Fundamental Analysis of

Manufacturing sector.

Sohrab Ali Choudhary

17BSP2802
Security Analysis ‘D’
 ABOUT INDIAN ECONOMY GROWTH RATE & STATISTICS
Introduction
India has emerged as the fastest growing major economy in the world as per the Central
Statistics Organization (CSO) and International Monetary Fund (IMF) and it is expected to be
one of the top three economic powers of the world over the next 10-15 years, backed by its
strong democracy and partnerships. India’s GDP is estimated to have increased 6.6 per cent in
2017-18 and is expected to grow 7.3 per cent in 2018-19.

Market size
India's gross domestic product (GDP) at constant prices grew by 7.2 per cent in September-
December 2017 quarter as per the Central Statistics Organisation (CSO). Corporate earnings in
India are expected to grow by 15-20 per cent in FY 2018-19 supported by recovery in capital
expenditure, according to JM Financial.

The tax collection figures between April 2017- February 2018 show an increase in net direct
taxes by 19.5 per cent year-on-year and an increase in net direct taxes by 22.2 per cent year-
on-year.

India has retained its position as the third largest startup base in the world with over 4,750
technology startups, with about 1,400 new start-ups being founded in 2016, according to a report
by NASSCOM.

India's labour force is expected to touch 160-170 million by 2020, based on rate of population
growth, increased labour force participation, and higher education enrolment, among other
factors, according to a study by ASSOCHAM and Thought Arbitrage Research Institute.
India's foreign exchange reserves were US$ 422.53 billion in the week up to March 23, 2018,
according to data from the RBI.

Recent Developments
With the improvement in the economic scenario, there have been various investments in various
sectors of the economy. The M&A activity in India increased 53.3 per cent to US$ 77.6 billion in
2017 while private equity (PE) deals reached US$ 24.4 billion. Some of the important recent
developments in Indian economy are as follows:

 India's merchandise exports and imports grew 11.02 per cent and 21.04 per cent on a y-
o-y basis to US$ 273.73 billion and US$ 416.87 billion, respectively, during April-February
2017-18.
 India's Foreign Direct Investment (FDI) inflows reached US$ 208.99 billion during April
2014 - December 2017, with maximum contribution from services, computer software and
hardware, telecommunications, construction, trading and automobiles.
 India's Index of Industrial Production (IIP) rose 7.5 per cent year-on-year in January 2018
while retail inflation reached a four month low of 4.4 per cent in February 2018.
 Employment on net basis in eight key sectors in India including manufacturing, IT and
transport increased by 136,000 in July-September quarter of 2017-18.
 The average salary hike of Indian employees is estimated to be 9.4 per cent and that of
key talents is estimated to be nearly 15.4 per cent in 2018, backed by increased focus on
performance by companies, according to Aon Hewitt.
 Indian merchandise exports in dollar terms registered a growth of 4.48 per cent year-on-
year in February 2018 at US$ 25.83 billion, according to the data from Ministry of
Commerce & Industry.
 Indian companies raised Rs 1.6 trillion (US$ 24.96 billion) through primary market in 2017.
 Moody’s upgraded India’s sovereign rating after 14 years to Baa2 with a stable economic
outlook.
 The top 100 companies in India are leading in the world in terms of disclosing their
spending on corporate social responsibility (CSR), according to a 49-country study by
global consultancy giant, KPMG.
 The bank recapitalisation plan by Government of India is expected to push credit growth
in the country to 15 per cent, according to a report by Ambit Capital.
 India has improved its ranking in the World Bank's Doing Business Report by 30 spots
over its 2017 ranking and is ranked 100 among 190 countries in 2018 edition of the report.
 India's ranking in the world has improved to 126 in terms of its per capita GDP, based on
purchasing power parity (PPP) as it increased to US$ 7,170 in 2017, as per data from the
International Monetary Fund (IMF).
 India is expected to have 100,000 startups by 2025, which will create employment for
3.25 million people and US$ 500 billion in value, as per Mr T V Mohan Das Pai, Chairman,
Manipal Global Education.
 The World Bank has stated that private investments in India is expected to grow by 8.8
per cent in FY 2018-19 to overtake private consumption growth of 7.4 per cent, and
thereby drive the growth in India's gross domestic product (GDP) in FY 2018-19.
 The Niti Aayog has predicted that rapid adoption of green mobility solutions like public
transport, electric vehicles and car-pooling could likely help India save around Rs 3.9
trillion (US$ 60 billion) in 2030.
 Indian impact investments may grow 25 per cent annually to US$ 40 billion from US$ 4
billion by 2025, as per Mr Anil Sinha, Global Impact Investing Network's (GIIN’s) advisor
for South Asia.
 The Union Cabinet, Government of India, has approved the Central Goods and Services
Tax (CGST), Integrated GST (IGST), Union Territory GST (UTGST), and Compensation
Bill.
 The Nikkei India manufacturing Purchasing Managers’ Index increased at the fastest
pace in December 2017 to reach 54.7, signaling a recovery in the economy.
Government Initiatives
The Union Budget for 2018-19 was announced by Mr Arun Jaitley, Union Minister for Finance,
Government of India, in Parliament on February 1, 2018. This year’s budget will focus on uplifting
the rural economy and strengthening of the agriculture sector, healthcare for the economically
less privileged, infrastructure creation and improvement in the quality of education of the country.

As per the budget, the government is committed towards doubling the farmers’ income by 2022.
A total of Rs 14.34 lakh crore (US$ 225.43 billion) will be spent for creation of livelihood and
infrastructure in rural areas. Budgetary allocation for infrastructure is set at Rs 5.97 lakh crore
(US$ 93.85 billion) for 2018-19. All-time high allocations have been made to the rail and road
sectors.

India's unemployment rate is expected to be 3.5 per cent in 2018, according to the International
Labour Organisation (ILO).

Numerous foreign companies are setting up their facilities in India on account of various
government initiatives like Make in India and Digital India. Mr. Narendra Modi, Prime Minister of
India, has launched the Make in India initiative with an aim to boost the manufacturing sector of
Indian economy, to increase the purchasing power of an average Indian consumer, which would
further boost demand, and hence spur development, in addition to benefiting investors.

