Q despite a bout of aggressive FII selling. We believe that the ongoing
transition from physical to financial savings and emerging constraints on the declining
trajectory in bond yields bode very well for equities. In 2016 retail investors have invested
close to US$680mn/month in domestic equity mutual funds. We see this trend getting
entrenched even further in 2017 as the bond markets near the end of a near two year bull
market.
If the government wants to restore economic growth – sustainably - towards a 7.5% -8%
range it needs to revive capital formation, which unfortunately cannot be revived
meaningfully without a pickup in private sector capital expenditure. In our view the
combination of a more than six year low in interest rates (Govt ten year treasury yield at
6.4%, AAA one year corporate bond at 6.9% and SBI’s mortgage rate of 8.65%) coupled with
a radical rehaul in direct taxation (Income and corporate taxes) could be a game changer in
aiding capital formation. The combination of lower interest rates and sharp reduction in
direct taxes may be the most appropriate solution to reviving India Inc’s capacity utilization
rates which have now stayed sub optimal for five years, holding back the need for new
capacity creation. However, we concede that the government may need to look at
additional sources of tax revenue – including the introduction of newer taxes - coupled with
a stretch in the fiscal deficit to implement a radical rehaul of direct taxes – reducing tax
rates, eliminating exemptions and simplifying the tax structure. In our view a very modest
banking transaction tax could provide the government with substantial fiscal
maneuverability to attempt a rehaul of direct taxation – income and corporate taxes.
Investors will however need to be realistic of India’s political economy, with 2017 being the
third year of the political term of the government. Expenditure on social spending, anti
poverty programs and rural infrastructure is set to rise, which may again create the need
for additional resources. India’s tax-GDP ratio needs to rise substantially if the government
wants to achieve the twin objective of jumpstarting aggregate demand through direct tax
cuts, while creating the resources to fund rural infrastructure and poverty alleviation
schemes, which the Modi administration has been highlighting following the
demonetization exercise.
Our OW on IT services is premised on our belief that global IT spending will recover in 2017.
According to our US strategist, the US financial sector is expected to be a big beneficiary of
Trumponomics owing to (1) lighter touch regulation and a less hostile environment, (2)
higher interest rates and (3) lower US corporate tax rates. Interest rates are also hardening
in other developed markets including the Eurozone and the UK. The end of negative interest
rates and steepening yield curves in developed markets should be very positive for global
banking, financial and insurance sector – which have seen considerable stress over past one
to two years - which constitutes close to 40% of Indian IT sector revenues. A depreciating
rupee should also help offset the headwind of increased H1B visa costs. In addition
valuations are also highly supportive. The sector trades at a PE relative of less than one
(relative to MSCI India) last seen in 2009. TCS and Tech Mahindra are our preferred picks in
the sector.
We are underweight on financials as we see several near term challenges for banks – growth
remains extremely slow at just 5-6% in terms of loans, liquidity appears to abundant (banks
are sitting on 11-12% additional SLR). These factors should induce banks to cut rates (SBI
has already taken the first move) thereby impacting NIMs. Thus revenue drivers for the
sector will be weak for next 3-6 months. This is happening at a time when credit costs will
remain heavy for corporate banks, as they improve their coverage ratios and this in turn will
have earning implications. We however believe that growth will gradually get better on the
back of a likely quick remonetisation, lower rates and a likely growth oriented budget and
expect a stronger second half for the sector. We prefer wholesale funded financials within
the sector.
Over weight: Autos, Consumer Staples, Energy (mainly through Oil & Gas), IT
Services, Materials (Chemicals, Construction Materials, Metals), and Utilities
(through Electric utilities and IPP)
Under weight: Financials (through Banks, Diversified Financials and Mortgage Fin), Healthcare,
Industrials and Telecom.
Our top picks in large caps are: Auro Pharma, BPCL, Maruti, NTPC, SBI, Shree Cement, Tata Motors,
TCS, Tech Mahindra, Vedanta India, Yes Bank
Our top picks in mid caps are: CESC, Petronet LNG, Ramco Cements, REC, Shriram Trans Fin, UPL.
