Awm House View - q3 Fy25

Avendus Wealth Management House View – Q3 FY24 1
Released in Oct 2024

HOUSE VIEW .......................................................................................................................................................3
OUR ASSET ALLOCATION VIEW .......................................................................................................................5
PORTFOLIO POSITIONING MOVEMENT ACROSS QOQ .................................................................................6
FIXED INCOME VIEW ...................................................................................................................................... 14
GOLD VIEW ...................................................................................................................................................... 21
PRIVATE MARKET VIEW................................................................................................................................. 24
CREDIT VIEW ................................................................................................................................................... 26
OFFSHORE VIEW ............................................................................................................................................. 28
MODEL PORTFOLIO ........................................................................................................................................ 33
GENERAL RISKS ............................................................................................................................................. 34
GENERAL CONFLICT DISCLOSURE............................................................................................................... 34
REGULATORY DISCLOSURE .......................................................................................................................... 35
DISCLAIMER .................................................................................................................................................... 35

“Three great forces rule the world: stupidity, fear and greed.” – Albert Einstein
Q2 FY25 concluded on an intriguing note as central banks across the world start the liquidity easing cycle. China’s
central bank made a big bang announcement delivering its largest stimulus package since the pandemic, aiming to
lift the economy out of deflation and steer it back towards the government’s growth target. In the United States, the
Federal Reserve finally relented and initiated the rate cut cycle by reducing its benchmark interest rate by 50 bps.
Other major central banks such as the European Central Bank (ECB), Bank of England (BoE) and Bank of Canada
also added to the rate cut cycle. Only the Bank of Japan is swimming against the tide raising policy rate by 0.15% to
0.25%, the highest level in 15 years. This is to strengthen the Yen and combat inflationary pressures.
In India, sovereign bonds attracted USD 7.5 bn in foreign investments after being added to the JP Morgan Emerging
Market Index. This is the highest quarterly foreign inflow received by Indian sovereign bonds in the last 5 years.
India’s newly formed coalition government presented its first budget and managed to strike a balance between
employment, economic growth and fiscal prudence. The government proved its intent to provide support to the
economy by keeping its capex target unchanged at INR 11 lakh cr and reduced the fiscal deficit target to 4.9% (from
earlier estimate of 5.1%). On the social front, a slew of policies were presented to encourage employment,
development of skills etc.
Among the top five economies, the United States, China and India have maintained steady GDP annualized growth
rates of approximately 3%, 5% and 7% in the second quarter, respectively. Meanwhile, Germany’s GDP shrank by
0.1% in the second quarter, sparking concerns about a potential recession. Japan's economy grew by an annualised
3.1% in the same quarter, driven by a significant increase in private consumption. Among the PMI numbers, the
services component has continued to grow for both developed and emerging countries, while manufacturing remains
in a contraction phase in developed economies. Looking ahead, all eyes are on the US elections and the potential
for further rate cuts by major central banks worldwide. The US election campaign took an unexpected twist when
President Joe Biden withdrew, and Vice President Kamala Harris stepped in. It appears that the contest is close
between the Democrats and Republicans, with Kamala Harris and Donald Trump running neck and neck. The
outcome of the election would shape the world due to the divergent thinking of the two parties. On the geopolitical
front, the Israel-Hamas conflict has intensified with Israel targeting attacks in Lebanon, Yemen, Gaza and Syria. In
retaliation, Iran has initiated a direct missile attack on Israel. The Middle East conflict could escalate if Israel
responds and confronts Iran directly. On the other hand, the risk perceptions from the Russia-Ukraine war have
softened.
Equity markets across the globe ended the last quarter with healthy returns despite several bouts of volatility.
Developed market indices generated robust returns in the range of 5-10% in the quarter with a few of them touching
a new high (S&P500, Nikkei 225, DAX). Emerging markets also closed the quarter on a positive note along with
India’s Nifty 50 once again hitting a new all-time high. This is at the back of strong economic growth and rate cuts
by the central banks. In India, both the mid and small cap indices have once again surged to all-time highs, posting
moderate returns for the quarter. Meanwhile, their US (Russell 2000) and European (FTSE EuroMid) counterparts
achieved strong returns but remain below their all-time highs.
The long US treasury yields reacted positively to the rate cut announcement and delivered 5% absolute returns in
the quarter. Brent crude prices plummeted to around USD 70 per barrel in September, the lowest in three years,
following OPEC's reduction in its global oil demand growth forecast for 2024 and its lowered expectations for the
coming year. The base metals pack rebounded in September, driven by market optimism following the
announcement of Chinese economic stimulus measures. (All data is in USD terms, as shown in Exhibit 1)
From being marginal net sellers in 1QFY25 (USD 0.9 bn net outflow), FIIs turned net buyers in 2QFY25 (USD 11.6 bn
net inflow), with bulk of the buying coming in September. Indian equity markets reached a new all-time high, buoyed
significantly by domestic institutional investors (DIIs) injecting approximately USD 12.4 bn. Mid cap indices with 7%
returns in the quarter were in line with the large cap indices while returns from small cap indices were a little lower
at 4%. Net inflows into domestic Equity MFs/ETFs remained robust at INR 865 bn during Jul-Aug 2024. On a 5-year
average basis, 1-yr forward P/E of large cap is at a premium of 11%, mid and small cap at 39%/35% while EPS
growth is expected to be 11%, 15% & 37% respectively in FY25.
In summary, we observe that all three forces: stupidity, fear, and greed are influencing investments worldwide.

