risk and randomness on the street!eresearch.co.in/eresearchblog/wp-content/uploads/2017/… · ·...

October 03, 2017

Indian Markets CMP % chg 1d % chg 3m % chg 6m % chg ytd Nifty 9,789 0.2 2.8 6.7 19.6 Sensex 31,284 0.0 1.2 5.6 17.5 BSE Small Cap 16,114 1.1 4.6 11.6 33.8 Midcap 15,436 0.8 5.4 9.5 28.3 INR/USD 65.28 0.3 1.0 0.6 4.0 Developed/Emerging markets Dow Jones 22,558 0.7 5.0 9.2 14.1 S&P 500 2,529 0.4 4.1 7.2 13.0 Nasdaq 5,982 0.0 6.9 10.1 23.0 Nikkei 20,531 0.6 2.4 8.2 7.4 Hang Seng 27,826 1.0 8.0 15.4 26.5 Bovespa 74,360 0.1 17.5 14.0 23.5 DAX 12,903 0.6 3.4 5.3 12.4 FTSE 7,439 0.9 0.8 2.1 4.1 SGX Nifty 9,862 0.2 2.5 6.3 20.5

Top gainers Top losers Underlying Security CMP % chg Underlying security CMP % chg Redington 156 5.9 IRB 213 (4.1) GAIL 419 5.8 UBL 821 (3.5) Ashok Leyland 123 5.4 GPPL 134 (2.9) Thermax 951 5.3 Inox Wind 107 (2.8) Persistent Sys 670 4.1 Gruh Fin. 492 (2.7)

Recent eco. data Actual Cons. Upcoming eco. data Cons. Previous Canada Wholesale Sales 1.5 (0.7) Canada Ivey PMI 57.2 56.3 India GDP 5.7 6.5 US Unemploy Rate 4.4 4.4 US Indus. Production (0.9) 0.1 UK Halifax HPI 0.0 1.1 Canada Retail Sales 0.4 0.2 US Consumer Credit 15.5B 18.5B Canada CPI 0.1 0.2 US Factory Orders 0.9 (3.3)

FIIs & DIIs cash activity (Rs cr) Previous day MTD YTD FII Equity (1,547) - 35,452 DII Equity 2,065 - 84,713 FII Debt (1,182) - 129,649 DII Debt 1,793 - 296,548

Risk and Randomness on the street! The generation of random numbers is too important to be left to chance - Robert Coveyou

After a long weekend, the street will adjust to global factors and local data. The truncated week will start with RBI's two-day monetary policy meet commencing today. Though a rate cut is not expected due to higher inflation and weak credit demand, the RBI commentary will be closely watched. Fitch Ratings has lowered India's growth forecast to 6.9 pc from 7.4 pc even as it expects the country’s economic activity to accelerate later this year. The outlook is a positive start. Indices could see swings through the day. Auto stocks will be in focus as sales numbers are announced. SBI Life Insurance will get listed today. During the first half of this fiscal, 19 Indian firms have mopped up more than Rs26,000 crore through IPOs.

Nifty intra-day movement Banknifty intra-day movement

9,760

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09:15 11:20 13:25 15:30 23,950

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IT Auto FMCG Energy Realty Media Pharma FinServices

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Corporate Snippets & Economy Updates

Corporate News

Dr.Reddy’s launched the Sevelamer Carbonate Tablets in the U.S.markets

PowerGridentersintoatermloanagreementforRs.3,270crwithICICIBank

Hinustan Unilever’s board agrees to divest its entire stake inKimberly‐ClarkLeverinordertofocusonitscorebusiness

U.S.districtcourthalvescompensatoryandpunitivedamagestoUS$420mninEpiccaseforTCS

GreenkomakesUS$2.1bnbidforRelianceInfra’sMumbai’spowerbusiness

Jubilant Life Sciences receives approval from Health Canada forRUBYElutionSystemandproprietaryRUBYconsumableaccessories

Jagran Prakashan: HDFC MF increases stake in the company to7.09%from5.01%

Energy Efficiency Services Ltd. (EESL) to procure 10,000 electricvehiclesfromTataMotors

SHKelkaracquired100%stakeinVNCreativeChemicalsPvtLtd

PhoenixMillsacquiresfurther6.07%stakeinOffbeatDevelopersforRs.34cr

Bombardier inks US $1.7bn deal with SpiceJet for the sale of 50aircrafts

Jindal Poly Films’ Netherlands unit completes acquisition ofApeldoornFlexiblePackagingHoldingfor86.9mneuros

PunjabChemicalssolditsArgentinaunitthroughitssubsidiaries

PeninsulaLandenteredintoanagreementforthesaleofcompany’spropertylocatedinPuneforRs.226cr

RelianceCommunicationssaidmergerwithAircel'lapsebymutualconsent'

PNCInfratechdeclaredlowestbidderforRs.2,160crroadorderinUP

GMRInfratoraiseuptoRs.2,500crviaissuingsecurities

JetAirwaysintalkswithAirFrance‐KLMforjointventure

ApolloTyressaysnointentionofmakingattemptstobuyKumho

Economy News

Government sets domestic natural gas price at $2.89 permBtu forOctober‐March

AviationturbinefuelpriceshikedforthemonthofOctoberby5‐6%

Oct3: Japan Monetary Base, Australia HIA New Home Sales,Australia Building Approvals, Australia Cash Rate, JapanConsumerConfidence, SpanishUnemploymentChange,UKConstructionPMI,USTotalVehicleSales

Oct4: Australia AIG Services Index, UK Services PMI, EurozoneRetail Sales, US ADP Non‐Farm Employment Change, USFinalServicesPMI,USISMNon‐ManufacturingPMI,SpanishServices PMI, French Final Services PMI, German FinalServicesPMI,SpanishServicesPMI

Oct5: AustraliaRetailSales,AustraliaTradeBalance,FranceCPI,Eurozone Retail PMI, UK Housing Equity Withdrawal, USChallenger Job Cuts, CanadaHousing Starts, CanadaTradeBalance,USTradeBalance,USFactoryOrders

Upcoming Events

research@iiflw.comForadditionalinformationandriskfactorspleaserefertotheRedHerringProspectus.Pleasenotethatthisdocumentisforinformationpurposeonly.

IPO

Indian Energy Exchange Ltd.

September 29, 2017

Figure 1: Financial summary Y/e31Mar(Rsm) FY14 FY15 FY16 FY17 Q1FY18Revenuefromoperations 1,526 1,448 1,750 2,039 555yoygrowth(%) 25.9 (5.1) 20.9 16.5 NAOperatingprofit 1,141 1,041 1,252 1,433 422OPM(%) 74.8 71.9 71.5 70.3 76.0ReportedPAT 919 900 1,003 1,136 306yoygrowth(%) 25.6 (2.1) 11.5 13.2 NAEPS‐Basic(Rs) 33.7 29.5 34.0 37.8 10.7*EPS‐Diluted(Rs) 30.6 29.4 33.3 37.7 10.2*RoE(%) 36.4 37.5 37.0 41.3 NA

Source:RHP,IIFLResearch*NotannualizedNote:Operatingprofit:Revenuefromoperations–technologycost‐employeecost‐otherexpenses;ROE:PAT/(Networth)*100;

IssueOpens:09‐Oct‐17

IssueCloses:11‐Oct‐17

PriceBand:Rs1,645‐1,650

Issue details Facevalue(Rs) 10 Anchorissue 06‐Oct‐17Offerforsale(upto) 6.07mnshares Post‐issueM‐cap Rs.50bn*FreshIssue ‐ IssueSize Rs.10bn*PriceBand Rs.1,645‐1,650 Issuetype 100%Bookbuilding *Atupperband

Thisdocumentsummarizesafewkeypointsrelatedtothe issueandshouldnotbetreatedasacomprehensivesummary.InvestorsarerequestedtorefertheRedHerringProspectusforfurtherdetailsregardingtheissue,theissuercompanyandtheriskfactorsbeforetakingany investment decision.Please note that investments in securities are subject to risks including loss of principal amount and pastperformanceisnotindicativeoffutureperformance.Nothinghereinconstitutesanofferofsecuritiesforsaleinanyjurisdictionwhereitisunlawfultodoso.

Thisdocumentisnotintendedtobeanadvertisementanddoesnotconstituteaninvitationorformanypartofanyissueforsaleorsolicitationofanoffertosubscribefororpurchaseanysecuritiesandneitherthisdocumentnoranythingcontained

hereinshallformthebasisforanycontractorcommitmentwhatsoever.