Portfolio positioning
Model Portfolio
Aurobindo has
Top Large Cap Picks been moving
up the value
chain in terms
of product
Auro Pharma (Buy, Target Price: INR921, Upside: 33%) complexity in
Aurobindo’s consistent and timely product approvals in US (highest amongst peers the US
for 2014- YTD 2017) demonstrates its strong regulatory compliance of its US FDA (injectables,
facilities. Faster approvals and market share gains in recently launched products opthal,
will drive US business growth of c17% CAGR over FY16-18E. respiratory,
controlled
substances) which should aid in improving profitability and sustainability of Harshad Katkar (+91) 22
revenues. 7180 4029
harshad.katkar@db.com
The EU business turnaround (loss making at the time of acquisition) is on track to
achieve 7-8% EBITDA margin by FY18. We expect the profitability to improve as it
backward integrates more products to India, ramps up its own filings, launches Amit Murarka
own products in EU. (+91) 22 7180 4069
amit.murarka@db.com
We expect valuation discount to converge on back of healthy earnings growth of
c21% CAGR over FY16-18E driven by improving product mix in US and EU margin
expansion. Stock trades at 17.3x on FY17 and 13.9x on FY18 EPS respectively which
is c25% discount to its average PER of 18x for past two years and 25-40% discount
to Sun and Lupin.
Key downside risks: any delays in USFDA approvals of key ANDAs filed or any
delays in EU site transfer of products could cap margin expansion.
Key risks are sharp increase in oil prices, imposition of subsidy sharing on OMCs and Abhishek Puri (+91)
delay in development of its upstream oil & gas assets particularly in Mozambique. 22 7180 4214
abhishek.puri@db.co
m
Maruti Suzuki (Buy, Target Price: INR6,200, Upside: 10%)
Our preference for Maruti is based on the company’s model pipeline (the strongest in
recent history), which should result in resilient market share and improved pricing
power.
The company has now been able to demonstrate that it is able to use pricing power to
stave off the negative FX impact. This is a structural change and should positively affect
its earnings trajectory and reduce volatility in margins. In the near term a depreciating
JPY will have a positive impact on margins. Our global team expects the JPY to
depreciate to 125 by Dec 2017.
The company will likely be the key beneficiary when the demand recovery in P/V
resumes after the initial shock.
The stock trades at 20x FY18E P/E and 5% FCF yield. While the stock is expensive
relative to history, its competitive position has also become structurally stronger. We
forecast a FY17-19E EPS CAGR of 17%.
Shree cement (Buy, Target Price: INR18,450, Upside: 29%) Manish Karwa
(+91) 22 7180 4212
Its strong capacity addition pipeline in East and North India should position it as the manish.karwa@db.c
third largest player by end-FY17E and help drive a 11% volume CAGR over FY16-19E. om
It remains the cost leader in the Indian cement industry by a large margin (15% lower
than the nearest competitor). Manish Shukla (+91)
22 7180 4211
These factors should help drive a 24% OCF CAGR over FY16-19E. This is driven purely
manish.shukla@db.c
by the company, without assuming any meaningful improvement in sector
demand/supply balance before FY19E. om
In our view, the valuation on current production does not appear to build in any upside
Tata Motors (Buy,
from the company's strong operating leverage (given capacity utilization of around Target Price:
62% in FY18E) or any major upside from an upcycle. INR575, Upside:
Valuation: Our 12M TP is derived from an average of EV/t of cement capacity of US$ 15%)
280, EV/t of reserves of US$ 5.0, life-of-mine DCF and 16.8x EV/EBITDA. We believe
TAMO’s global
this is reasonable considering the company's continued cost leadership and strong
luxury
capacity addition pipeline.
volumes are
Risk: The key risks are (1) a quest for market share irrespective of profitability levels, expected to
and (2) lower-than-expected demand growth. If volumes were 1% lower than our improve over
estimates, this would have a 3% impact on our FY17E EPS. Likewise, a 1% lower-than- the next three
expected price would have a 6% impact on our FY17E EPS. to six months,
driven by new
launches in
State Bank of India (Buy, Target Price: INR315, Upside: 28%) the SUV
Over the long run, SBI is likely to be key beneficiary of demonetization. It is a leader in portfolio.
credit cards, debit cards, digital products and has a disproportionate share in rural While 2016
lending and government business/ was driven by
new sedan
It is the only PSU bank which has been gaining share in loans and SA deposits, despite launches, we
the NPL challenges. note that
While in the immediate term, NIMs could moderate a bit, over the medium term, its TAMO’s
43%+ CASA ratio and a strong retail liability franchise would result in a ~3%+ margins profitability is
in medium term. driven by its
SUVs.