The global economy is likely to register annual growth of 2.4% this year, down only modestly from 2.7% in 2023.
India is standing out with 7% growth expectation in FY25 (as per RBI). Central banks across the globe including the
US Fed have started cutting interest rate and are expected to continue the rate cuts as inflation cools off. RBI is also
expected to change its stance in the next policy meeting and might kick start the rate cut cycle from December.
Indian corporates are well placed with healthier balance sheets and are expecting mid-teen earnings growth in FY25
and FY26 on the back of a strong economy. The government is committed to stay on the fiscal glide path (as per the
guidance given in the union budget), which is a key monitorable by international rating agencies to improve the
credit-worthiness of India in global markets. The inclusion of India in the Bloomberg Bond Index is expected to attract
investment exceeding USD 5 bn. This comes on top of the expected investment of around USD 20 bn in the JP
Morgan EM Bond Fund. The country experienced above-normal rainfall this year, but forecasts of unseasonal rains
in October and November, potentially driven by La Niña conditions, pose a threat to crops during the harvesting
season. Consequently, there are emerging upside risks to food inflation.
As always, the philosophy of managing portfolios should remain the same with Asset Allocation as the core focus.
Within Listed Equities, we continue with our preference towards large cap allocation. We can look at profit booking
to the extent of gains made in the last one year in mid & small cap in a calibrated manner. We are optimists in the
long run but have turned cautious in the short run. We urge you to invest in markets with a 3+ year horizon. Always
brace for a sizeable correction (10-20%+) in equities especially now as it has been overdue for a while. Our listed
equities desk’s base case forecast pegs a 2-6% decline in Nifty-50/BSE-500 for the current quarter.
Within Fixed Income, although short term yields have moderated but long-term bonds are still offering attractive
yields. Based on the current market scenario, we believe longer duration seems to be a good opportunity and should
be locked-in through long dated G-secs. As per the risk appetite and expected post tax returns, one may look at
allocation to arbitrage funds, arbitrage+ funds, multi-asset funds, long short funds, select high yield papers,
structured credit and venture debt funds. We expect the total quantum of rate cut by RBI to be 50 bps and 10-year
G-sec yield to further drop by 25 bps and hover around 6.50% by the end of FY25.
Within Private Markets, it could be a good time for fresh allocation to high quality fund managers as valuations are
attractive. We prefer managers who have a stable team and consistent track record of investments and exist over
multiple cycles.
Within Gold, our outlook is positive due to weakness in the dollar, expectation of further rate cuts, increase in central
bank buying and geo-political risks. Silver can also be considered, as its beta is greater than that of gold.
Within REITs and InvITs, things are looking good as various drivers are in place. The interest rates are expected to
come down. Overall demand is expected to improve with more global captive centers moving to India. More space
can be leased due to the recent SEZ amendment.
Exhibit 1: Select asset class returns (in USD terms)

Markets 3 Months 1 Year 3 Year
MSCI Developed World 6% 30% 24%
USA S&P 500 6% 34% 34%
NASDAQ 100 3% 38% 26%
Nikkei 225 8% 24% 0%
CAC 40 6% 13% 13%
DAX 10% 32% 22%
MSCI EM 8% 23% -7%
India Nifty 50 7% 30% 30%
Russell 2000 9% 25% 1%
FTSE EuroMid 11% 25% -1%
India Nifty Midcap 7% 47% 75%
India Nifty Smallcap 4% 49% 56%
Dollar Index -5% -5% 7%