IndianEnergyExchangeLtd.(IEX),thelargest exchange for the trading of arangeof electricityproducts in India.It holds 99.4% market share of

electricity contracts in the day‐ahead‐market (DAM), 67.9% interm‐ahead‐market (TAM) and 71.2% in Renewable EnergyCertificates (RECs), in terms of FY17 volumes. Ithas consistentlyexpandeditsparticipantbaseyoyfrom2,893inFY13toover5,900registeredattheendofAug31,2017.Over3,200participantsasofAug31,2017wereactiveandlocatedacross29statesand5unionterritories.IEX has registered total revenue CAGR of 14.45% over FY13‐17mainlydrivenby15.5%CAGRinDAMvolumes.PAThasimprovedinlinewithtotalrevenueby14.4%CAGRoverthesameperiod.IEXgrowthprospectsaremainlydrivenbythefactorslikeopportunityin short term Indian powermarket, large diverse customer baseandprovenmanagement track record.Going forward,generationand peak power demand in India over FY17‐22E is expected torecordaCAGRof29.6%and7.3%respectivelyasperCRISILRiskand Infrastructure Solutions Ltd. (CRIS). Inline with this, thecompany strategy includes attract new participants, increasetradingactivity,expandintoglobalmarkets,developnewproductsand services and focus on technology up‐gradation includingincreasingconnectivitytoIEX’stradingplatform.

Shareholding pattern (%) PreIPOPromoter ‐Employee 0.63Public 99.37

Company managementDineshKumarMehrotra ChairmanSatyanarayanGoel MDandCEO

Share reservation (%) QIB 50.0Noninstitutional Notlessthan15.0Retail Notlessthan35.0Issue Manager

BRLMIIFLHoldings,AxisCapital,KotakMahindraCapitalCompany

Registrar KarvyComputersharePvt.Ltd.Listing NSE,BSE

ForadditionalinformationandriskfactorspleaserefertotheRedHerringProspectus.Pleasenotethatthisdocumentisforinformationpurposeonly.


COMPANY INFORMATION OutofthetwoenergyexchangesinIndia,IEXisthelargestexchangeforthe trading of a range of electricity products (in terms of tradedcontracts volumes in FY17) according to the Central ElectricityRegulatoryCommission(CERC).IEXprimarilybringstogethersellersofpower, such as independent power producers, captive power plants,distribution companies and government owned power generationcompanies, and buyers of power, such as distribution companies andindustrial,commercialandinstitutionalpowerconsumers,andprovidesthemwithatransparent,neutralandautomatedplatformfortradingofelectricity. In addition to trade execution, the exchange also offerssettlement services, including electronic trade confirmation, access toclearingservicesandriskmanagementfunctionality.AsofAug31,2017,IEXhadover5,900participantsregisteredofwhichover3,200participantswereactive.Over4,300registeredparticipantswere eligible to trade electricity contracts and over 4,000 registeredparticipantswereeligible to tradeRECs,spreadacross29statesand5union territories in India, and include50distribution companies, over400 electricity generators and over 3,900 open access consumers. InFY17,participantstradedandcleared40.5bnkWhofpoweronIEX.Forthe five months ended Aug 31, 2017, participants traded and cleared19.7bnkWhofpower.In addition to participants registered to trade electricity contracts,participantsregisteredtotradeRECsonIEXasofAug31,2017includedover 1,000 renewable energy generators and over 2,900 industry andcorporatecustomers. InFY17,participantstradedandcleared4.62mnRECsonIEX.TheFY17volumesrepresentgrowthof132.0%from1.99mn RECs traded and cleared in the FY13. For the five months endedAugust31,2017,participantstradedandcleared0.91mnRECsonIEX.

Figure 2: IEX has dominant market share in DAM market

Source:RHP,IIFLResearchFigure 3: Nos. of participants improved consistently over the years

Source:RHP,IIFLResearch

97.0 96.3 98.8 99.6 99.492.3

53.1

23.4

36.3

67.976.9

48.2 50.5

63.371.2

0

20

40

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(%)DAM TAM REC

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FY13 FY14 FY15 FY16 FY17 Q1FY18

(Nos.) Registeredclients ActiveclientsforTAMandDAM

TAMandDAMparticipants RECsparticipants



Electricity products traded over IEX trading platform

DAMelectricitycontracts:Trading in the DAM commenced on IEX in June 2008. The DAMprovides for trading of 96 separate electricity contracts, of 15minutes time blocks each, for the subsequent day, commencing atmidnight.Theparticipantscanparticipateinauniformpricedouble‐sided closed auction process. Buyers and sellers electronicallysubmit bids during themarket session and thematching of bids isdone on double sided closed auction mechanism with uniformmarketclearingprice.Theminimumallowablequantitytobeboughtand sold is 0.1MW,with aminimum increment size of 0.1MWofelectricity.Correspondingly, theminimumprice increment isRs.1.0perMWh.TradingintheDAMiscarriedoutinaccordancewiththeCERCPowerMarketRegulations,CERCOpenAccessRegulations,asamended from time to time, the ‘Procedure for scheduling ofcollective transactions’ issued by the Power Grid Corporation ofIndia Limited and the bye‐laws, rules and business rules of theExchangeapprovedbyCERC.

TAMelectricitycontracts:Trading in the TAM commenced on IEX in Sept 2009. Theparticipantscanparticipateintradingofcontractsforthedeliveryofelectricity for the time frame other than for the DAM electricitycontracts, and for periods up to the subsequentweek. Buyers andsellers electronically submit their bids during the market session.The TAM contracts cover range of options for electricity for thedurationofupto11days.Itenablesparticipantstotradeelectricityfor the same day through intra‐day contracts, for the next daythroughday‐aheadcontingencycontracts,onadailybasisforrollingseven days through daily contracts and on weekly basis throughweeklycontracts, tomanagetheirelectricityportfolios fordifferentdurations. These contracts are region specific and can be furtherdifferentiatedontimeofdaybasis.

a) Day‐AheadContingencyContracts:Thesearehourlycontractsavailable for tradingonday‐aheadbasisfor00:00hoursto24:00hoursofthenextday.

b) Intra‐DayContracts:Thesearehourlycontractsavailablefortradingforthesamedayasthe day of the trade. The intra‐day contracts are one hour basedrolling contracts and are available for trading three hours prior tothestartofdelivery.20hourlycontractsareavailablefortradingfordeliverystartingfrom04:00hoursto24:00hoursinaday.

c) DailyContracts:Contractsavailablefortradingonarollingbasis,i.e.foreverytradingday, seven daily contracts starting from the fifth day onwards areavailable. The duration of the contract can be for a specific timeperiod,includingfortheentireday,peaktimeandoff‐peaktimes.

d) WeeklyContracts:These contracts are traded for the subsequent week. Trading inweekly contracts is conducted for contracts of seven days at astretch,commencingMondaytoSundayofeveryweek.



• RenewableEnergyCertificates:The trading of RECs on IEX commenced in Feb 2011. RECs aremarket based instruments, classified into solarRECs andnon‐solarRECs, that represent the environmental attributes of electricitygenerated from renewable resources, and enable sale of suchenvironmental attributes, separately from the electricity generatedfromrenewableresources,inaccordancewiththeregulationsissuedby the CERC. RECs are traded on the lastWednesday of a month.RECs seek to address the mismatch between the availability ofelectricity generated through renewable resources and therequirementforcertainentitiestoensurethataproportionoftheirannual electricity consumption is met from renewable resources.The renewable energy generators sell electricity to distributioncompaniesattheiraveragepowerpurchasecost,orutilizethesameforcaptiveconsumption,orsell it to thirdparties,whileselling thegreenattributeoftherenewableelectricitythroughRECs.AspertheregulationsissuedbytheCERC,RECsareonlypermittedtobetradedthrough power exchanges. The floor and ceiling price of solar andnon‐solar RECs is periodically revised by the CERC and the pricediscovered for RECs remains in between such floor and ceilingprices.