While concerns on asset quality prevail, we believe that the worst of NPL recognition
and credit costs are behind – slippages were at 3.4% and credit costs at 2.1% in 2QFY17, We also
and should gradually decline FY18 onwards. expect the
GBP
Valuations at 1.0x FY18E P/B and 10x FY18E P/E for a likely 10% medium term RoE
depreciation
remain attractive.
to start
positively
affecting
margins from
4QFY17
onwards. A
10%
depreciation
Chockalingam Narayanan (+91) 22 7180 4056 chockalingam.narayanan@db in the
.com GBP/USD
leads to a 15-
20% increase
in TAMO’s EPS
We believe the premium is justified given the higher volume growth as well as
expected margin expansion as a result of GBP depreciation.
Stable margins:
Despite pricing pressure and growth moderation, TCS has managed to maintain
operating margins (EBIT) above 26%
This has been managed by investing the savings from a weak rupee and utilisation
benefits into improved investment in SG&A; this has been further boosted by the
recent rupee depreciation
Inexpensive valuation; well-supported by superior earnings growth:
Given TCS’s premium vendor status, it will gain the most as spending recovers
We value the stock at 20x FY17E and a PEG of 1.6x, supported by an earnings CAGR of
13% for FY17E-19E
This should be a function of tighter cost controls on recent acquisitions (LCC) and
better utilization
In our view, this, along with revenue growth revival in the telecom business will drive
a 240bps yoy EBIT margin expansion in FY18 to 15.4%.
Still our top Buy with a target price of INR680
We base our target price on a P/E of 17x FY17E earnings (PEG of 0.8)
Downside risks include: 1) high vertical and client concentration, with >48% of
revenues from the telecom vertical; and currency fluctuation risk.
Harshad Katkar
Risk: Lower than expected volumes and prices remains the key risks. Our model
Manish Karwa
suggests, in the event, volumes fall by 1%, FY17E EPS falls by 2%. Likewise, if price falls
(+91) 22 7180 4212
by 1%, then EPS falls by 5%. Also, an increase in support to group companies needs to
manish.karwa@db.c
be watched out.
om
Weak economic conditions over the past few years have led to elevated credit costs, UPL (Buy, Target
which should fall over time as economy improves. Price: INR800,
Sharply lower funding costs due to strong system liquidity should help in lowering the Upside: 21%)
funding costs which should lead to NIM expansion.
UPL produces
The stock trades at FY18E P/B of 1.6x and P/E of 10.8x for FY18E RoE of 16% and
and markets
earnings CAGR of 29% over FY16-18E.
generic crop
protection
chemicals
(pesticides) in
Chockalingam Narayanan (+91) 22 7180 4056 chockalingam.narayanan@db
120 countries
.com
and has c.4%
global market
share. UPL is
world’s 4th
largest generic
agchem
company by
revenue and
80% of its
revenue comes from outside India. It also produces post-harvest chemicals (brand
Deco) and seeds (through its subsidiary Advanta).
Low cost manufacturing base in India (50% of global supplies) coupled with a strong
global distribution network are the key sources of its competitive advantage.
We rate UPL a Buy premised on robust volume growth driven by i) new product
launches and ii) distribution expansion (particularly in Africa, China and the US mid-
west) driving revenue/ EBITDA/ PAT growth of 13%/ 16%/ 24% CAGR over FY16-19E.
We expect revenue from Brazil (20% of total) to grow >50% in FY17 after 84% YoY
growth in FY16, driven by continuing market share gains by its Unizeb product
portfolio.
Favorable currency moves in FY17 (YTD INR has depreciated by 2.5% vs. USD and 14%
vs. Brazilian Real) should also support higher revenue growth in FY17. UPL lost 8% of
revenue (in INR terms) in FY16 due to adverse currency movements.
UPL is also poised to benefit from USD4-5bn of products (10% of market) going off-
patent over the next five years and as production costs in China continue to rise.
UPL is trading at FY18 P/E of 15x which is a 15-25% discount to global peers.