Base Metals 4% 16% 2%
Brent Oil -17% -25% -9%
Gold 13% 43% 50%

US Long Treasury Index 5% 10% -5%
Crisil Short Term Bond Fund Index 2% 7% 5%
Crisil Composite Bond Fund Index 2% 8% 5%
Source: Bloomberg, Avendus Wealth, Absolute Performances shown, as of 30th September 2024.
The document has the following flow:

✓ As always, we are presenting our Views across Equities & Fixed Income and sub asset classes with them. This
forms the basis for Asset Allocation with an overlay of risk/return profile. We have highlighted specific
opportunities for investment in these asset/sub asset class. We have also presented how this view has changed
over the last eight quarters.
✓ We have made two changes in the asset allocation positioning. We have gone underweight on the <1 yr maturity
debt as yields have come down sharply in the short term and changed our stance to neutral on REITs as the
price has runup in the last quarter, thereby reducing the discount to NAV.
✓ Finally, there are elaborate views presented from each of our desks – Equities, Fixed Income, REITs & InVITs,
Gold, Private Market (Alternate Equity & Fixed Income), Credit and Offshore.
Happy reading and thoughtful investing!
Example of
Portfolio
Change Expected Returns products/securities
Positioning Instruments that Suitable for the following
from $ which fall under the
within asset could be considered over next 3 years client risk profiles
Q2 FY25 corresponding
class
Strategy Type**
Funds with a low tracking Nifty 50 & Nifty Next Moderate, Balanced,
Core Beta Overweight - 10-11%
error vs the index 50 ETF/Index Fund Growth & Aggressive
Funds investing to
JM Flexi Cap Fund, 3P
generate consistent alpha,
Core India Equity AIF, Unifi Moderate, Balanced,
Neutral - mainly large cap biased; 11-13%
Alpha Blend, Sohum India Growth & Aggressive
includes global equities as
Opportunities Fund
well
JM Midcap Fund,
Funds aiming to generate JM Smallcap Fund
Balanced, Growth &
Satellite Underweight - disproportionate alpha in 13-15% Vallum PMS,
Aggressive
favorable markets Valentis PMS,
NAFA Capital PMS
Portfolio
Change Expected Example of products/securities Suitable for the
Positioning Instruments that could be
from Returns over which fall under the corresponding following client risk
within asset considered $ **
Q2 FY25 next 3 years Strategy Type profiles
class
Liquid & money market Conservative,
6.9-7.5%
<1 Yr funds (<1 Yr maturity) Moderate,
Underweight ↓
Maturity FDs: Bajaj Finance, Balanced, Growth &
FDs (<=1 Yr) 7.5-7.6% Aggressive
LIC Housing Finance
Invesco India Arbitrage,
Arbitrage Funds 7.0-7.5%
Kotak Equity Arbitrage Conservative,
Alpha Alternatives Multi Strategy Moderate,
Debt Plus Overweight --
Hedge Funds 10.0-11.0% Absolute Return Fund, Avendus Balanced, Growth &
Absolute Return Fund Aggressive
Equity Savings 8.0-8.5% ICICI Pru Equity Savings Fund
<3 Yr Short term, BPSU & ABSL Corporate Bond, Conservative,
Neutral -- 7.0-7.5%
Maturity Corporate Bond Funds Kotak Bond Short Term Moderate,