The Government of India, under the Make in India initiative, is trying to give boost to the
contribution made by the manufacturing sector and aims to take it up to 25 per cent of the GDP
from the current 17 per cent. Besides, the Government has also come up with Digital India
initiative, which focuses on three core components: creation of digital infrastructure, delivering
services digitally and to increase the digital literacy.

Some of the recent initiatives and developments undertaken by the government are listed below:

 The Union Cabinet gave its approval to the North-East Industrial Development Scheme
(NEIDS) 2017 in March 2018 with an outlay of Rs 3,000 crores (US$ 460 million) up to
March 2020.
 In March 2018, construction of 321,567 additional houses across 523 cities under the
Pradhan Mantri Awas Yojana (Urban) has been approved by the Ministry of Housing and
Urban Poverty Alleviation, Government of India with an allocation of Rs 18,203 crore.
 The Ministry of Power, Government of India has partnered with the Ministry of Skill
Development & Entrepreneurship to provide training to the manpower in six states in an
effort to speed up the implementation of SAUBHAGYA (Pradhan Mantri Sahaj Bijli Har
Ghar Yojna).
 Prime Minister's Employment Generation Programme (PMEGP) will be continued with an
outlay of Rs 5,500 crore (US$ 844.81 million) for three years from 2017-18 to 2019-20,
according to the Cabinet Committee on Economic Affairs (CCEA).
 In February 2018, The Union Cabinet Committee has approved setting up of National
Urban Housing Fund (NUHF) for Rs 60,000 crore (US$ 9.3 billion) which will help in
raising requisite funds in the next four years.
 The target of an Open Defecation Free (ODF) India will be achieved by October 2, 2019
as adequate funding is available to the Swachh Bharat Mission (Gramin), according to
Ms Uma Bharti, Minister of Drinking Water and Sanitation, Government of India.
 The Government of India has succeeded in providing road connectivity to 85 per cent of
the 178,184 eligible rural habitations in the country under its Pradhan Mantri Gram Sadak
Yojana (PMGSY) since its launch in 2014.
 A total of 15,183 villages have been electrified in India between April 2015-November
2017 and complete electrification of all villages is expected by May 2018, according to Mr
Raj Kumar Singh, Minister of State (IC) for Power and New & Renewable Energy,
Government of India.
 The Government of India has decided to invest Rs 2.11 trillion (US$ 32.9 billion) to
recapitalise public sector banks over the next two years and Rs 7 trillion (US$
109.31billion) for construction of new roads and highways over the next five years.
 The mid-term review of India's Foreign Trade Policy (FTP) 2015-20 has been released
by Ministry of Commerce & Industry, Government of India, under which annual incentives
for labour intensive MSME sectors have been increased by 2 per cent.
 The India-Japan Act East Forum, under which India and Japan will work on development
projects in the North-East Region of India will be a milestone for bilateral relations
between the two countries, according to Mr Kenji Hiramatsu, Ambassador of Japan to
India.
 The Government of India will spend around Rs 1 lakh crore (US$ 15.62 billion) during FY
18-20 to build roads in the country under Pradhan Mantri Gram Sadak Yojana (PMGSY).
 The Government of India plans to facilitate partnerships between gram panchayats,
private companies and other social organisations, to push for rural development under its
'Mission Antyodaya' and has already selected 50,000 panchayats across the country for
the same.
 The Government of India and the Government of Portugal have signed 11 bilateral
agreements in areas of outer space, double taxation, and nano technology, among
others, which will help in strengthening the economic ties between the two countries.
 India's revenue receipts are estimated to touch Rs 28-30 trillion (US$ 436- 467 billion) by
2019, owing to Government of India's measures to strengthen infrastructure and reforms
like demonetisation and Goods and Services Tax (GST).
 INDIA INFLATION

Inflation decelerates in July

In July, consumer prices rose 0.94% from the previous month—more than the revised 0.51%
rise recorded in June (previously reported: +0.58% month-on-month) and the biggest increase
since November 2017. Higher prices for food and beverages drove the overall price rise in July.
Moreover, prices for fuel and light, housing, and clothing and footwear also rose strongly in the
month. Meanwhile, pan, tobacco and intoxicants prices fell in July.

Inflation decelerated for the first time in four months in July, coming in at 4.2%, down from June’s
revised 4.9% (previously reported: 5.0%). Weaker inflation was due to a slower increase in prices
for food and beverages. Meanwhile, other price categories registered strong increases in July,
including pan, tobacco and intoxicants; clothing and footwear; housing; and fuel and light. Core
inflation, which excludes food and energy products, slowed to 6.1% in July from 6.6% in June.

The wholesale price index (WPI) rose 0.4% from the prior month in July, less than the revised
0.8% increase in June (previously reported: +1.10% mom). Wholesale price inflation decelerated
in July and came in at 5.1%, down from 5.8% in June. This was driven by a weaker price increase
for primary articles such as foods and minerals. Higher prices for energy and manufactured
products, however, limited the deceleration. Meanwhile, annual average wholesale inflation
accelerated to 3.8% in July from 3.5% in June.

India Inflation Forecast

Focus Economics Consensus Forecast panelists expect consumer price inflation to average
4.9% in FY 2018, which is unchanged from last month’s forecast. In FY 2019, the panel expects
consumer price inflation to average 4.7%. Meanwhile, our panel projects wholesale inflation of
3.8% for FY 2018, down 0.2 percentage points from last month’s report. In FY 2019, our panel
foresees wholesale inflation averaging 3.4%.
 FOREIGN DIRECT INVESTMENT (FDI)

Introduction
Apart from being a critical driver of economic growth, foreign direct investment (FDI) is a major
source of non-debt financial resource for the economic development of India. Foreign companies
invest in India to take advantage of relatively lower wages, special investment privileges such
as tax exemptions, etc. For a country where foreign investments are being made, it also means
achieving technical know-how and generating employment.

The Indian government’s favorable policy regime and robust business environment have
ensured that foreign capital keeps flowing into the country. The government has taken many
initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil
refineries, telecom, power exchanges, and stock exchanges, among others.

Market size
According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments in
India during 2017-18 stood at US$ 44.86 billion, indicating that government's effort to improve
ease of doing business and relaxation in FDI norms is yielding results.