Key risks are i) failure of new products, ii) heightened competition, iii) expensive
acquisition and iv) adverse currency movements.
Amit Murarka
(+91) 22 7180 4069 amit.murarka@db.com
With better part of monetary accommodation (both through lower rates and surfeit liquidity)
now behind us and several segments of the economy (particularly rural India, SMEs and capital
formation) yet to show material signs of recovery, we see the baton for stimulating the economy
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
Source: Deutsche Bank, MOSPI, *Data for FY17 is based on 1st advance estimates
If the government wants to restore economic growth – sustainably - towards a 7.5% -8%
range it needs to revive capital formation, which unfortunately cannot be revived
meaningfully without a pickup in private sector capital expenditure. In our view the
combination of a more than six year low in interest rates (Govt ten year treasury yield at
6.4%, AAA one year corporate bond 6.9% and SBI’s mortgage rate at 8.65%) coupled with a
radical rehaul in direct taxation (income and corporate taxes) could be a game changer in
aiding capital formation. The combination of lower interest rates and sharp reduction in
direct taxes may be the most appropriate solution to reviving India Inc’s capacity utilization
rates which have now stayed sub optimal for almost five years, holding back the need for
new capacity creation.
We concede that the government may need to look at additional sources of tax revenue to
fund any major reduction in personal and corporate taxes. In our view a very modest
banking transaction tax could provide the government with substantial fiscal
maneuverability to attempt a rehaul of direct taxation – Income and corporate taxes.
Investors will however need to be realistic of India’s political economy, with 2017 being the
third year of the political term of the government and a national election in 2019.
Expenditure on social spending, poverty alleviation programs and rural infrastructure is set
to rise, which may again create the need for additional resources. India’s tax GDP ratio
needs to rise substantially if the government wants to achieve the double objective of
jumpstarting aggregate demand through direct tax cuts while also raising public spends on
infrastructure, agriculture and poverty alleviation schemes.
We see a strong likelihood of the government implementing its pro-poor, prorural policy via
several announcements in the upcoming Union Budget where we expect significant hike in
budgetary allocation for rural construction, agriculture and poverty alleviation programs. It
remains to be seen how the finance minister walks the tightrope of achieving the twin
objectives of jumpstarting aggregate demand to stimulate capital expenditure and raising
spending on rural infrastructure and poverty alleviation schemes.
largely addressed most of the critical policy decisions practically possible in a short time
period of 3 years.
Among the unfinished agenda, the fruition of the GST now remains the single biggest focus
area for the government. We believe that the government will endeavor to roll out GST in
FY18 itself, despite the pressure to delay it as the economy (particularly the SME segment
which constitutes 40% of GDP) may not be able to cope with multiple transformational
changes (the earlier being the demonetization drive) in the same year. However, given the
recent commentary by the finance minister and regular deliberations of the Central and
State Ministers in GST council makes us believe that the government seems intent on rolling
out GST at the earliest possible, even though some segments of business community may
not be prepared for the new indirect tax regime.
While the long term benefit of a uniform income tax regime is incontrovertible and well
appreciated, we believe that several businesses will take time to adjust to the new tax
dispensation which may be disruptive for operations. Hence we anticipate some earnings
impact once GST is rolled out and expect consensus earnings to be adjusted accordingly.
With rising US bond yields, appreciating USD and an expected fiscal stimulus by Trump
administration it is highly likely that both the capital flows and currencies of most emerging
market will be under pressure- the impact on commodity exporting EMs may however be
less intense than commodity importing EMs. In such a situation India in unlikely to stay
insulated and accordingly we expect FII flows to remain volatile and subdued for Indian
equities, particularly in 1H of CY2017.
With FII inflows likely to remain muted, we believe that domestic institutional investors will
- for the third year in succession- remain the mainstay of institutional inflows for Indian
equities. In the past 2 years i.e. CY15 and CY16, DIIs have pumped in ~US$16bn into Indian
equities, which is >2.5x of the US$6.2bn of inflows from foreign institutional investors (FIIs),
during the same period. This trend will be further entrenched in 2017 as we see limited
impediments to continuing equitization of household savings.