Balanced, Growth &
Aggressive
Medium Duration, Dynamic ICICI Prudential All Seasons Bond Moderate,
Medium
Neutral - Funds, Multi Asset 7.0-7.5% Fund, Axis Strategic Bond Fund, Balanced, Growth &
Maturity
Allocation Edelweiss Multi Asset Allocation Fund Aggressive
Longer Gsec b/w 10-50 years, Balanced, Growth &
Overweight -- Long Duration Funds 6.5-7.5%
Maturity HDFC Long Duration Fund Aggressive
Conservative,
Bonds/
Bonds /NCDs issued by NCDs, Corporate FDs, Moderate,
FDs/ Neutral -- 7.5-7.9%
quality AAA issuers as available Balanced, Growth &
NCDs AAA
Aggressive
Credit opportunities through
High Yield Balanced, Growth &
Overweight - well researched funds & 9-14% As available
Credit Aggressive
direct debt opportunities
Example of
Portfolio
Change Expected Returns products/securities
Positioning Instruments that Suitable for the following
from $ which fall under the
within asset could be considered over next 3 years client risk profiles
Q2 FY25 corresponding
class
Strategy Type**
REITs/ REITs/InviTs issued by REITs (6.0-6.5%),
Moderate, Balanced,
# Neutral ↓ quality promoter & InVITs As available
InviTs Growth & Aggressive
management groups (10.0-11.0%)
HDFC Gold ETF,
Gold & Silver ETFs and
Nippon India ETF Gold Moderate, Balanced,
Gold/Silver Overweight - Index Funds, Sovereign 10-12%
BeES, Nippon India Growth & Aggressive
Gold Bonds
Silver ETF
Source: Bloomberg, fund houses, Avendus. Allocations should be based on client specific needs & post-tax return. Core Beta tracks
index; Core Alpha: large cap biased delivering consistent alpha; Satellite: potential to generate relatively higher alpha. NDPMS route
should be preferred for thematic ideas. *These are not client risk profiles. The risk profiles mentioned here only indicate the risk bucket
in which various products/securities are classified by Avendus Wealth Management. Not be confused with Asset allocation risk profiles.
$Pre-tax returns for listed equity based on Equity Risk Premium over Bond yields and market capitalization bias; for debt based on
current & future rates (based on expected market conditions) & opportunities available. Actual returns may or may not be realized.
#Listed & subject to market risks. **Examples are based on Avendus Wealth proprietary equity & debt investment selection process
and includes only some of the products/securities distributed by Avendus Wealth Management. These references here should not be
treated as an investment advice by the recipient of this report. You are requested to read the Offering/Scheme related documents
carefully before taking an investment decision and consult your investment adviser for your investment decisions and their suitability
to your investment objectives and risk profiling. Detailed disclaimer on last page.
Scale of allocation:
Underweight (UW) -> Neutral (N) -> Overweight (OW)
Q3 FY23 Q4 FY23 Q1 FY24 Q2 FY24 Q3 FY24 Q4 FY24 Q1 FY25 Q2 FY25 Q3 FY25
Core Beta OW OW N N OW OW OW OW OW
Core Alpha OW OW OW OW N N N N N
Satellite UW UW N N UW UW UW UW UW
<1 Yr Maturity N N N N N N N N UW
Debt Plus N N N N N OW OW OW OW
<3 Yr Maturity N OW N N OW N N N N
Medium Maturity OW OW OW OW OW OW N N N
Longer Maturity OW OW OW N N OW OW OW OW
Bonds/NCDs – AAA N OW OW OW OW N N N N
High Yield Credit N N N N N N N OW OW
REITs/InviTs N N OW OW OW OW OW OW UW
Gold/Silver OW OW OW OW OW OW OW OW OW
“Indicative yields mentioned throughout the document are purely illustrative in nature, is subject to change and do not provide any
assurance. Please refer the last page for detailed disclaimer”