Data for 2017-18 indicates that the services sector attracted the highest FDI equity inflow of US$
6.71 billion, followed by telecommunication – US$ 6.21 billion and computer software and
hardware – US$ 6.15 billion. Most recently, the total FDI equity inflows for the month of March
2018 touched US$ 3.31 billion.

During 2017-18, India received the maximum FDI equity inflows from Mauritius (US$ 15.94
billion), followed by Singapore (US$ 12.18 billion), Netherlands (US$ 2.80 billion), USA (US$
2.10 billion), and Japan (US$ 1.61 billion).

Investments/ developments
India emerged as the top recipient of greenfield FDI Inflows from the Commonwealth, as per a
trade review released by The Commonwealth in 2018.
Some of the recent significant FDI announcements are as follows:

 In June 2018, Idea’s appeal for 100 per cent FDI was approved by Department of
Telecommunication (DoT) followed by its Indian merger with Vodafone making Vodafone
Idea the largest telecom operator in India
 In May 2018, Walmart acquired a 77 per cent stake in Flipkart for a consideration of US$
16 billion.
 In February 2018, Ikea announced its plans to invest up to Rs 4,000 crore (US$ 612
million) in the state of Maharashtra to set up multi-format stores and experience centres.
 In November 2017, 39 MoUs were signed for investment of Rs 4,000-5,000 crore (US$
612-765 million) in the state of North-East region of India.
  In December 2017, the Department of Industrial Policy and Promotion (DIPP) approved
FDI proposals of Damro Furniture and Supr Infotech Solutions in retail sector, while
Department of Economic Affairs, Ministry of Finance approved two FDI proposals worth
Rs 532 crore (US$ 81.4 million).
 The Department of Economic Affairs, Government of India, closed three foreign direct
investment (FDI) proposals leading to a total foreign investment worth Rs 24.56 crore
(US$ 3.80 million) in October 2017.
 Kathmandu based conglomerate, CG Group is looking to invest Rs 1,000 crore (US$
155.97 million) in India by 2020 in its food and beverage business, stated Mr Varun
Choudhary, Executive Director, CG Corp Global.
 International Finance Corporation (IFC), the investment arm of the World Bank Group, is
planning to invest about US$ 6 billion through 2022 in several sustainable and renewable
energy programmes in India.

Government Initiatives
In January 2018, Government of India allowed foreign airlines to invest in Air India up to 49 per
cent with government approval. The investment cannot exceed 49 per cent directly or indirectly.

No government approval will be required for FDI up to an extent of 100 per cent in Real Estate
Broking Services.

In September 2017, the Government of India asked the states to focus on strengthening single
window clearance system for fast-tracking approval processes, in order to increase Japanese
investments in India.

The Ministry of Commerce and Industry, Government of India has eased the approval
mechanism for foreign direct investment (FDI) proposals by doing away with the approval of
Department of Revenue and mandating clearance of all proposals requiring approval within 10
weeks after the receipt of application.

The Government of India is in talks with stakeholders to further ease foreign direct investment
(FDI) in defence under the automatic route to 51 per cent from the current 49 per cent, in order
to give a boost to the Make in India initiative and to generate employment. In January 2018,
Government of India allowed 100 per cent FDI in single brand retail through automatic route.
 FOREIGN INSTITUTIONAL INVESTORS

Introduction
Economies like India, which offer relatively higher growth than the developed economies, have
gained favour among investors as attractive investment destinations for foreign institutional
investors (FIIs). Investors are optimistic on India and sentiments are favourable following
government’s announcement of a series of reform measures in recent months.

According to Ernst & Young's (EYs) Global Capital Confidence Barometer (CCB) - Technology
report, India ranks third among the most attractive investment destinations for technology
transactions in the world.

India is the third largest start-up base in the world with more than 4,750 technology start-ups,
and about 1,400 new start-ups being founded in 2016, according to a report by Nasscom.

Market Size
India received net investments of US$ 19.788 million from FIIs between April-December 2017.
FII’s net investments in Indian equities and debt have touched record highs in the past financial
year, backed by expectations of an economic recovery, falling interest rates and improving
earnings outlook. FIIs net investments in Indian equities and debt stood at US$ 7.46 billion in
2016-17 (upto April 14, 2017). Cumulative value of investments by FIIs during April 2000-
December 2016 stood at US$ 183.69 billion.

India-focused offshore funds and exchange traded funds (ETFs) witnessed inflows of US$ 6.5
billion in 2017. Inflows in January 2018 reached a 10-month high of US$ 1.1 billion in January
2018.
Equity mutual funds received a record Rs 1.3 lakh crore (US$ 20.02 billion) in inflows 2017,
supported by low bank deposit rates, strong retail participation and awareness campaigns
undertaken by AMFI.

The total market capitalization (M-cap) of all the companies listed on Bombay Stock Exchange
(BSE) rose to a record high level of Rs 142.25 trillion (US$ 2.19 trillion) in 2017-18.
India has emerged as one of the strongest performers in terms of deals related to mergers and
acquisitions (M&A). M&A activity in India reached US$ 46.8 billion in 2017.The business-to-
business (B2B) startups in India raised around US$ 98 million across 30 deals in 2016, as
against funding of US$ 16 million across 14 deals in 2015, according to data from start-up tracker
Tracxn.
During 2017, India witnessed record private equity investments worth US$ 24.4 billion. Private
equity (PE) investments in the logistics industry grew at 9 per cent to US$ 501.71 million during
2016-17 and are expected to grow at 8.6 per cent annually from 2015-2020 on the back of
increased opportunities resulting from low entry barriers and Goods and Services Tax (GST).
Investments