EnergySavingCertificates:

IEXhas receivednecessary regulatory andprocedural approval forcommencement of trading in ESCerts and expects trading tocommence by Oct 2017. The ESCert is amarket based instrumentcreated under the Perform Achieve Trade (PAT) scheme of theMinistry of Power, Government of India. Under the PAT scheme,consumers inenergy intensive industriesandsectorsare identifiedand are required to reduce their specific energy consumption forevery compliance period, in accordance with specified targets.Consumers achieving reductions above their targetswill be issuedESCerts,whichwillbetradedonIEX.Consumerswhoareunabletomeet their targets inaccordancewith thePATscheme,willhave to

buy the ESCerts to offset their shortfall. Consumers achievingreductionsabovetheirtargetswillalsobeabletobanktheirESCertsfor the next compliance period. The Bureau of Energy Efficiency(BEE) is empowered as the administrator to notify the differentcompliance periods and designate consumers covered under thatperiod,togetherwiththeirrespectivetargets.AspertheregulationsissuedbytheCERC,ESCertsareonlypermittedtobetradedthroughpowerexchanges.

Figure 4: Products traded on IEX platform

Source:RHP,IIFLResearch*tradingtocommencebyOct2017;**aspertheCERC

CombinedMarketshareinFY17:94.8%**

IndianEnergyExchangeLtd.

Day‐Ahead‐Market(DAM)

Term‐Ahead‐Market(TAM)

RenewableEnergy

Certificate(REC)

EnergySaving

Certificate*(EScerts)



IEX Trading Operations IEX provides electronic trading platforms to itsmembers for theDAMand TAM as well as for RECs. In the DAM, IEX’s electronic tradingplatformemploysacomprehensiveandcomplexmatchingwithdouble‐sided auction mechanism which considers transmission constraintsacross all bid (price) areas and attempts to maximize utilization ofavailableelectricitytransmissioncapacity.IntheTAM,thebidmatchingisdesignedtohandlebothcontinuous(realtimematchingofbids)andthe double‐sided auction matching mechanism. IEX trading platformprovides a trade execution mechanism aimed at ensuring trades areprocessedaccurately,rapidlyandatminimalcost.

Clearing and Settlement OperationsIEX’s electronic platform offers a comprehensive suite ofsettlement services, including electronic trade confirmation,clearingservicesandriskmanagement functionality.Theclearingand settlement operations, handled by clearing and settlementdepartment, aredesigned to support the tradingoperationsof itsparticipants. This department also keeps track of the marginutilizedbyitsmembersandcollectsorprovidesrefundofmarginmoney. Additionally, the collaterals provided by itsmembers arevalidatedandmaintainedby clearingand settlementdepartment,whichisalsoresponsibleforthepay‐inandpay‐outprocesstoallparticipants. Each member on the Exchange makes or receivespayments from an exclusive bank account, i.e., its settlementaccount,openedbysuchmemberwithaclearingbankempanelledwithIEX.Similarly,inclusionofdeliveryobligation(forseller)andentitlement (for buyers) in the schedule by the Regional LoadDespatchCentre(RLDC)completesdeliverysettlementprocess.

Settlement Guarantee Fund IEX holds and maintains a settlement guarantee fund used forsettlement of defaults by any of its members. The objective ofsettingupthesettlementguaranteefundistoensureperformanceof settlement obligations resulting from trading by members,either directly or by clients of such member. The corpus of thesettlement guarantee fund comprises members’ initial andadditional margin security deposits, as determined with priorapprovaloftheCERCfromtimetotime.Intheeventamemberfailstomeetitssettlementobligationsarisingoutofthetradesmadebyit,orbyitsclients,orintheeventamemberisdeclaredadefaulter,IEXisentitledtoutilizethesettlementguaranteefundtofulfilltheobligations, in accordance with applicable rules and regulations.ThemoneyinthesettlementguaranteefundwillbeappliedinthemannerasprovidedinCERCPowerMarketRegulations.AsofJune30,2017, the total cashmargin in settlementguarantee fundwasRs.724.1mnandbankguaranteeswereRs.72mn.

Delivery Operations

Delivery department acts as the interface with system operatorssuchastheNational,RegionalandStateLoadDespatchCentreandalso with the members for trade related activities, including filecommunication, updating of transmission charges, losses andmaximum allowable quantities and activities related totransmissioncapacity.Uponcompletionoftheprovisionalauctioncalculation, the transmission capacity requirements are sent toNLDC by delivery department and on receipt of transmissioncapacity fromNLDC, suchdata is entered into front‐office systemforapplicablecongestionmanagementprocedures,ifrequired.ThefinaltraderesultisthensenttotheNLDCandafterwardstoSLDC.The tradesarepublishedbyRLDCsafterreceiving thesame fromNLDC, and are checked by delivery departmentwhich completesdeliverysettlement.Anyrevisionduetoanyreal‐timeconstraintsintheelectricitydistributiongridissettledseparately.



COMPANY STRENGTHS Efficient price discovery and flexibility IEX, an online platform accessible by participants throughout India,promotesefficientpricediscoveryandofferstrade flexibility invarietyofelectricityproducts.Thisisdonebyprimarilybringingpowersellersandpowerbuyers,andprovidingthemwithatransparent,neutralandautomatedplatformfortradingofelectricity.Thus,IEXisresponsibleforincreasing the accessibility and transparency of the power market inIndia and enhancing the speed and efficiency of trade execution. Theprice discovery in the DAM is through double‐sided closed auction,transacted foreach15‐minuteperiodof thenextday.Theparticipantssubmit their demand and supply requirements and price points. Pricediscovery occurs based on these offers and bids submitted by theparticipants. As a result, prices cleared are competitive. IEX alsoprovidesflexibilitytotheparticipantsforbuyingandsellingonthesameday in different time blocks and thereby the ability to manage theirrequirementsmoreefficiently. First and largest energy exchange in India with strong brand recognition With its incorporation in June’ 08, IEX has become the first energyexchangeinIndia.Earlymoveradvantageandstrongbrandrecognitionamong various participants in the energy trading industry has helpedcompany to grab significant share of the short‐term power tradingmarketinIndia.DuringFY16andFY17,97.9%and98.5%ofthetradedcontractvolumesofelectricitycontractsintheDAMandTAMcombined,respectively, and 63.3% and 71.2% of the cleared volumes of RECs,respectively, were conducted over IEX as per the CERC. In FY17,participants traded and cleared 40.5bn kWh of power, the growth of77.5% yoy and growth of 132.0% over FY13. In addition, participantstraded and cleared 4.62mn RECs during FY17. Such huge tradedcontract volumes in FY17makes IEX the largest exchange in India forthe trading of a range of electricity products. Going ahead, its

operational experience and large scale of operations coupled withgrowthexpectedintheshort‐termelectricitymarketwouldcontinuetodeepen the liquidity of electricity contracts and other electricityproductsavailabletotradeonIEXand, inturn,willenablecompanytogrowboththenumberofparticipantsandthevolumeoftradesclearedonExchange.Fast growing domestic market with conducive Government policies and regulations AccordingtoCRIS,generationandpeakpowerdemandin IndiaduringFY17‐22E is expected to improve at a CAGR of 29.6% and 7.3%respectively. With trading process transparency and efficient pricediscovery mechanism, energy exchange is likely to become primebeneficiaries. Thus, IEX is well placed to benefit from conducivegovernmentpoliciesandregulationsthatencourageenergytradingandincrease thevolumeof electricityproducts available tobe tradedoverexchanges. For example, pursuant to the Electricity Act, the CERCpromulgatedtheCERCOpenAccessRegulationsin2004and2008,lastamended in 2016, which allow eligible parties to access transmissionnetworks and for collective and bilateral power transactions whichhelped in streamlining trading in electricity. The CERC has issued theCERCRecognitionandIssuanceofRECRegulationsin2010inordertoestablish the market for RECs, and also issued the CERC ESCertsRegulationsin2016settinguptheframeworkfortradinginESCerts.IEXhas also receivedCERC consent to commence tradingofESCerts. Suchregulationshaveresultedinadditionalproductcategoriestraded.Inaddition,moststateelectricityregulatorycommissionshaveallowedopenaccesstotheirstategrids,whichhasfacilitatedwiderparticipationinenergytradingandhasincreasedtheliquidityofelectricityproductsin the market. According to CRIS, the Government of India’s UDAYschemefor therevivaland financial turnaroundofGovernmentownedelectricitydistributioncompaniesinIndia,the ‘24x7PowerforAll’,the‘Make in India’ initiatives to encourage manufacturing, initiatives for



augmentationinelectricitytransmissioncapacityandimplementationofopenaccess,areexpectedtopositivelyaffectthedemandforelectricityandthemarketforelectricitycontracttradinginIndia. Professionally managed company with a highly qualified and experienced management team IEX is a professionally managed company and has a qualified andexperienced management team led by Managing Director and ChiefExecutive Officer, Satyanarayan Goel, who has over 38 years ofexperience in the power industry. He is ably supported by an 11‐member seniormanagement team,havingexperience ranging from14to 31 years, in their respective areas of operation. The managementteamhasbeenabletotakeadvantageofmarketopportunities,formulatesoundbusinessstrategiesandexecutetheminaneffectivemanner.