o CYTD, global equities have seen a sharp move-up – Key global indices continued their upward journey with the
Nasdaq/S&P 500/MSCI EM Asia indices gaining by 19%/21%/14% respectively during 9MCY24. Indian equities
fared equally well with Nifty-50/BSE-500 clocking 18%/24% USD returns over this period. Mid/small cap stocks
continued outperforming large caps; benchmark mid/small cap indices have rallied 26-29% YTD.
o US Fed pivot on rates & normal monsoon keep uptrend intact in 2QFY25 – Notwithstanding GOI hiking capital
gains tax on listed equities and weak YoY earnings growth of Nifty-50/BSE-500 companies in 1QFY25, uptrend
in Indian equites sustained in 2QFY25 (Nifty-50 +7%, Nifty Midcap-100 +8%, Nifty Smallcap-100 +5%, BSE-500
+7%) on the back of strong domestic flows & FIIs inflows picking up post US Fed pivot on rates from mid-Sep.
Interestingly, NSE’s monthly Advance-Decline (A/D) ratio was fairly balanced during the quarter – 1.05x in Jul-
24, 0.95x in Aug-24 and 0.98x in Sep-24. In US Dollar terms, Indian equities performed in line with MSCI EM
peers, but lagged the US Equities (MSCI India Index +6% QoQ, MSCI EM Index +5% QoQ, S&P 500 +10% QoQ).
o 2QFY25 saw robust FII/DII net inflows into equities – From being marginal net sellers in 1QFY25 (USD0.9bn
net outflow), FIIs turned net buyers in 2QFY25 (USD11.6bn net inflow), with bulk of the buying coming in
September. During the period between January to mid-September 2024, stocks in the financial services, FMCG
and energy spaces saw the highest FII selling, whereas stocks in the consumer services and telecom spaces
saw the highest FII buying; on a QTD basis, IT, healthcare, and consumer services stocks witnessed the highest
inflows, while BFSI and utilities stocks witnessed the highest outflows. Net DII inflows into equities remained
robust at USD12.4bn (albeit 20% lower vs. the net inflows in 1QFY25). Overall, the USD24bn net institutional
inflows into equities in 2QFY25 reflects ample risk appetite despite lofty valuations across most sectors.
o Monthly inflows into domestic MFs continued to scale up as risk appetite seems undeterred – The 3-mth rolling
avg of net monthly inflows into domestic Equity MFs/ETFs climbed to INR 440bn in Aug-24 (20% higher vs. the
monthly avg for 1QFY25 and 3.5x the level as of Aug-23). Dissecting the flows in recent months, we note that
[1] flows into sectoral/midcap/small cap funds have gained traction, [2] proportion of flows to large & midcap
funds have remained rangebound, and [3] investors seem to be playing the large cap space via higher allocation
in flexi/multicap funds.
Exhibit 2: Nifty and BSE 500 – Average & Median MTM returns over the past 22 years
100% CY04-13 CY14-23 CAGR

Annual Return Avg Median Avg Median 10yr 20yr
80% Nifty 50 19.3% 22.8% 13.8% 13.5% 10.1% 12.4%
BSE 500 21.1% 24.3% 15.6% 12.3% 11.1% 12.8%
60%
40%
20%
0%
-20%
-40%
Nifty BSE 500
-60%
CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20 CY21 CY22 CY23 9M
CY24
Source: Bloomberg

Exhibit 3B: Monthly net flows into Equity MFs &
Exhibit 3A: Net monthly FIIs/DIIs fund flows
Index ETFs
600 500
450
400 400
350
200
300
- 250
200
(200) 150
100
(400) 50
FII Netinvestment (Rs. Bn.) -
(600)
Apr-23
Apr-24
Oct-22
Jun-23
Feb-23
Oct-23
Jun-24
Feb-24
Aug-22
Dec-22
Aug-23
Dec-23
Aug-24
Sep-22
Sep-23
Sep-24
Jan-22
Jan-23
Jan-24
May-22
May-23
May-24
Source: Bloomberg, NSDL Source: AMFI
Leaders/laggards in 2QFY25 – Attribution Snapshot for top 100 large/mid/small cap NSE indices
NSE Nifty 100: Over the past quarter, IT stocks (Infosys, TCS, HCL Tech), ICICI Bank, ITC and Bharti Airtel contributed
majorly to the index’s gains whereas PSEs (HAL, BEL), PSU Banks (SBI, BOB, PNB), RIL, Axis Bank & Tata Motors
were drags on the index performance. A/D ratio at 2.5:1 was robust.
Source: Bloomberg
NSE Midcap 100: Top index contributors/detractors were diverse (top 5 contributors = Suzlon, BSE, Lupin, Persistent
Systems and Coforge | top 5 detractors = Vodafone Idea, Macrotech Developers, Astral, Supreme Industries and
Bharat Dynamics). The A/D ratio of the index over the past quarter was 1.7:1, much moderated from a level of 5:1
in 1QFY25.