 Car rental start-up Zoomcar raised US$ 40 million in a Series C funding round from
Mahindra & Mahindra, Ford, Sequioa Capital, Empire Angels, Nokia Growth Partners and
others.
 Venture capital (VC)-backed firms in India raised a record US$ 9.6 billion of fresh capital
between January-September 2017, which is more than twice the amount of capital raised
during the same period in the previous year.
 Omkar Realtors and Developers Pvt Ltd raised Rs 125 crore (US$ 19.52 million) in debt
from KKR India Asset Finance Pvt Ltd, which will be used towards construction of two
residential projects in Mumbai.
 Digital lending company, Kissht, received investment worth US$ 10 million in a funding
round led by Fosun RZ Capital, which will be used for expanding among online and offline
merchants, improving its data science capabilities and venturing into additional product
categories.
 Mswipe Technologies Pvt Ltd, which manufactures point of sale (PoS) machines for
merchants, has raised US$ 10 million in a series D funding round led by B Capital Group
and DSG Consumer Partners.
 Blackstone Group LP, the largest alternative asset manager in the world, is set to enter
India's distressed asset space by investing US$ 150 million in International Asset
Reconstruction Co Pvt Ltd (IARC) to acquire a large minority stake, which will gradually
be increased to a majority stake over a couple of years.
 South Korea's Mirae Asset group is planning to expand its Indian operations and enter
the real estate sector in the country and will invest US$ 500 million in commercial leased
properties.
 Softbank Vision Fund is planning to invest US$ 2 billion in Indian e-commerce major,
Flipkart, half of which will go to Tiger Global Management, which is looking to sell part of
its Flipkart stake, while the remaining funds would be invested in Flipkart's operations to
help its battle against Amazon.
 Indian online pharmacy and healthcare services company, 1mg Technologies, has raised
US$ 15 million in a series C funding round from existing investor HBM Healthcare
Investments AG for launching new predictive healthcare and corporate wellness products.
 Indian ride hailing app, Ola, is in talks with Chinese conglomerate Tencent and may
receive funding of US$ 400 million, thereby taking its valuation to above US$ 4 billion,
according to a report by The Economic Times.
 Indian budget hotels chain, FabHotels, has raised US$ 25 million from Goldman Sachs
and existing investor Accel Partners in a Series B funding round, which will be focused
on tripling the technology team and doubling the number of rooms from the current 5,000.
 Microsoft Corp might invest US$ 50-100 million in ANI Technologies Pvt Ltd, the parent
company of Ola Cabs, in a bid to increase the market share of its Azure cloud platform in
India.
 RentoMojo, an Indian furniture and consumer durables startup, has raised funding of US$
10 million from Bain Capital Ventures and Renaud Laplanche, which will be used to scale
up the operations and widen its product catalogue.
 Temasek, an investment company owned by the Government of Singapore, have
invested a record US$ 10 billion till date in the Indian economy after 12 years of its
operations.
 UrbanClap, an Indian home services start-up, has raised US$ 21 million in a series C
funding round led by Vy Capital, an internet investment fund. The company will use the
funds for expansion to more cities, investment in technology and addition of vendors.
 DMI Finance Pvt Ltd, a Delhi-based non-banking financial company (NBFC), is planning
to raise a fund of up to Rs 1,000 crore (US$ 155.11 million), which will be focused on
special opportunities situations in the real estate sector and distressed assets space.
 Private equity (PE) investments in India's automobile components sector grew 607 per
cent year-on-year to US$ 90.2 million in January-May 2017.
 Tata Capital Ltd and International Finance Corporation (IFC) have invested Rs 200 crore
(US$ 31.05 million) in their joint venture (JV), Tata Cleantech Capital Ltd (TCCL), to
increase its loan book for investing in renewable energy projects.
 Indian pharmaceutical company, Cadila Healthcare Ltd, is planning to raise Rs 1,000
crore (US$ 154.72 million) via a qualified institutional placement (QIP) of shares within
the next two-three months.
 Toronto-based Canada Pension Plan Investment Board (CPPIB) made investments
worth Rs 9,120 crore (US$ 1.41 billion) in India during FY 2016-17, taking their total
investment in India to Rs 22,560 crore (US$ 3.49 billion).
 The Union Cabinet has approved raising of bonds worth Rs 2,360 crore (US$ 363.87
million) by the Indian Renewable Energy Development Agency (IREDA), which will be
used in various renewable energy projects in FY 2017-18.
 JK Paper Ltd, one of India's leading paper manufacturing company, plans to raise around
US$ 50 million from World Bank’s investment arm, International Finance Corporation
(IFC), which will be used towards improving its productivity and restructuring its balance
sheet.
 Goldman Sachs, a US-based investment bank, is planning to invest about US$ 1 billion
in India in the next three to four years via its private equity arm, stated Mr Ankur Sahu,
co-head of merchant banking division (Asia-Pacific), Goldman Sachs.
 World Bank's private sector investment subsidiary, International Finance Corporation
(IFC), is likely to invest about US$ 100 million in non-convertible debentures (NCDs)
issued by Mahindra and Mahindra Financial Services Ltd, thereby supporting the
company's lending to the farm sector in India.
 International Finance Corporation (IFC) will invest US$ 200 million in Housing
Development Finance Corporation Ltd (HDFC) via five-year non-convertible debentures
(NCDs) or masala bonds which will be used by HDFC to provide loans for affordable
housing projects across India.
 Private equity (PE) investment firm, Actis LLP, is planning to invest about US$ 500 million
in Solenergi Power Pvt Ltd, its second renewable energy platform in India.
  Flipkart, India's largest e-commerce marketplace has raised US$ 1 billion in a funding
round led by Chinese internet giant, Tencent and Microsoft.
 Paytm’s e-commerce unit raised US$ 200 million in a funding round led by Chinese e-
commerce giant, Alibaba and existing investor, SAIF Partners.
 Caisse de Dépôt et Placement du Québec (CDPQ), Canada’s second largest pension
fund, plans to invest around US$ 155 million to acquire a minority stake in TVS Logistics
Services Limited, a privately held subsidiary of the TVS Group.