BUSINESS STRATEGY

Market development to encourage power trading Conducting capacity building workshops for power distributioncompanies, engaging with major distribution companies to work onstrategies for reducing and optimizing their power procurement costsby trading electricity contracts on IEX’s platform, and encouraginginitiatives to reduce power procurement costs have been the keyinitiatives by IEX targeted towards increasing electricity tradingcontracts. In order to assist distribution companies to optimize theirpower purchase costs, IEX has launched an initiative, ‘SmartProcurement’, wherein it encourage distribution companies to utilizeExchange, replacing the high variable cost power procured fromgeneration plants, while retaining their long‐term contracts by payingassociated fixed charges. The company also intends to continue itsefforts to work in different states in India and assist in developing amore conducive policy and regulatory framework to enable industryparticipants to trade. IEXalso interactwithstakeholders to rationalizeopenaccesschargesleviedonparticipants,thusenablingparticipantsinsuch states to access power through its Exchange atmore reasonableprices and increasing open access volumes from such states. IEX alsointends to continue working with central and state Governments andregulators to encourage the development of relevant infrastructure,regulatoryandpolicyframeworktosupporttrading. Attract new participants and increase trading activity IEXplanstoexpandmemberandclientbasebytargetingnewindustryparticipants and by offering electronic trade execution and processingcapabilities that appeal to a broad range of industry participants,together with providing new participants a way to plan their powerprocurement and optimize their costs. As part of its efforts to attractnewparticipants, IEXisundertakingseveralmarketinginitiatives,suchas:



• publishing and disseminating data and reports; conducting avarietyoffocusedmeetings,

• focusonnewparticipantsthathavesignificantdemandforpower,such as deemed distribution licensees which include specialeconomiczonesandrailwaycompanies;and

• utilizing established industry linkages through several industrialforums, such as the Confederation of Indian Industry, theFederation of Indian Chambers of Commerce and Industry, theAssociated Chambers of Commerce and Industry of India, PHDChamber of Commerce and Industry and the Council of PowerUtilities to increase its reach to new participants and industrialclustersandincreasetheawarenessofitsproductofferingsamongparticipantsofthepowerindustry.

Expand into global markets IEX plans to offer products in neighboring countries such as Bhutan,BangladeshandNepal,allofwhichareconnectedatoneormorepointswith the Indian power grid. The company intends to leverage theguidelines issuedby theGovernment inDecember2016,whichenablecross‐border trade of electricity contracts with neighboring countriesthrough Indian power exchanges, initially in the TAM productcategories.Thecompanyalsointendstoengagetherelevantregulatorsin India and in neighboring countries to develop collaborationopportunities with the local power grid companies so as to allowparticipants from these countries to trade on its Exchange. Expandinginto such new geographic markets would allow IEX to increase itscustomer base and also enhance the liquidity of electricity productsavailableonitsExchange.Inthelongerterm,thecompanyalsointendsto explore and pursue strategic investments in and alliances withinternationalpowerexchanges thatwill enable to supplement internalgrowth, expand trading products and related services, advance itstechnologyandtakeadvantageofexperienceandnewdevelopmentsininternationalenergymarkets.

Develop new products and services IEXintendtocontinuallydevelopandlaunchnewproductsdesignedtomeetmarketdemandandtheneedsoftheparticipants.TheCERCissuedtheCERCESCertsRegulationsin2016andIEXhavereceivedtheconsentof the CERC to commence trading of ESCerts on its Exchange. TheESCerts trading is expected to commence on IEX by October 2017. Inaddition, IEX is in the process of developing products for trading inrenewable energy contracts. The company also intends to work ondeveloping capacity markets and longer duration contracts, includingfutures and options, in electricity contracts and other electricityproducts.Focus on technology upgradation including increasing connectivity to IEX’s trading platform IEXplanstoimproveinformationtechnologysystemsandinfrastructureand its front‐and back‐end functions in response to technologicaldevelopments, customer demand and competitive pressures. Thecompany also plans to continue investments in the technology toincrease connectivity to its trading platform by extending access toclients of members. IEX is in the process of offering a computer‐to‐computer link to its trading platform so as to allow members toindividually develop their own software which would, in turn, allowtheirownclientstodirectlyaccessIEX’stradingplatform.Suchfacilitiesshould encourage higher trade volumes and a higher frequency oftradingfromclients.



INDUSTRY OVERVIEW AND KEY DRIVERS TheIndianpowermarket,intermsofelectricitygenerated,consistedof89.7%of long term andmedium terms electricity contracts (contractsforperiodsofoneyearorover)andrest10.3%(119BU)ofshorttermelectricitymarket (contracts for periods of under one year) for FY17,according to the CERC. The short term electricity market includescontracts through licensed traders, direct bilateral contracts, deviationsettlement mechanism (DSM) and contracts traded over powerexchanges. The share of electricity contracts traded over powerexchanges has grown from 23.8% to 34.5% of the short termmarketbetweentheFY13andFY17,accordingtotheCERC.Further,accordingtoCRIS,theshorttermelectricitymarketinIndiaisexpectedtogrowto21.1%ofelectricitygenerated in Indiaby theFY22,ofwhich43.0% isexpectedtobetradedoverpowerexchanges.Short‐termpowermarketaretransactedthrougha) inter‐statetradinglicenseesb) powerexchangesc) directlybetweendistributionlicensees(cashless)andd) DeviationSettlementMechanism.Key Drivers for short term market PowerprocurementcostoptimizationbyDistributioncompanies Costoptimizationbylargeconsumers AdequateSupplyforShortTermMarket PowerforAll,RuralElectrificationandMakeinIndia Phasingoutofoldplants Seasonalityfactors ImprovementinTransmissionInfrastructure ImprovingHealthofDistributioncompanies:UDAYScheme

FINANCIALS Financial track records During FY13‐17, IEX registered total revenue (includes interest anddividend income) CAGR of 14.45% on the back of increase in tradedvolumes on its trading platform by the participants. DAM and TAMvolumes improved CAGR of 15.5% and 11.5% over FY13‐17 so as toreach39,789mnkWhand327mnkWh.Ontheotherhand,profitabilityhasalsolargelyremainedinlinewithrevenue,registering14.4%CAGRoverthesameperiod.ROEremainedat41.3%duringFY17.DuringQ1FY18,thecompanyreportedtoplineofRs.554.7mn,whichcomprisedoftransaction fees of Rs. 491.6mn, revenue from subscription fees of Rs.63.01mn and admission, processing and transfer fees of Rs. 0.12 mn.PATduringQ1FY18stoodatRs.306.3mn, representing49.7%of totalrevenues.Figure 5: DAM trading volume improved consistently for IEX


28,923 28,124

33,956

39,783

19,388

345 222 330 744 3271.3 1.6 3.1 4.6 0.9‐

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

FY14 FY15 FY16 FY17 Q1FY18

DAM(inmnkWh) TAM(inmnkWh) REC(inmn)



Figure 6: Robust volume growth over FY13-17 translated into 14.45% total revenue CAGR

Source:RHP,IIFLResearchFigure 7: Operational Revenue Breakup


Figure 8: Operating margin remained strong above 70%

Source:RHP,IIFLResearch*operatingprofit:Revenuefromoperations–technologycost‐employeecost‐otherexpenses Figure 9: PAT improved at a CAGR of 14.4% over FY13-17


1,526

1,448

1,750

2,039

555

214 316

251

335

62

25.7

1.4

13.5

18.6

0

5

10

15

20

25

30

‐

500

1,000

1,500

2,000

2,500


(%)(Rs.mn)

Revenuefromoperations OtherIncomeyoygrowth(TotalIncome)