Source: Bloomberg
NSE Smallcap 100: In 2QFY25, MCX, CDSL, Glenmark Pharma, Himadri Specialty Chemical and Blue Star were the
top contributors in the index up-move, whereas the key detractors were Titagarh Rail Systems, Cochin Shipyard,
battery manufacturers (Exide, Amara Raja) and select BFSI stocks (RBL Bank, Equitas SFB). The A/D ratio was 0.9:1
vs. a level of 6:1 in 1QFY25.
Source: Bloomberg
We maintain that in the global context, positive narrative for Indian equities remains intact– strong GDP growth,
healthy balance sheet of banks/corporates, mid-to-high teen corporate earnings growth outlook, manageable
inflation, relative political stability and India attracting a larger share of FPI flows as country weightage in
global/regional benchmark indices rises.
However, Indian equities enter 3QFY25 at expensive valuation multiples following the sharp YTD rally primarily led
by multiple expansion rather than earnings growth upgrades (FY24e-26e earnings CAGR for Nifty-50/BSE-500 are
at 13%/14%, as per Bloomberg). In turn, the multiple expansion is fueled by record-high monthly inflows into
domestic equity MFs/index ETFs and net DII inflows in equities spread across the market cap curve. At the asset-
allocation level, the BEER (Bond-Equity Earnings Yield Gap Ratio) is at 1.5x – a level from where Equities have
typically underperformed Bonds historically over the past 10yrs.
Over the next 3 months, geopolitical exigencies leading to an oil shock/supply chain disruption and a global ‘risk-
off’ sentiment remains the key risk to Indian equities. Besides this, we expect equity markets to be driven by five
factors – [1] Trend/quantum of domestic net inflows into Equity MF & Index ETF, [2] 2QFY25 corporate earnings &
mgmt. commentary on growth outlook for 2HFY25, [3] RBI monetary policy outcomes (stance & rates) and
commentary on asset quality for NBFCs/Banks, [4] Decline in Dollar Index (DXY) and share of FII flows to India in
the backdrop of China’s recent economic stimulus, and [5] Measures by SEBI to curb the seemingly incessant
enthusiasm in some market segments.

In summary, we think the margin of safety embedded in current market valuation multiples appears low. We continue
to expect a cool-off and our base case forecast pegs a 2-6% decline in Nifty-50/BSE-500 for the current quarter;
longer the wait, intra-quarter correction would be potentially deeper.
o FY24-FY26e earnings CAGR is muted vs. earnings growth in FY23/FY24 – As per Bloomberg data, FY25e/FY26e
YoY earnings growth forecast for Nifty-50 is +11%/+16% and for BSE-500 is +11%/+17%. Over the past quarter,
Bloomberg’s FY25 earnings forecast for Nifty-50/BSE-500 have nudged up by 1%/2% respectively.
o Valuation multiples across market caps higher QoQ, remain expensive – At 21.4x/23.9x 12-mth forward P/E
multiple for Nifty-50/BSE-500 are up 3-4% QoQ and +2SD above their respective 10yr averages. Even over a
shorter timeframe, the 1yr-fwd P/E of Nifty-50/NSE-Midcap 100/NSE-Smallcap 100/BSE-500 are at a premium
of 11%/39%/35%/16% to their respective 5-yr avg.
o Base-case returns outlook for Nifty-50/BSE-500 is 2-6% decline (3mth) and 6-8% gain (12mth) –We expect
benchmark indices settling lower by Dec-end with large caps outperforming small/midcaps. Specifically, we
assume that Nifty-50/BSE-500 would settle to trade at 1-yr forward P/E multiple of 20.5x/22.0x (5%/9% below
current levels, but still 5%/8% above their 5yr avg.), translating to a 3-mth returns outlook of a 2-6% decline from
current levels. Assuming 1-yr forward P/E multiple of Nifty-50/BSE-500 begin mean-reversion and ebb to
20.0x/21.5x (+3%/+5% above their respective 5yr avg.), we expect 12-mth returns outlook for Nifty-50/BSE-
500 at 6-8%.
Exhibit 4: Nifty-50/BSE-500 1-yr forward P/E is considerably above their respective 10yr averages
Nifty 1 Year Forward P/E BSE500 1 Year Forward P/E
+2 SD
23 +2 SD 23
+1 SD
21 +1 SD 21
19 19
Avg
Avg (10 Yr)
17 (10 Yr) 17
-1 SD -1 SD
15 15
-2 SD -2 SD
13 13
11 11
Source: Bloomberg, Avendus Wealth Source: Bloomberg, Avendus Wealth
Exhibit 5: India’s Yield Gap ratio | 1-yr forward P/E of Nifty Mid-Cap, Nifty Small-Cap
Yield Gap – Bond Equity Earnings Yield (BEER) ratio in the 1yr forward P/E Multiples (Mid/Small Caps)
‘Sell’ zone
1.7
1.6 +2 SD 35.0
1.5 +1 SD 30.0
1.4
1.3 25.0
1.2 Avg
(10 Yr) -1 SD 20.0
1.1
1.0 -2 SD 15.0
0.9
NSE SmallCap 1-yr fwd P/E NSE MidCap 1-yr fwd P/E
0.8 10.0
SmallCap 10 Yr Ayg MidCap 10Yr Avg
0.7
5.0
Note: Proxy for calcs = GOI 10yr Bond Yield, NSE 100 1-yr fwd P/E | Source: Bloomberg, Avendus Wealth