Government Initiatives

 Securities and Exchange Board of India (SEBI) has increased the investment limit of
strategic investors up to 25 per cent of the total offer size, in order to boost investments
in REITs and InvITs.
 The Government of India's reforms like demonetisation and the Goods and Services Tax
(GST) have restored the confidence of investors in the Indian markets, stated Mr Bill
Maldonado, Asia-Pacific and Global Chief Investment Officer (CIO), Equities at HSBC
Global Asset Management.
 Reserve Bank of India (RBI) has made an upward revision in Foreign Portfolio Investors'
(FPIs) holdings limits in government securities by Rs 11,200 crore (US$ 1.74 billion) to
Rs 3,01,500 crore (US$ 46.76 billion) for 2017-18.
 The Securities and Exchange Board of India (SEBI) has relaxed norms for registered FPIs
in India, allowing them to operate through the International Financial Services Centre
(IFSC) without any additional documentation or prior approval process.
 SEBI has allowed FPIs to invest in units of Real Estate Investment Trusts (REITs),
infrastructure investment trusts (InvITs), category III Alternative Investment Funds (AIFs),
and also permitted them to acquire corporate bonds under default.
 The RBI has also allowed a number of foreign investors to invest, on repatriation basis,
in non-convertible/redeemable preference shares or debentures issued by Indian
companies listed on established stock exchanges in India. The investment should be
within the overall limit of US$ 51 billion allocated for corporate debt. Long-term investors
registered with SEBI will also be deemed as eligible investors.
 The People’s Bank of China (PBoC) has invested US$ 500 million in Indian bonds for the
first time since the Indian government eased restrictions on foreign investors.
 DOMESTIC INVESTMENT IN INDIA
Introduction
The Government of India has taken significant initiatives to strengthen the economic credentials
of the country and make it one of the strongest economies in the world. India is fast becoming
home to start-ups focused on high growth areas such as mobility, e-commerce and other vertical
specific solutions - creating new markets and driving innovation.

Owing to higher infrastructure spending, increased fiscal devolution to states, and continued
reforms in fiscal and monetary policy, the Indian economic outlook has strengthened. The
Government of India is striving to move steadily to minimise structural and political bottlenecks,
attract higher investment and improve economic performance. Indian economy is expected to
register a 7.5 per cent growth rate in 2018.

Market Activity
The Government of India forecasts capital expenditure to increase by 30 per cent from Rs 3.0
lakh crore (US$ 46.2 billion) in 2017-18 to Rs 3.9 lakh crore (US$ 61 billion) in 2019-20.

The total number of investor accounts with 43 active mutual fund houses rose to a record 69.9
million at the end of February 2018 as against 55.4 million in March 2017, backed by a strong
participation from retail investors, according to the Securities and Exchange Board of India
(SEBI).

India has emerged as one of the strongest performers in terms of deals related to mergers and
acquisitions (M&A). The value of M&A activity in India is estimated to have reached US$ 46.8
billion in 2017. The business-to-business (B2B) start-ups in India raised around US$ 196.5
million between April-November 2017, the highest since 2010. The biggest deal stood at
USD100 million raised by Just Buy Live. The deal momentum is likely to see an uptrend in the
coming months on account of improving economic growth.

Investments/developments
With the improvement in the economic scenario, there have been quite a few investments in
various sectors along with M&A in India. Some of them are as follows:
A Rs 320 crore (US$ 49.9 million) fund has been launched by 10 oil companies owned by the
Government of India, to invest in 30 innovating start-ups in various sectors.
Investments made by domestic mutual funds in the equities market have crossed the 1 lakh
crore (US$ 15.6 billion) mark during 2017.

 Reliance Industries Limited (RIL) is planning to invest over Rs 10,000 crore (US$ 1,540
million) in Uttar Pradesh and Rs 5,000 crore (US$ 770 million) in West Bengal over the
next three years.
 Indian auto component companies have planned investments worth Rs 1,500 crore (US$
234 million) in the state of Gujarat, in order to meet demand from automobile
manufacturers.
 Vedanta Resources Plc is planning to invest about US$ 9 billion in India over the next few
years to expand its hydrocarbons and metals and mining businesses.
 State Bank of India (SBI) and the World Bank have decided to sanction credit worth Rs
2,317 crore (US$ 361.45 million) to seven corporates towards solar rooftop projects to
generate a total of 575 megawatt (MW) of solar energy.
 The Government of Gujarat expects that the extension of the textile policy by a year will
attract investments worth Rs 5,000 crore (US$ 774.89 million) in various sectors across
the value chain.
 Private equity (PE) investments in the Indian real estate sector are estimated to cross
US$ 4 billion in 2017, supported by Government of India's regulatory reforms over the
past two years.
 India telecommunication companies will be investing US$ 20 billion over the next two
years for expansion of network and operations, stated Mr Akhil Gupta, Vice Chairman,
Bharti Enterprise.
 Bharat Petroleum Corporation Ltd (BPCL) plans to invest Rs 1.08 trillion (US$ 16.88
billion) over the coming five years for expansion of operations across business segments,
of which the company plans to invest Rs 45,000 crore (US$ 7.03 billion) in the
petrochemicals segment.
 Tata Motors is planning to invest Rs 4,000 crore (US$ 623.93 million) in its business as
a part of a turnaround strategy involving cost reduction, introduction of new products and
increasing efficiencies.
 The Government of India has planned an investment worth Rs 45,000 crore (US$ 7.07
billion) for the development of India's north-eastern regions bordering China, Bhutan,
Bangladesh and Myanmar.
 The Ministry of Road Transport and Highways, Government of India, invested Rs 14,916
crore (US$ 2.32 billion) for the Special Accelerated Road Development Programme for
North East (SARDP-NE) and Rs 4,095 crore (US$ 635.6 million) for the National Highway
(Original) over the past two years to improve the road infrastructure in India's north
eastern region.
 Bharti Airtel Ltd has planned to invest about Rs 2,000 crore (US$ 309.88 million) over the
next three years in Project Next, its digital innovation programme, in an attempt to
strengthen its position in India's highly competitive telecommunications market.
 Piramal Finance Ltd, an arm of Piramal Enterprises Ltd, invested Rs 485 crore (US$ 74.92
million) in the subsidiary of Apollo International Ltd, called Apollo LogiSolutions (ALS), a
logistics solutions provider.
 Premji Invest, the investment arm of Mr Azim Premji, Chairman, Wipro, has acquired a
2.2 per cent stake for Rs 700 crore (US$ 108.13 million) in Aditya Birla Capital (ABCL) at
a valuation of Rs 32,000 crore (US$ 4.94 billion).
 Piramal Finance Ltd, through its Corporate Finance Group (CFG), has invested in two
auto components firms; Rs 275 crore (US$ 42.55 million) in RSB Group and Rs 290 crore
(US$ 44.87 million) in Indoshell Mould Ltd.
  The Union Cabinet has approved raising of bonds worth Rs 2,360 crore (US$ 363.87
million) by the Indian Renewable Energy Development Agency (IREDA), which will be
used in various renewable energy projects in FY 2017-18.
 Mahindra and Mahindra Ltd is planning to invest in high-end electric powertrain
technology in a move towards the future of mobility as well as for the electrification of its
existing and future line-up of products.
 The Government of India is expected to invest highly in the infrastructure sector, mainly
highways, renewable energy and urban transport, prior to the general elections in 2019.
 Coal India (CIL) plans to invest US$ 20-25 billion in next five years to achieve annual
output of 1 billion tonnes by 2019-20.