The conventional lure of physical assets i.e. Gold and Real estate has already abated
significantly over the past 2 years and is likely to stay muted in foreseeable future as India
transitions towards a less-cash economy, coupled with a stringent regulatory scrutiny over
generation and circulation of unaccounted money, which is likely to dent investment
demand for these two asset classes.
This implies that household savings will continue to incrementally move towards financial
assets and with falling interest rates, households are likely to rely more on equity
instruments to generate above average returns.
Appendix 1
Important Disclosures
Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via
Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For
disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see
the most recently published company report or visit our global disclosure look-up page on our website at
http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Aside from within this report, important conflict disclosures can also be
found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the undersigned
lead analyst(s) has not and will not receive any compensation for providing a specific recommendation
or view in this report. Abhay Laijawala/Abhishek Saraf
500 53 %
45
0
40
0
350 37 %
30
0
2
5
0
2
0
0
150 17 % 19 % 10 %20 %
10
0
50
0
Buy Hold Sell
Additional Information
The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank").
Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable, Deutsche Bank
makes no representation as to its accuracy or completeness.
If you use the services of Deutsche Bank in connection with a purchase or sale of a security that is discussed in this report, or is included or
discussed in another communication (oral or written) from a Deutsche Bank analyst, Deutsche Bank may act as principal for its own account
or as agent for another person.
Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own account or with
customers, in a manner inconsistent with the views taken in this research report. Others within Deutsche Bank, including strategists, sales
staff and other analysts, may take views that are inconsistent with those taken in this research report. Deutsche Bank issues a variety of
research products, including fundamental analysis, equity-linked analysis, quantitative analysis and trade ideas. Recommendations
contained in one type of communication may differ from recommendations contained in others, whether as a result of differing time
horizons, methodologies or otherwise. Deutsche Bank and/or its affiliates may also be holding debt or equity securities of the issuers it
writes on. Analysts are paid in part based on the profitability of Deutsche Bank AG and its affiliates, which includes investment banking,
trading and principal trading revenues.
Opinions, estimates and projections constitute the current judgment of the author as of the date of this report. They do not necessarily
reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank provides liquidity for buyers and sellers of
securities issued by the companies it covers. Deutsche Bank research analysts sometimes have shorter-term trade ideas that are consistent
or inconsistent with Deutsche Bank's existing longer term ratings. Trade ideas for equities can be found at the SOLAR link at
http://gm.db.com. A SOLAR idea represents a high conviction belief by an analyst that a stock will outperform or underperform the market
and/or sector delineated over a time frame of no less than two weeks. In addition to SOLAR ideas, the analysts named in this report may
from time to time discuss with our clients, Deutsche Bank salespersons and Deutsche Bank traders, trading strategies or ideas that reference
catalysts or events that may have a near-term or medium-term impact on the market price of the securities discussed in this report, which
impact may be directionally counter to the analysts' current 12-month view of total return or investment return as described herein.
Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof if any opinion, forecast
or estimate contained herein changes or subsequently becomes inaccurate. Coverage and the frequency of changes in market conditions
and in both general and company specific economic prospects make it difficult to update research at defined intervals. Updates are at the
sole discretion of the coverage analyst concerned or of the Research Department Management and as such the majority of reports are
published at irregular intervals. This report is provided for informational purposes only and does not take into account the particular
investment objectives, financial situations, or needs of individual clients. It is not an offer or a solicitation of an offer to buy or sell any
financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst’s
judgment. The financial instruments discussed in this report may not be suitable for all investors and investors must make their own
informed investment decisions. Prices and availability of financial instruments are subject to change without notice and investment
transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in a currency
other than an investor's currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily
indicative of future results. Unless otherwise indicated, prices are current as of the end of the previous trading session, and are sourced
from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank, subject companies, and in some
cases, other parties.
The Deutsche Bank Research Department is independent of other business areas divisions of the Bank. Details regarding our organizational
arrangements and information barriers we have to prevent and avoid conflicts of interest with respect to our research is available on our
website under Disclaimer found on the Legal tab.
Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise to pay fixed or
variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash
Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk. The
appropriateness or otherwise of these products for use by investors is dependent on the investors' own circumstances including their tax
position, their regulatory environment and the nature of their other assets and liabilities, and as such, investors should take expert legal
and financial advice before entering into any transaction similar to or inspired by the contents of this publication. The risk of loss in futures
trading and options, foreign or domestic, can be substantial. As a result of the high degree of leverage obtainable in futures and options
trading, losses may be incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not
suitable for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized Options”,
at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the website please contact your
Deutsche Bank representative for a copy of this important document.
Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be
volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and
national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may
be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities
such as ADRs, whose values are affected by the currency of an underlying security, effectively assume currency risk.
Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home
jurisdiction. Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
United States: Approved and/or distributed by Deutsche Bank Securities Incorporated, a member of FINRA, NFA and SIPC. Analysts located
outside of the United States are employed by non-US affiliates that are not subject to FINRA regulations.
Germany: Approved and/or distributed by Deutsche Bank AG, a joint stock corporation with limited liability incorporated in the Federal
Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorized under German Banking Law and is
subject to supervision by the European Central Bank and by BaFin, Germany’s Federal Financial Supervisory Authority.
United Kingdom: Approved and/or distributed by Deutsche Bank AG acting through its London Branch at Winchester
House, 1 Great Winchester Street, London EC2N 2DB. Deutsche Bank AG in the United Kingdom is authorised by the
Prudential Regulation Authority and is subject to limited regulation by the Prudential Regulation Authority and Financial
Conduct Authority. Details about the extent of our authorisation and regulation are available on request.
India: Prepared by Deutsche Equities India Pvt Ltd, which is registered by the Securities and Exchange Board of India (SEBI) as a stock broker.
Research Analyst SEBI Registration Number is INH000001741. DEIPL may have received administrative warnings from the SEBI for breaches
of Indian regulations.
Page 39
9 January 2017
India Equity Strategy
Japan: Approved and/or distributed by Deutsche Securities Inc.(DSI). Registration number - Registered as a financial
instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, Type II Financial
Instruments Firms Association and The Financial Futures Association of Japan. Commissions and risks involved in stock transactions - for
stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate
agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in
foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. We may also charge commissions and fees for
certain categories of investment advice, products and services. Recommended investment strategies, products and services carry the risk
of losses to principal and other losses as a result of changes in market and/or economic trends, and/or fluctuations in market value. Before
deciding on the purchase of financial products and/or services, customers should carefully read the relevant disclosures, prospectuses and
other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in
Japan unless Japan or "Nippon" is specifically designated in the name of the entity. Reports on Japanese listed companies not written by
analysts of DSI are written by Deutsche Bank Group's analysts with the coverage companies specified by DSI. Some of the foreign securities
stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan. Target prices set by Deutsche
Bank's equity analysts are based on a 12-month forecast period.
South Africa: Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register
Number in South Africa: 1998/003298/10).
Singapore: by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One Raffles Quay #18-00 South
Tower Singapore 048583, +65 6423 8001), which may be contacted in respect of any matters arising from, or in connection with, this report.
Where this report is issued or promulgated in Singapore to a person who is not an accredited investor, expert investor or institutional
investor (as defined in the applicable Singapore laws and regulations), they accept legal responsibility to such person for its contents.
Taiwan: Information on securities/investments that trade in Taiwan is for your reference only. Readers should independently evaluate
investment risks and are solely responsible for their investment decisions. Deutsche Bank research may not be distributed to the Taiwan
public media or quoted or used by the Taiwan public media without written consent. Information on securities/instruments that do not
trade in Taiwan is for informational purposes only and is not to be construed as a recommendation to trade in such securities/instruments.
Deutsche Securities Asia Limited,
Taipei Branch may not execute transactions for clients in these securities/instruments.
Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre Regulatory
Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall within the scope of its existing
QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower, West Bay, Level 5, PO Box 14928, Doha, Qatar. This
information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Business Customers, as
defined by the Qatar Financial Centre Regulatory Authority.
Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or
evaluation activity requiring a license in the Russian Federation.
Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated by the Capital Market
Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall within the scope of its existing CMA
license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya
District, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia.
United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated
Australia and New Zealand: This research is intended only for "wholesale clients" within the meaning of the Australian Corporations Act
and New Zealand Financial Advisors Act respectively.
Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report
may not be reproduced, distributed or published without Deutsche Bank's prior written consent. Copyright © 2017 Deutsche Bank AG
Page 41
David Folkerts-Landau
Group Chief Economist and Global Head of Research