Exhibit 6: 1-yr forward P/E vs EPS – Nifty and NSE500 and 10-yr bond yield
Nifty NSE 500
10yr Bond 1yr fwd EPS Index 1yr fwd P/E 1yr fwd EPS Index 1yr fwd P/E
30-Sep-22 7.40 916 17,094 18.7 747 14,829 19.9
30-Dec-22 7.33 958 18,105 18.9 778 15,449 19.9
31-Mar-23 7.31 997 17,360 17.4 804 14,558 18.1
30-Jun-23 7.12 1020 19,189 18.8 827 16,430 19.9
29-Sep-23 7.22 1,056 19,638 18.6 866 17,293 20.0
29-Dec-23 7.17 1,062 21,731 20.5 886 19,429 21.9
28-Mar-24 7.06 1,084 22,327 20.6 923 20,255 21.9
28-Jun-24 7.01 1,162 24,011 20.7 976 22,560 23.1
30-Sep-24 6.75 1,208 25,811 21.4 1013 24,245 23.9
Source: Bloomberg, Avendus Wealth
In case of fresh capital deployment into top-down investment opportunities like ETFs and broad-based MFs, we would
look to deploy 35% of targeted corpus at current benchmark index levels. Taking Nifty-50 as proxy, we would look to
deploy more at levels closer to ~24.5k (implied 12mth forward P/E multiple be closer to 5yr average). In the realm
of Direct Equities, we would typically look to deploy 40-50% of targeted corpus into bottom-up stock ideas subject to
sector/stock specific dynamics (earnings/valuations).
Market Cap – Our order of preference is Large > Mid > Small
Looking at the composition of India’s equity market capitalization as of Sep-24 vs. a year ago, share of large caps
has declined from 67.2% to 64.9%, whereas share of midcaps has risen from 18.7% to 19.7% and share of small
caps has risen from 14.1% to 15.3% by year end (Exhibit 7). Based on valuation multiples relative to their respective
7yr/10yr averages, our order of pure-play market-cap preference is Large-Caps > Mid-Caps > Small-Caps. The ability
for flexi-cap funds to adjust portfolios in times of shortening risk on/off cycles and theme-plays makes us prefer this
portfolio construct.
Exhibit 7: Breakup of Market Capitalization across Large, Mid & Small Cap Companies
24% 80%
19% 75%
19.7%
14% 15.3% 70%
9% 65%
65.0%
4% 60%
Sep-19 Mar-20 Sep-20 Mar-21 Sep-21 Mar-22 Sep-22 Mar-23 Sep-23 Mar-24 Sep-24
% Mid Cap % Small Cap % Large Cap (RHS)
Last 5-year Average: Large Caps (71.5%); Mid Caps (17.1%), Small Caps (11.5%)
Source: Internal analysis across top 750 listed companies by market cap, Bloomberg, As of 30th September 2024.
As shown in Exhibit 8, we examine the medium-term sector risk-reward outlook on two broad variables – valuation
comfort (12mth forward earnings/book multiple of a BSE/NSE sector index relative to its 7-yr average) and the
likelihood (as per our assessment) of actual earnings beating consensus earnings expectations. As such, the ideal
investment case would be wherein both valuation comfort and potential to beat/raise forward (FY25e/F26e)
earnings expectations are high (top right quadrant). In contrast, sectors to avoid or stay underweight would be the
ones which figure in the bottom left quadrant.
o BFSI stocks still appear to offer reasonable risk-reward balance – Despite a handful of near-term concerns
(slowing loan growth, concerns around MFI/unsecured asset quality & growth curbs, pressure on NIMs from