Government Initiatives
The Government of India has taken several initiatives in various sectors to improve the overall
economic condition in the country. Some of these are:

 Securities and Exchange Board of India (SEBI) is planning to increase the maximum
investment by angel funds in venture capital undertakings to Rs 10 crore (US$ 1.54
million) from Rs 5 crore (US$ 0.77 million).
 The Government of India has decided to invest Rs 2.1 trillion (US$ 32.8 billion) to
recapitalise public sector banks over the next two years and Rs 7 trillion (US$ 109.2
billion) for construction of new roads and highways over the next five years.
 JSW Energy has signed a memorandum of understanding (MoU) with the Government of
Gujarat in September 2017, for setting up an electric vehicle (EV) manufacturing unit in
Gujarat at an estimated cost of Rs 4,000 crore (US$ 608.88 million).
 India and Japan have joined hands for infrastructure development in India's north-eastern
states and are also setting up an India-Japan Coordination Forum for Development of
North East to undertake strategic infrastructure projects in the northeast.
 The Government of Gujarat has signed 54 memorandum of understanding (MoUs) worth
Rs 5,022 crore (US$ 771.56 million) in the biotechnology sector and 89 MoUs worth Rs
16,000 crore (US$ 2.46 billion) in the information technology (IT) sector, during the
Vibrant Gujarat Global Summit-2017.
 Union Ministry of Shipping plans to raise US$ 15.8 billion in dollar equivalents at the
interest rate of three per cent, for developing ships, building ports and improving inland
waterways.
 Ministry of environment and forests has granted environment clearance for 35-km coastal
road connecting south and north Mumbai. The coastal road project is part of the US$ 9.52
billion transport infrastructure projects being undertaken by the state government and is
expected to require an investment of US$ 1.34 billion.
 The Government of India will provide soft loan of US$ 1 billion to sugar mills to help them
clear part of their US$ 3.33 billion dues to farmers. The money shall be directly credited
to the farmer’s bank accounts through the Pradhan Mantri Jan-Dhan Yojana.
 FOREIGN TRADE POLICY OF INDIA
Introduction
The integration of the domestic economy through the twin channels of trade and capital flows
has accelerated in the past two decades which in turn led to the Indian economy growing from
Rs 32 trillion (US$ 474.37 billion) in 2004 to about Rs 153 trillion (US$ 2.3 trillion) by 2016.
Simultaneously, the per capita income also nearly trebled during these years. India’s trade and
external sector had a significant impact on the GDP growth as well as expansion in per capita
income.

Total merchandise exports from India grew by 4.48 per cent year-on-year to US$ 25.83 billion in
February 2018, while merchandise trade deficit increased 25.81 per cent year-on-year from US
$ 11.979 billion during April-February 2017-18 to US $ 9.521 billion during April-February 2017-
18, according to data from the Ministry of Commerce & Industry.

According to Mr Suresh Prabhu, Minister for Commerce and Industry, the Government of India
is keen to grow exports and provide more jobs for the young, talented, well-educated and even
semi-skilled and unskilled workforce of India.

Capital Inflows
According to data released by the Reserve Bank of India (RBI), India's foreign exchange
reserves were US$ 421.335 billion as on March 16, 2018.

Foreign Direct Investments (FDI)

During April 2000–December 2017, India received total foreign investment (including equity
inflows, re-invested earnings and other capital) worth US$ 532.6 billion. The country was one of
the top destinations for FDI inflows from Asian countries, with Mauritius contributing 34 per cent,
Singapore 17 per cent and Japan and UK contributing 7 per cent each of the total foreign inflows.

Foreign Institutional Investors (FIIs)

FIIs net investments in Indian equities, debt and hybrid stood at Rs 145,068 crores (US$ 22.34
billion) in 2017-18.

External Sector

 India’s external sector has a bright future as global trade is expected to grow at 4 per cent
in 2018 from 2.4 per cent in 2016.
 Bilateral trade between India and Ghana is rising exponentially and is expected to grow
from US$ 3 billion to US$ 5 billion over the coming three years, stated Mr Aaron Mike
Oquaye Junior, Ghana's Ambassador to India.
 India has revised its proposal on trade facilitation for services (TFS) at the World Trade
Organisation (WTO) and has issued a new draft, with the contents being more meaningful
and acceptable to other member countries.
  Indian exports of merchandise shipments is expected to reach US$ 325 billion in 2017-
18, compared to US$ 275 billion in 2016-17, as per Mr Ganesh Kumar Gupta, President,
Federation of Indian Export Organisations (FIEO).
 The Union Cabinet, Government of India, has approved the proposed Memorandum of
Understanding (MoU) between Export-Import Bank of India (EXIM Bank) and Export-
Import Bank of Korea (KEXIM).
 The Goods and Services Network (GSTN) has signed a memorandum of understanding
(MoU) with Mr Ajay K Bhalla, Director General of Foreign Trade (DGFT), to share realised
foreign exchange and import-export code data, process export transactions of taxpayers
under goods and services tax (GST) more efficiently, increase transparency and reduce
human interface.
 In March 2017, the Union Cabinet approved the signing of the customs convention on the
international transport of goods, Transports Internationaux Routiers (TIR) making India
the 71st signatory to the treaty, which will enable the movement of goods throughout
these countries in Asia and Europe and will allow the country to take full benefit of the
International North South Transportation Corridor (INSTC).
 Mr Richard Verma, the United States Ambassador to India, has verified that India-US
relations across trade, defence and social ties will be among the top priorities of the newly
elected US President Mr Donald Trump's administration.