1,223 1,1861,494

1,778

492

274 253

248

252

63

29 9

8

10

0.1

‐

500

1,000

1,500

2,000

2,500


(Rs.mn) Admission,processingandtransferfeesAnnualsubscriptionfeesTransactionfees

1,141

1,041

1,252

1,433

422

74.8

71.971.5

70.3

76.0

67

68

69

70

71

72

73

74

75

76

77

‐

200

400

600

800

1,000

1,200

1,400

1,600


(%)(Rs.mn)

OperatingProfit Margin

919

900

1,003

1,136

306

25.6

(2.1)

11.5 13.2

‐5

0

5

10

15

20

25

30

0

200

400

600

800

1,000

1,200


(%)(Rs.mn)ReportedPAT yoygrowth



Object of the issue Theobjectsof theofferare toachievethebenefitsof listing theequitysharesonthestockexchangesandtocarryoutthesaleofupto6.07mnequitysharesbythesellingshareholders.Thelistingoftheequityshareswill enhance company’s brand and provide liquidity to the existingshareholders. The company expects that the proposed listingwill alsoprovideapublicmarketfortheequitysharesinIndia.Thecompanywillnotreceiveanyproceedsoftheoffer.Figure 10: Shareholders selling in OFS Shareholders Eq.Sh.offeredforsaleAdityaBirlaPrivateEquityTrustA/cAdityaBirlaPvt.Equity‐FundI 485,000

AdityaBirlaPrivateEquityTrustA/cAdityaBirlaPvt.Equity‐SunriseFund 25,000

AFHoldings 350,714GoldenOak(Mauritius)Ltd. 682,394JayantNarharDeo 30,000KiranVyaparLtd. 90,986LightspeedVenturePartnersVIIIMauritius 303,286MadisonIndiaOpportunitiesIII 118,053MultiplesPrivateEquityFund 1,777,517MultiplesPrivateEquityFundILtd. 952,059TheTataPowerCompanyLtd. 1,250,000Total 6,065,009Source:RHP,IIFLResearch

KEY RISKSIEX operational success depends substantially on its ability to maintain and increase the number of participants IEXhasderived~89.9%ofQ1FY18totalrevenuefromtransactionfeesand annual subscription fees, combined together. Thus, a significantpercentage of total revenues are dependent on the volume of powertraded on IEX, in turn, its ability tomaintain existing participants andincrease number of new participants. Trading volumes may also getimpactedby inadequateavailabilityorcongestiononinter‐statepowertransmissionnetworksduetoalackofavailabletransmissioncapacity.

Expansion into new markets may increase risks due to regional unfamiliarity IEX growth strategies include expanding the trading into countriesneighboring Indiawhich are connected to the Indianpower grid.Newmarkets, particularly outside India, may have different competitiveconditions and participant preferences than existing markets. As aresult,growthinthosemarketsmaynotbeasanticipatedbyIEX’splans.Also,participantsinnewmarketsmaynotbefamiliarwithIEX,andmayneed to build brand awareness in that market through greaterinvestments in advertising and promotional activity,whichmay affectfinancialprospectsofthecompanyinfuture. IT system limitations or system disruptions can affect IEX’s operations and future business prospects IEX is largely dependent on the performance of its technology thatunderpin electronic trading platform. For that purpose, the companyrelyonboth third‐party and in‐house technology specialists.However,heavytradingontheonlineplatformduringpeaktradingtimesortimesof unusual market volatility may cause systems to operate slowly oreventofail forcertainperiodsoftime.Thus,anyfailurethatcausesaninterruption or reduces technology responsiveness may harm IEXoperationsandfuturebusinessprospects.



ABOUT THE MANAGEMENT Dinesh KumarMehrotra (Chairman): He had attended a bachelor’scourseinsciencefromtheUniversityofPatna.HejoinedLifeInsuranceCorporationofIndia(LIC)asadirectrecruitofficerin1977andworkedwithLIC forover35years.Hehasworkedas thechairmanofLICandpriortotakingchargeaschairmanofLIC,hewasassociatedwithLICasan executive director (international operations). He has served on theboardofdirectorsofACCLtd, ITCLtd, IL&FSLtd, amongothers.He isalsoassociatedwiththeNationalInsuranceAcademyandtheInsuranceInstituteofIndia.Satyanarayan Goel (Managing Director and CEO): He holds abachelor’s degree of science in electrical engineering from theSambalpur University, Burla and a master’s degree of businessadministrationfromtheUniversityofDelhi,NewDelhi.Hehasover38yearsofprofessionalexperienceinpowersector.BeforejoiningIEX,hewasthedirectorofmarketingandoperationsatPTCIndiaLtd.PriortoworkingwithPTCIndia,hewasassociatedwithNTPCLtd.for29yearsandretiredasanexecutivedirector(fuelsecurity).KayyalathuThomas Chacko (IndependentDirector): He is a retiredIndian Administrative Services officer of the 1973 batch and has 33years of experience in public administration. He worked for theGovernmentof India, almostentirely in theMinistryofCommerceandIndustryandwascloselyinvolvedinthetradeandindustrysectors.Heholdsamaster’sdegreeofeconomicsfromtheUniversityofKeralaandwasawardedthreegoldmedalsforobtainingthefirstrankinKerala.Healso holds a master’s degree of public administration from HarvardUniversity, U.S.A. He held the post of director general of foreign tradefromtheyear2004to2006.HewasappointedasdirectoroftheIndianInstituteofForeignTradefortheperiodof2007‐2012.

Vallabh Roopchand Bhanshali (Independent Director): He holds abachelor’s degree of commerce and of law from the University ofMumbai, Mumbai and is also a member of the Institute of CharteredAccountants of India. He was the co‐founder of Enam FinancialConsultants Private Limited and has over 30 years of experience ininvestmentbankingandcapitalmarkets.Heisalsothefoundermemberof Desh Apnayen Sahayog Foundation. He has also been appointed bytheCentralGovernmentasmemberontheWesternLocalAreaBoardofRBI.Renuka Ramnath (Non –executive Director): She holds a bachelor’sdegreeoftextilesfromV.J.TechnologicalInstitute,UniversityofMumbaiandamaster’sdegreeofmanagementstudiesfromChetnaR.K.Instituteof Management & Research, University of Mumbai. She has alsocompletedtheAdvancedManagementProgram,theInternationalSeniorManagers Program from the Graduate School of BusinessAdministration,HarvardUniversity.Shehasover30yearsofexperienceintheIndianfinancialsectoracrossprivateequity, investmentbankingandstructuredfinance. Figure 11: Top 10 Shareholders (Pre IPO) Shareholder Equityshares %holdingDCBPowerVenturesLtd. 4,549,294 15.0TVSShriramGrowthFund1BLLP 3,032,862 10.0MultiplesPrivateEquityFund 2,429,878 8.0AgriPowerandEngineeringSolutionsPvt.Ltd. 1,655,557 5.5AdityaBirlaPrivateEquityTrustA/cAdityaBirlaPrivateEquity‐FundI

1,516,853 5.0

LightspeedVenturePartnersVIIIMauritius 1,516,431 5.0WestbridgeCrossoverFund,LLC 1,440,609 4.8MultiplesPrivateEquityFundILtd. 1,440,607 4.8AFHoldings 1,402,856 4.6GoldenOak(Mauritius)Ltd. 1,364,787 4.5Total 20,349,734 67.2Source:RHP,IIFLResearch



Financials

Figure 12: Balance sheet Y/e31Mar(Rsm) FY14 FY15 FY16 FY17 Q1FY18EquityandLiabilitiesShareCapital 303 303 303 303 303ReservesandSurplus 2,226 2,096 2,406 2,447 2,753Shareholder'sfunds 2,529 2,399 2,709 2,750 3,056 Deferredtaxliabilities 17 12 1 ‐ 22Otherlong‐termliabilities 291 350 351 359 360Long‐termprovisions 9 13 16 23 20Non‐currentLiabilities 317 375 369 382 402 Short‐termborrowings 28 ‐ ‐ ‐ ‐Trade/Customerpayables 286 345 590 1,719 339Othercurrentliabilities 486 887 502 590 701Short‐termprovisions 42 52 68 76 107Currentliabilities 843 1,283 1,159 2,385 1,147TotalLiabilities 3,689 4,057 4,238 5,517 4,605 AssetsTangibleandIntangibleassets 102 140 118 96 1,246Non‐currentinvestments ‐ ‐ 92 92 42Deferredtaxassets(net) ‐ ‐ ‐ 13 ‐Long‐termloansandadvances 29 35 31 29 24Othernon‐currentassets 619 404 271 267 52Non‐currentassets 751 579 512 496 1,364 Currentinvestments 2,473 2,544 2,715 3,701 2,478Tradereceivables 3 4 8 2 3Cashandbankbalances 422 835 915 1,275 531Short‐termloansandadvances 24 16 19 16 138Othercurrentassets 16 80 69 27 91Currentassets 2,938 3,478 3,726 5,021 3,242TotalAssets 3,689 4,057 4,238 5,517 4,605