Foreign Trade Policy

 In the Mid-Term Review of the Foreign Trade Policy (FTP) 2015-20 the Ministry of
Commerce and Industry has enhanced the scope of Merchandise Exports from India
Scheme (MEIS) and Service Exports from India Scheme (SEIS), increased MEIS
incentive raised for ready-made garments and made- ups by 2 per cent, raised SEIS
incentive by 2 per cent and increased the validity of Duty Credit Scrips from 18 months to
24 months.
 All export and import-related activities are governed by the Foreign Trade Policy (FTP),
which is aimed at enhancing the country's exports and use trade expansion as an
effective instrument of economic growth and employment generation.
 The Department of Commerce has announced increased support for export of various
products and included some additional items under the Merchandise Exports from India
Scheme (MEIS) in order to help exporters to overcome the challenges faced by them.
 The Central Board of Excise and Customs (CBEC) has developed an 'integrated
declaration' process leading to the creation of a single window which will provide the
importers and exporters a single point interface for customs clearance of import and
export goods.
 As part of the FTP strategy of market expansion, India has signed a Comprehensive
Economic Partnership Agreement with South Korea which will provide enhanced market
access to Indian exports. These trade agreements are in line with India’s Look East
Policy. To upgrade export sector infrastructure, ‘Towns of Export Excellence’ and units
located therein will be granted additional focused support and incentives.
INDUSTRY

ANALYSIS
 Manufacturing Sector in India
Introduction
Manufacturing has emerged as one of the high growth sectors in India. Prime Minister of India,
Mr Narendra Modi, had launched the ‘Make in India’ program to place India on the world map
as a manufacturing hub and give global recognition to the Indian economy. India is expected to
become the fifth largest manufacturing country in the world by the end of year 2020*.

Market Size
The Gross Value Added (GVA) at basic current prices from the manufacturing sector in India
grew at a CAGR of 4.34 per cent during FY12 and FY18 as per the second advance estimates
of annual national income published by the Government of India.Under the Make in India
initiative, the Government of India aims to increase the share of the manufacturing sector to
the gross domestic product (GDP) to 25 per cent by 2022, from 16 per cent, and to create 100
million new jobs by 2022. Business conditions in the Indian manufacturing sector continue to
remain positive.

Investments
With the help of Make in India drive, India is on the path of becoming the hub for hi-tech
manufacturing as global giants such as GE, Siemens, HTC, Toshiba, and Boeing have either
set up or are in process of setting up manufacturing plants in India, attracted by India's market
of more than a billion consumers and increasing purchasing power.
As per Labour Bureau’s Quarterly Report on Employment Scenario, manufacturing sector
added an estimated 89,000 jobs in the second quarter of 2017-18.
Cumulative Foreign Direct Investment (FDI) in India’s manufacturing sector reached US$
73.70 billion during April 2000-December 2017.
India has become one of the most attractive destinations for investments in the manufacturing
sector. Some of the major investments and developments in this sector in the recent past are:

 As of May 2018, The Chatterjee Group (TCG) is planning to set up a Continuous

Polymerisation (CP) unit and a spinning unit, which will act as forward integrated units
for its petrochemicals subsidiary MCPI.
 As of April 2018, Rallis India, a subsidiary of Tata Chemicals, is planning to undertake
backward integration as its inputs have become costlier and the move will help the
company to ease pressure on its profit margins.
 For its Commercial Vehicles, Ashok Leyland is utilising machine learning algorithms and
its newly created telematics unit to improve the performance of the vehicle, driver and
so on.
Government Initiatives

The Government of India has taken several initiatives to promote a healthy environment for the
growth of manufacturing sector in the country. Some of the notable initiatives and
developments are:

 As of March 2018, Government of India is in the process of coming up with a new

industrial policy which envisions development of a globally competitive Indian industry.
 In Union Budget 2018-19, the Government of India reduced the income tax rate to 25
per cent for all companies having a turnover of up to Rs 250 crore (US$ 38.75 million).
 Under the Mid-Term Review of Foreign Trade Policy (2015-20), the Government of
India increased export incentives available to labour intensive MSME sectors by 2 per
cent.
 The Government of India has launched a phased manufacturing programme (PMP)
aimed at adding more smartphone components under the Make in India initiative
thereby giving a push to the domestic manufacturing of mobile handsets.
 The Government of India is in talks with stakeholders to further ease foreign direct
investment (FDI) in defence under the automatic route to 51 per cent from the current
49 per cent, in order to give a boost to the Make in India initiative and to generate
employment.
 The Ministry of Defence, Government of India, approved the “Strategic Partnership”
model which will enable private companies to tie up with foreign players for
manufacturing submarines, fighter jets, helicopters and armoured vehicles.
 The Union Cabinet has approved the Modified Special Incentive Package Scheme (M-
SIPS) in which, proposals will be accepted till December 2018 or up to an incentive
commitment limit of Rs 10,000 crore (US$ 1.5 billion).
 GVA at Basic Price At Current Prices:

 Indian manufacturing sector’s Gross Value Added at basic prices based at current prices is
expected at US$ 388.01 billion in 2017-18E.
 Manufacturing sector is estimated to have grown at a CAGR of 4.34 per cent between FY12
and FY18.
 The Wholesale Price Index, in respect of manufactured goods grew 4.4 per cent 2016-17.
 Quarterly GVA at basic prices from manufacturing sector grew by 10.92 per cent in the third
quarter of FY18.

Notes: FY – Indian Financial Year (April -March), E – Estimate, Exchange rate used is average for the Financial Year
Source: MOSPI, News Articles
 Annual Growth Rates of IIP at Sectoral Level:
 The Index of Industrial Production (IIP) is prepared by the Central Statistics Office to measure
the activity happening in three industrial sectors namely Mining, Manufacturing, and Electricity.
 It is the benchmark index and serves as a proxy to gauge the growth of manufacturing in India
since manufacturing alone has a weight of 77.63 per cent in the index.
 The manufacturing component of the IIP recorded 4.4 per cent growth in FY17 and 8.7 per
cent in January 2018.
 The production levels are expected to pick up growth again as the Goods and Services Tax
(GST) has finally been implemented.

Notes: FY18* - From April to January 2017-18

Source: Central Statistics Office

COMPANY ANALYSIS
Introduction

Asian Paints is India’s leading paint company with a group turnover of Rs 168.43 billion.
The group has an enviable reputation in the corporate world for professionalism, fast
track growth, and building shareholder equity. Asian Paints operates in 16 countries
and has 25 paint manufacturing facilities in the world-servicing consumers in over 65
countries. Besides Asian Paints, the group operates around the world through its
subsidiaries Berger International, Apco Coatings, SCIB Paints, Tubman’s, Causeway
Paints and Kadisco.

Asian Paints manufactures wide range of paints for Decorative and Industrial use.

In Decorative paints, Asian Paints is present in all the four segments v.i.z Interior Wall
Finishes, Exterior Wall Finishes, Enamels and Wood Finishes. It also offers Water
proofing, wall coverings and adhesives in its product portfolio.

Asian Paints also operates through ‘PPG Asian Paints Pvt Ltd’ (50:50 JV between
Asian Paints and PPG Inc, USA, one of the largest automotive coatings manufaturer in
the world) to service the increasing requirements of the Indian automotive coatings
market. The second 50:50 JV with PPG named ‘Asian Paints PPG Pvt Ltd’ services the
protective, industrial powder, industrial containers and light industrial coatings markets
in India.

Vertical integration has seen Asian Paints diversify into chemical products such as
Phthalic Anhydride and Pentaerythritol, which are used in the paint manufacturing
process. The company has discontinued production of Phthalic Anhydride from end of
July 2017.

In the Home Improvement and Décor category, the company is present in the Kitchen
and Bath fittings space and offers various products under Sleek and Ess Ess brand
respectively.

Time line of Asian paint

2010

-Berger International Ltd Singapore (BIL), a subsidiary of Asian Paints Ltd, which is a wholly
owned subsidiary of the Company

-The Company's new paint plant at Rohtak in the State of Haryana has commenced
commercial production

-Asian Paints Signed a MOU with Maharashtra Govt. to set up a Mega Project for manufacture
of Paints & Intermediate

2011

-Asian Paints to form second Joint Venture with PPG Industries.

-Asian Paints - Company's subsidiary, SCIB Chemicals SAE has temporarily restarted the
operations of its two plants in Egypt

2012

-Asian Paints - Production at the Company's Plant at Rohtak, Haryana has been restarted

2013

Asian Paints completes acquisition of Sleek Group -Commencement of commercial production

at new plant -Asian Paints has splits its face value from Rs 10/- to 1/- 2014 -Asian Paints Ltd
Enters into binding agreement with Ess Ess

2015

Asian Paints Ltd has signed a Memorandum of Understanding (MoU) with the Government of
Andhra Pradesh to set up a manufacturing facility for paints and intermediates
Vishakhapatnam District, Andhra Pradesh

2017

Asian Paints to expand paint manufacturing capacity in Guj - Asian Paints arm acquires Sri
Lankan firm Causeway Paints - Asian Paints Ltd. - Board recommend Final & Special Dividend
- Asian Paints enters into share purchase agreement with ANSA Coatings
BALANCE SHEET
PROFIT AND LOSS STATEMENT
 FUNDAMENTAL ANALYSIS

Mar '18 Mar '17 Mar '16 Mar '15 Mar '14
Financial Ratio

8.7 10.3 7.5 6.1 5.3

 Dividend Per Share

Operating Profit Margin (%) 20.61 21.11 19.6 17.25 17.05

Net Profit Margin (%) 13.37 14.24 12.63 11.39 11.22

Return On Capital Employed (%) 36.97 37.51 49.38 46.31 47.75

Return On Net Worth (%) 24.29 25.39 32.18 31.37 32.46

Current Ratio 1.34 1.41 0.95 1.09 1.18

Quick Ratio 0.76 0.75 0.47 0.49 0.64

Debt Equity Ratio -- 0.01 0.01 0.01 0.01

Interest Cover 137.08 141.87 105.41 72.77 66.66

Total Debt to Owners Fund 0 0.01 0.01 0.01 0.01

Debtors Turnover Ratio 13.29 14.42 17 16.17 15.48

19.75 18.78 16.65 13.84 12.19

Earnings Per Share

Book Value 81.3 73.97 51.74 44.1 37.54

PE RATIO 61.99 AVRAGE GROTH 14.94

PEG RATIO = 4.14%
 ANALYSIS AND INTERPRETATION

Dividend Per Share

For the year 2014-2015 5.3 to increase to 6.1 in FY 2016 TO 7.5
Dividend in 2018 has been reduced to 8.7 from 10.3 indicates a company invested on CAPEX assets
and incurered expenses that reduced the DIvidednd as well as this year there is high Debt so to cover
that company may reduced the dididend to serve DSCR.

Operating Profit Margin

Operating profit margin is reduced this year because of increase in Operating Expenses Because of high
inventory cost as well as high employee expenses.

Net Profit Margin

Net operating margin is reduced because of Non cash expenditure i.e. depreciation and increase in
interest rate because this year debt is also increased

Return On Capital Employed

Capital expenditure ration is reduced this year indicate a company is earning less on the employed
capital because of high capital employed.

Current Ratio
Total current liability in 2018 is 3398.96 which is 10% higher then the last year the total current asset
of the company 500.17 the ratio is 1.34 but the company hold high inventory that shows not good for
the company.

Quick ratio
Quick ratio of the company is 0.76 which indicate does not show high solvency ratio
And as per the analysis thou the company does not hold high solvency ratio but still the company
earning is lucrative.
Interest Cover
The company serving high interest due to increase in outstanding debt. Though the company EBIT
slightly increasing. The ratio are increasing from Fy 2014 to Fy 2017 66.66 to 141.87 but decrease in Fy
2018 by 137.08

Debtors Turnover
Debtor collection period has been constantly reducing that’s shows that the company have a good
inventory management control system. In FY 2014 It was 15.48 and increase in 2015 to 16.17 in 2016
the debtors turnover ration is 17 after the in FY 2017 and 2018 its will decrease 14.42 and 13.29
respectively.

Earnings per Share

EPS has been increasing every year in FY 2014 IS 12.19, FY 2015 IS 13.84, FY 2016 IS 16.65, FY 2017 IS
18.78, and FY 2018 IS 19.75. Because of the profit after tax is increasing.

PEG RATIO
Since the peg ratio is 4.14% Is signifies that the company stock is overvalued and as per the
investor perspective the once should sell their stock of the company.