Figure 13: Income statement Y/e31Mar(Rsm) FY14 FY15 FY16 FY17 Q1FY18Revenuefromoperation 1,526 1,448 1,750 2,039 555Operatingprofit 1,141 1,041 1,252 1,433 422Depreciation&Amortization (27) (29) (34) (35) (15)PBIT 1,115 1,011 1,218 1,398 407Interestexpense (0) (2) (3) (1) (0)Otherincome 214 316 251 335 62Profitbeforetax 1,329 1,325 1,466 1,732 469Taxes (409) (425) (463) (596) (162)Reportedprofit 919 900 1,003 1,136 306

Note:Operatingprofit:Revenuefromoperations–technologycost‐employeecost‐otherexpense Figure 14: Cash flow statement Y/e31Mar(Rsm) FY14 FY15 FY16 FY17CashflowfromoperationProfitbeforetax 1,329 1,325 1,466 1,732Depreciation 27 29 34 35Taxpaid (409) (425) (463) (596)ChangeinWorkingcapital (17) 413 (120) 1,277Operatingcashflow 929 1,342 917 2,447CashflowfromInvestingActivitiesCapitalexpenditure (7) (67) (11) (13)Changeinothernon‐currentassets (271) 210 137 6Freecashflow 651 1,485 1,042 2,441CashflowfromFinancingactivitiesEquityraised (11) (103) (62) (55)Investments ‐ ‐ (92) ‐Debtfinancing/disposal 28 (28) ‐ ‐Dividendspaid (96) (926) (632) (1,040)Otheritems 47 57 (6) 0Netchangeincash 619 484 251 1,346

Technical Track

The first half of Friday's trade fought hard to remove the despairpervadingDalalStreetsincethelasttwoweeks.Postagap‐upopening,Niftymadeapeakof9854butfailedtostayatop.Itretreatedtomarkalowof9,775beforeshuttingshopat9,789,ultimatelyrecordingamere20pointjump.Suchvolatilemovementclearlyhighlightsthatthedustisnot yet settled after Thursday’s pullback in BankNifty. Recent pricestructure shows higher price volatility sinceNifty broke below 10k inAugust 2017. With the magnitude of the recent correction being thelargestin2017followedwithshort‐livedpullbackimplyacautiousstanceamongmarketparticipants.However,theindexhasdefendedThursday’slow of 9,688, thereby continuing its series of higher lows onmonthlychartin2017.Renewedmomentumisessentialabove9,854tocontinueThursday’s reversal towards 993(0)‐9,960 zone. On the weekly chart,Niftyformedabearishmarobozucandlepattern(identicalopen&highwithlowershadow)whichhintsatahurdlenear9,960zone.Fund action FIDFunds(Mauritius)Ltdsold~0.8mnsharesofCDSLatRs345 Leaders Laggards

CompanyCMP(Rs)

52‐wkhigh

Deviation% Company

CMP(Rs)

52‐wkLow

Deviation%

RajeshExp. 819 825 (0.7) Ajanta Ph. 1,135 1,120 (1.3) TVS Motor 657 666 (1.4) Castrol 357 351 (1.5) Bajaj Auto 3,109 3,155 (1.5) AmaraRaj. 709 697 (1.7) Maruti 7,978 8,200 (2.7) Apollo Hos. 1,005 986 (1.9)HDFCBank 1,806 1,868 (3.3) BOB 138 135 (2.0)

*Basedondeviationfrom52‐weekhigh/low

Proximity to 20-DMA Proximity to 50-DMA

CompanyCMP(Rs)

20‐DMA

Deviation% Company

CMP(Rs)

50‐DMA

Deviation%

OIL 354 327 8.3 OIL 354 301 17.6Rajesh Exp. 819 762 7.5 IGL 1,472 1,295 13.7AshokLey. 123 116 6.0 Ashok Ley. 123 110 11.8Thermax 951 902 5.4 RajeshExp. 819 737 11.1Infratel 398 381 4.5 Info Edge 1,106 1,006 9.9

*Basedondeviationfrommovingaverages

High delivery stocks Low delivery stocks

Company%

DeliveryCMP(Rs)

%chg Company

%Delivery

CMP(Rs) %chg

HDFCBank 100.0 1,806 0.6 SunTv 8.0 762 3.9AmaraRaj. 86.0 709 0.0 AllBank 13.0 66 (1.2)Emami 85.0 1,094 (0.1) JustDial 14.0 372 0.2ITC 80.0 258 (1.2) Wockhardt 15.0 615 1.3DishTv 79.0 75 (1.7) CenturyTex. 16.0 1,222 0.4

Spurt in volumes

Company(mn) Day'sVol.2‐weekAvg.

Vol 10‐DMA CMP(Rs) %chgJSWEnergy 24 15 75 74 0.8AshokLeyland 25 11 117 123 5.4YesBank 10 8 363 350 (0.2)AxisBank 12 7 512 509 (0.5)GAIL 15 5 406 419 5.8

Index PivotIndex Lastclose Support Pivot ResistanceNifty 9,769 9,709 9,749 9,810Sensex 31,282 31,129 31,235 31,388NiftyBank 24,008 23,722 23,898 24,185NiftyIT 10,522 10,457 10,535 10,599

Intra-day advance decline Sectoral trend

50

350

650

950

1,250

1,550

09:15 11:20 13:25 15:30

Advance Decline

(2.6)(2.5)(2.3)(2.1)

(1.6)(1.3)(1.3)(1.2)(1.1)(0.9)

(0.4)

(3.2) (2.2) (1.2) (0.2)

FMCGEnergyMediaInfraBank

PharmaFinServices

RealtyIT

AutoMetal

(%)

*Calculationsbasedon10‐DMA

Derivatives Diary

Index snapshot

Futures %Chg Spot BasisNext

Month OIinshs OI%Chg PCROI PCRVol ATMIV's RolloversMaxcallbuild‐up

Maxputbuild‐up

Nifty 9,801 0.1 9,789 12.00 9,837 273,454 4.0 1.20 0.90 11.3 4.4% 10,000 9,700BankNifty 24,066 0.1 24,053 13.00 24,136 57,440 5.4 0.91 0.88 13.7 1.9% 24,500 24,500

Volatiledayafterexpiryjitters,SGXNiftyindicatesgapupopening

matchingthebuoyancyseeninglobalpeers.

Nifty strike 9900/10000 calls added significant OI to tune to~8.7/7.7 lacsshareswhilemaximumputOIconcentrationseenat9700levels.

VolatilitylikelytocontinueaswemovetowardsRBIpolicyevent.

FII’s indexfutures long/shortratioat1.26xvs1.25xwithnet longputadditionseen.

Oil&gasstocksseenshortcoveringmove,whilebankingstockssawunwinding.

Nifty open interest distribution

0.0

1.0

2.0

3.0

4.0

5.0

6.0

9100

9200

9300

9400

9500

9600

9700

9800

9900

10000

10100

10200

10300

10400

(mn) Call Put

Securities in ban period:Ibrealest

Futures open interest gainersScrip OI(lacs) %OIChg CMP(Rs) %Chg ActionIbrealest 467 15.1 222 7.2 LongBuildupJswenergy 727 14.8 74 1.4 LongBuildupGail 123 1.4 418 5.6 LongBuildupTvsmotor 53 0.9 657 1.9 LongBuildupInfratel 69 0.1 400 1.8 LongBuildupDishtv 165 0.0 75 (1.3) ShortBuildupJSWSteel 551 (0.3) 250 4.6 LongBuildupFutures open interest losersScrip OI(lacs) %OIChg CMP(Rs) %Chg ActionOil 25 (30.4) 349 0.3 ShortCoveringGmrinfra 5 (30.2) 925 3.5 ShortCoveringKotakbank 85 (29.5) 1,004 (0.1) LongUnwindingIndusindbk 41 (28.0) 1,682 0.1 ShortCoveringTatachem 48 (26.4) 644 1.4 ShortCoveringIrb 168 (25.9) 214 (3.6) LongUnwindingHexaware 17 (25.4) 270 1.1 ShortCoveringTable 1: FIIsderivativeactivityTradingturnover IndexFut* StockFut* IndexCalls* IndexPuts*FIIs 3,164 9,389 4,961 11,066DIIs 3,686 (11,930) 0 ‐480

Prop (9,035) (222) (9,571) (14,666) HNIClients 2,185 2,763 4,610 4,080

*Noofcontracts

Commodities & Currencies Cues

Commodities GoldstruggledaroundasevenweeklowofUS$1,217/oz,weigheddownbybuoyantUSequitymarketsandstrongerUSdollar.ExpectationsofataxreformsinUShasreinforcedthereflationtradeandeffectivelytakenthe winds out of the sails for gold bugs. Moreover, relatively calmerenvironmentinKoreanPeninsulahasalsodentedthesafehavenappetiteforthepreciouspack.MarketsalsolookforwardtotheprospectsofaratehikebyBOEandtaperingofbondpurchasesbyECBinnextfewweeks.Meanwhile, geopolitical headlines failed to offer any support to goldprices, including a grave mass shooting in Las Vegas and violencepertinenttoCatalanreferendum.Copper inched lower amid reports that exports of copper concentratewillcontinuefromGrasbergmineevenifpermitissueswithIndonesiangovernmentarenotresolved.Concernofsupplytightnessiseasing,withmineoutputreportedtoberecoveringinChileandPeruaswell.Oilfuturesretreatedfromthehighs,withWTInowhoveringjustaboveUS$50/bblmark. Rise inUS andOPEC output is dashing hopes of anysustainablerecoveryinoilprices.IraqiexportsroseslightlyinSeptember,while Baker Hughes reported that oil drillers in US added six oil rigsduringlastweek. FX Euroremainsunderpressure,asanervousdeadlockbetweenCatalonianprovincial authorities and Spanish government in light of theindependencemovementhasraisedabigquestiononEU’sendeavourtoeconomically integrate the continent. US dollar maintained strength,influencedbystrongerthanexpectedISMmanufacturingdata.Rebuildingprocess in Texas and Florida post the hurricanes has also promptedrevisioninQ3GDPforecasts.FedReserveBankofAtlantanowseesQ3GDPrisingto2.7%(q/q),upfromitspreviousestimateof2.3%.

Commodities(US$terms)

LastPrice

%chg1d

%chgytd Currencies

Lastprice

%chg1d

%chgytd

Gold(troyoz) 1,269 (0.2) 10.6 USD/INR 65.30 0.0 4.1Silver(troyoz) 16.6 0.0 4.1 EUR/INR 77.10 0.0 (7.0) Copper(MT) 6,468 (0.4) 16.9 GBP/INR 86.80 1.0 (3.8) Aluminium(MT) 2,104 0.1 24.3 JPY/INR 0.58 0.3 0.4

Zinc(MT) 3,243 0.2 25.9 EUR/USD 1.17 0.0 11.3Lead(MT) 2,529 0.4 25.4 GBP/USD 1.32 (0.3) 7.3Nickel(MT) 10,480 0.9 4.6 USD/JPY 113.10 0.0 3.4WTICrude(bbl) 50.5 (0.2) (6.1) USD/CNY 6.65 0.0 4.4

Br.Crude(bbl) 56.0 (0.3) (1.5) USD/Real 3.15 0.0 3.2NG(mmBtu) 2.90 0.4 (21.4) USDIndex 93.90 0.0 (8.2)

CommodityDynamics Latest Weekago 1mago 6mago 1yragoSPDRGoldETF(tonnes) 859 856 831 832 948iSharesSilverETF(mnoz) 327 327 331 330 362LMECuStocks('000MT) 296 305 224 291 372LMEAlStocks('000MT) 1,259 1,291 1,324 1,886 2,124LMEZnStocks('000MT) 253 262 244 372 439LMEPbStocks('000MT) 157 161 148 187 190LMENiStocks('000MT) 385 381 389 378 362USCrudestocks(mnbbl) 471 473 463 533 474USOilRigCount 750 744 759 652 418

Commodity v/s Currency Speculative positions on CME

91

93

95

97

99

101

103

160

170

180

190

200

Apr‐17

May‐17

May‐17

Jun‐17

Jul‐17

Aug‐17

Sep‐17

Sep‐17

CRBIndex(LHS)DollarIndex(RHS)

(100)

0

100

200

300

400

Apr‐17

May‐17

May‐17

Jun‐17

Jul‐17

Aug‐17

Sep‐17

('000lots)

Gold SilverCopper Crude

Allocation & View – Assets & Sectors

Strategic and Tactical Asset Allocations across Model Portfolios StrategicAssetAllocation(SAA)isthelongtermassetallocationstrategyfor a client that is arrived at on the basis of risk assessment andinvestment objectives. There are fivemodel portfolios that have assetallocationstosuitdifferentriskprofiles.Themodelportfolioshavebeenoptimized using historical risk and returns across asset classes. Everymonth the IIFLW investment Committee formalizes monthly tacticalviewsonthemarketsandtheirimpactonvariousassetclasses.TacticalviewsoneachassetarewithaoneyeartimehorizonandTacticalAsset Allocation (TAA) is a +/‐ 5%‐10% change to a Client’s broaderStrategicAssetAllocation.

Asset Class View AssetClass TacticalView

FixedIncome NeutralEquity OverweightRealEstate NeutralUSDollar NeutralGold UnderweightLiquidAssets UnderweightSector View for listed equities Sector WeightAgriculture OverweightAutomobile NeutralCapitalGoods‐BTG UnderweightCapitalGoods–T&D OverweightCement UnderweightConsumerDiscretionary OverweightHousingfinance OverweightMFI's NeutralPrivateBank OverweightPSUBank NeutralFMCG NeutralInfrastructure OverweightIT UnderweightMetals&Mining NeutralOil&GasE&P NeutralOilMarketing NeutralGasUtilities NeutralPharma UnderweightTelecom UnderweightPowerUtilities Neutral

Asset Allocation

ModelPortoliosConservative Balanced Aggressive

(%) (%) (%)AssetAllocations SAA TAA SAA TAA SAA TAAEquity 14 14 49 49 76 76FixedIncome 76 76 40 46 8 20RealEstate 0 0 5 0 10 0Alternatives 5 0 5 0 5 0LiquidAssets 5 10 1 5 1 4Total 100 100 100 100 100 100

SAA–StrategicAssetAllocation;TAA–TacticalAssetAllocationSource:IIFLResearch

IIFL Wealth Research bags 2 Best Analyst Awards

IIFLWealthResearchhasbaggedtwoprestigiousawardsattheZeeBusinessMarketExcellenceAwards2016.

PrayeshJainwasconferredtheBestAnalystAwardforAutosectorandBhaveshGandhibaggedtheBestAnalystAwardforPharmasector.

Besidesthetwinawards,IIFLWealthResearchwasalsonominatedinthecategoriesofOil/Gas,BankingandIndustrials.

IIFLWealthResearch,asyouknow,hasalwaysprideditselfonitsuniquevaluepropositioninaswarmingmarketspaceofcut‐throatcompetition,amongotherthings,onourwealthofactionableideas,tailoredportfolioapproachandthoroughresearchinlinewithclientneedsandpriorities,distinctivepracticeoffollowingupwithCallSuccesspostrecommendationsandavastcoverageuniverseofasmanyas300companies(comprising70%ofIndia'sequitymcap).

Inthepast,theresearchteamhaswonZeeBizAwardsunderdifferentcategories;Bloomberghasratedourresearchasthemostaccurate,whilewehavetwicebeenwinnersofBusinessStandardSmartPortfolios,havingreceivedawardsatthehandsofluminariesincludingPresidentPranabMukherjee,PrimeMinisterNarendraModiandMinisterofStatePiyushGoyal.

Recommendation parameters for fundamental reports:

Buy=>15%+

Accumulate=5%to15%

Reduce=‐10%to5%

Sell=>‐10%

ABOUT IIFL Wealth Management Limited IIFLWealthManagementLimited(hereinafterreferredasIIFLW),aCompanyincorporatedunderCompaniesAct,1956,isregisteredwithSEBIasPortfolioManagerandasaStockBroker.IIFLWisalsoregisteredwithAMFIasadistributorofmutualfunds.IIFLWprovideswealthmanagementservicestovariousHNI/UltraHNIclientsandinteraliadistributesvarioussecuritiesandfinancialproducts,includingmutualfunds,alternativeinvestmentfunds,debenturesandstructuredproducts.IIFLWhasmadenecessaryapplicationforregisteringitselfasaDepositoryParticipant.Contact Details -CorporateOffice–IIFLCentre,KamalaCity,SenapatiBapatMarg,LowerParel,Mumbai–400013,Regd.Office–IIFLWHouse,SunInfotechPark,RoadNo.16V,PlotNo.B‐23,MIDC,ThaneIndustrialArea,WagleEstate,Thane–400604Tel:(91‐22)39585600.Fax:(91‐22)46464706E‐mail:[email protected]:www.iiflw.com.Registration Details - 1]CINNo.:U74140MH2008PLC177884;2]SEBIPMSRegn.NoINP000002676:3]NationalStockExchangeofIndiaLtd.SEBIRegn.No.:INZ000011437,BombayStockExchangeLtd.SEBIRegn.No.:INZ0000114374]AMFIRegnNo.:59563

Terms&ConditionsandOtherDisclosureswithrespecttoResearchReport:‐a) Thisresearchreport(“Report”)isforthepersonalinformationoftheauthorisedrecipient(s)andisnotforpublicdistributionandshouldnotbereproducedorredistributedtoanyotherpersonorinanyformwithout

IIFLW’spriorpermission.TheinformationprovidedintheReportisfrompubliclyavailabledata,whichIIFLWbelieves,isreliable.WhilereasonableendeavorshavebeenmadetopresentreliabledataintheReportsofarasitrelatestocurrentandhistoricalinformation,butIIFLWdoesnotguaranteetheaccuracyorcompletenessofthedataintheReport.Accordingly,IIFLWoranyofitsconnectedpersonsincludingitsdirectorsorsubsidiariesorassociatesoremployeesshallnotbeinanywayresponsibleforanylossordamagethatmayarisetoanypersonfromanyinadvertenterrorintheinformationcontained,viewsandopinionsexpressedinthispublication;

b) Pastperformanceshouldnotbetakenasanindicationorguaranteeoffutureperformance,andnorepresentationorwarranty,expressorimplied,ismaderegardingfutureperformance.Information,opinionsandestimatescontainedinthisreportreflectajudgmentofitsoriginaldateofpublicationbyIIFLWandaresubjecttochangewithoutnotice.Theprice,valueofandincomefromanyofthesecuritiesorfinancialinstrumentsmentionedinthisreportcanfallaswellasrise.Thevalueofsecuritiesandfinancialinstrumentsissubjecttoexchangeratefluctuationthatmayhaveapositiveoradverseeffectonthepriceorincomeofsuchsecuritiesorfinancialinstruments.

c) TheReportalsoincludesanalysisandviewsofourresearchteam.TheReportispurelyforinformationpurposesanddoesnotconstruetobeinvestmentrecommendation/adviceoranofferorsolicitationofanoffertobuy/sellanysecurities.TheopinionsexpressedintheReportareourcurrentopinionsasofthedateoftheReportandmaybesubjecttochangefromtimetotimewithoutnotice.IIFLWoranypersonsconnectedwithitdonotacceptanyliabilityarisingfromtheuseofthisdocument.

d) InvestorsshouldnotsolelyrelyontheinformationcontainedinthisReportandmustmakeinvestmentdecisionsbasedontheirowninvestmentobjectives,judgment,riskprofileandfinancialposition.TherecipientsofthisReportmaytakeprofessionaladvicebeforeactingonthisinformation.

e) IIFLWhasotherbusinesssegments/divisionswithindependentresearchteamsseparatedby'chinesewalls'cateringtodifferentsetsofcustomershavingvaryingobjectives,riskprofiles,investmenthorizon,etc.andtherefore,mayattimeshave,differentandcontraryviewsonstocks,sectorsandmarkets.

f) Thisreportisnotdirectedorintendedfordistributionto,oruseby,anypersonorentitywhoisacitizenorresidentoforlocatedinanylocality,state,countryorotherjurisdiction,wheresuchdistribution,publication,availabilityorusewouldbecontrarytolocallaw,regulationorwhichwouldsubjectIIFLWanditsaffiliatestoanyregistrationorlicensingrequirementwithinsuchjurisdiction.Thesecuritiesdescribedhereinmayormaynotbeeligibleforsaleinalljurisdictionsortocertaincategoryofinvestors.PersonsinwhosepossessionthisReportmaycomearerequiredtoinformthemselvesofandtoobservesuchrestrictions.

g) AsIIFLWalongwithitssubsidiariesandassociates,areengagedinvariousfinancialservicesbusinessandsomighthavefinancial,businessorotherinterestsinotherentitiesincludingthesubjectcompany/iesmentionedinthisReport.However,IIFLWencouragesindependenceinpreparationofresearchreportandstrivestominimizeconflictinpreparationofresearchreport.IIFLWanditsassociatesdidnotreceiveanycompensationorotherbenefitsfromthesubjectcompany/iesmentionedintheReportorfromathirdpartyinconnectionwithpreparationoftheReport.Accordingly,IIFLWanditsassociatesdonothaveanymaterialconflictofinterestatthetimeofpublicationofthisReport.

h) AsIIFLWanditsassociatesareengagedinvariousfinancialservicesbusiness,itmighthave:‐

(a)receivedanycompensation(exceptinconnectionwiththepreparationofthisReport)fromthesubjectcompanyinthepasttwelvemonths;(b)managedorco‐managedpublicofferingofsecuritiesforthesubjectcompanyinthepasttwelvemonths;(c)receivedanycompensationforinvestmentbankingormerchantbankingorbrokerageservicesfromthesubjectcompanyinthepasttwelvemonths;(d)receivedanycompensationforproductsorservicesotherthaninvestmentbankingormerchantbankingorbrokerageservicesfromthesubjectcompanyinthepasttwelvemonths;(e)engagedinmarketmakingactivityforthesubjectcompany;IIFLWanditsassociatescollectivelydonotown(intheirproprietaryposition)1%ormoreoftheequitysecuritiesofthesubjectcompany/iesmentionedinthereportasofthelastdayofthemonthprecedingthepublicationoftheresearchreportanddoesnothavematerialconflictofinterestattimeofpublicationoftheresearchreport;

i) TheResearchAnalyst/sengagedinpreparationofthisReportorhis/herdependentrelative;

(a)doesnothaveanyfinancialinterestsinthesubjectcompany/iesmentionedinthisreport;(b)doesnotown1%ormoreoftheequitysecuritiesofthesubjectcompanymentionedinthereportasofthelastdayofthemonthprecedingthepublicationoftheresearchreport;(c)doesnothaveanyothermaterialconflictofinterestatthetimeofpublicationoftheresearchreport.

j) TheResearchAnalyst/sengagedinpreparationofthisReport:‐

(a)hasnotreceivedanycompensationfromthesubjectcompanyinthepasttwelvemonths;(b)hasnotmanagedorco‐managedpublicofferingofsecuritiesforthesubjectcompanyinthepasttwelvemonths;(c)hasnotreceivedanycompensationforinvestmentbankingormerchantbankingorbrokerageservicesfromthesubjectcompanyinthepasttwelvemonths;(d)hasnotreceivedanycompensationforproductsorservicesotherthaninvestmentbankingormerchantbankingorbrokerageservicesfromthesubjectcompanyinthepasttwelvemonths;(e)hasnotreceivedanycompensationorotherbenefitsfromthesubjectcompanyorthirdpartyinconnectionwiththeresearchreport;(f)hasnotservedasanofficer,directororemployeeofthesubjectcompany;(g)isnotengagedinmarketmakingactivityforthesubjectcompany.

WesubmitthatnomaterialdisciplinaryactionhasbeentakenonIIFLWbyanyregulatoryauthorityimpactingEquityResearchAnalysis.Agraphofdailyclosingpricesofsecuritiesisavailableathttp://www.nseindia.com/ChartApp/install/charts/mainpage.jsp,www.bseindia.comandhttp://economictimes.indiatimes.com/markets/stocks/stock‐quotes.(Chooseacompanyfromthelistonthebrowserandselectthe“threeyears”periodinthepricechart).ForResearchrelatedqueries,writeto:AmarAmbani,[email protected].

risk and randomness on the street!eresearch.co.in/eresearchblog/wp-content/uploads/2017/… · ·...

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