potential repo rate cuts over the next 6-12 months), most private banks appear to trade at reasonable
valuations. Several NFBCs (including Housing Finance Cos) offer reasonable risk-reward. Near-term regulatory
risk for insurance stocks seems to be behind us.
o IT valuation multiples well above neutral territory – Following a sharp rally in 2QFY25 (BSE IT index +15% QoQ)
on expectations of likely bottoming out of revenue growth on the back of a ‘soft landing’ in the US economy, the
12mth fwd P/E valuations of IT space is again well-above pre-Covid averages. As we enter the seasonally weakest
quarter for IT companies, risk-reward appears unfavorable; we believe management commentary in the
upcoming 2QFY25 results will be gauged closely to determine the near-to-medium term movement in the sector.
o Consumption space – Consumer staples and rural-spending related stocks have seen a strong rally since June
on the back of expectations linked to demand recovery and resilient margins. At current levels though, the risk-
reward may not be favorable for majority of stocks in this space (growth may well underwhelm heightened
expectations). We suggest a selective approach across FMCG, discretionary (retail & auto) and travel/logistics
space bearing growth-adjusted valuations in mind.
o Industrials/Cap Goods – Within the manufacturing space, while defence/railways stocks have seen a correction
in 2QFY25 (absence of incremental capex announcements in the Union Budget), valuation multiples for most
stocks across the space appear significantly above their long-term averages. We maintain that while there is a
case of ‘staying/being invested’, near-term risk-reward outlook for incremental investment appears adverse;
prefer to wait for a time/price correction.
o Real Estate & Realty proxy plays – Although the potential rate-cut cycle in CY25 will remain supportive of
demand, valuations of majority of real-estate stocks seem fairly full as the pace of new project launches tapers.
As project deliveries increase from 2HFY25 onwards, realty proxy plays (stocks in building materials/FMEG
space) can be examined selectively (here again, valuations are not cheap).
o Selective plays in other sectors – Selective investments in chemicals, commodities (including metals),
healthcare, energy (including oil & gas) and infrastructure spaces can be evaluated from a tactical/medium-
term perspective.
Exhibit 8: Key sectoral indices – Price performance & earnings expectations vs valuation comfort
Oct-Dec Jan-Mar Apr-Jun Jul-Sep 12mth Valuation Multiple
3QFY24 4QFY24 1QFY25 QTD TTM Metric FY24 FY25e FY26e
BSE IT 12% -1% 4% 15% 32% P/E 32.6 28.8 25.3
BSE Banks 8% -2% 11% 1% 20% P/B 2.22 1.99 1.7
BSE Fin Services 9% -1% 11% 4% 24% P/B 2.62 2.36 1.77
Nifty Pharma 9% 13% 4% 18% 51% P/E 35.1 29.6 27.7
BSE Healthcare 11% 11% 6% 19% 55% P/E 41.2 33.5 29.8
BSE Metals 16% 4% 17% 5% 49% EV/EBITDA 8.32 6.99 6.33
BSE Oil and Gas 21% 20% 7% 8% 67% P/E 11.3 11.2 9.47
Nifty Media 5% -25% 11% 7% -6% P/E 43.6 21.9 16.9
BSE Utilities 28% 14% 15% 9% 82% P/E 26.4 23.1 21.1
BSE Auto 15% 16% 17% 7% 67% P/E 28 24.3 21.4
BSE Cap Goods 17% 10% 19% 1% 53% P/E 47.9 37.8 31.5
BSE Realty 34% 15% 21% 0% 87% EV/EBITDA 41.1 31.4 24.7
Nifty FMCG 10% -5% 5% 15% 27% P/E 47.3 41.8 37.3
BSE Infra 23% 20% 16% 7% 83% P/E 19.2 17.1 16
BSE Cons. Durables 10% 5% 13% 15% 49% P/E 85.8 62.4 49.6

Source: BSE, NSE, Bloomberg, Avendus Wealth
How to read the above chart?
• X-axis: Probability/potential of the sector to surprise (beat) on FY25e earnings expectations
• Y-axis: Valuation comfort relative to respective historical sector/group average;
• Quadrant hierarchy: Top right = Most preferred | Bottom left = Least preferred
Note: Sectoral representation is primarily on underlying BSE/NSE sector index, which are typically market-cap weighted. Accordingly,
a sector’s placement on this chart may not be applicable to all underlying stocks in that space.
Nifty Nifty
Nifty Nifty
Mid Cap Small Cap Nifty 500
50 100
100 100
Financial Services 32.9% 31.2% 21.7% 24.1% 27.9%
IT 12.8% 10.8% 8.2% 7.1% 9.5%
Oil, Gas & Consumable Fuels 11.3% 10.2% 4.3% 4.6% 8.3%
Fast Moving Consumer Goods 8.6% 8.4% 3.6% 2.2% 7.3%
Automobile and Auto Components 8.1% 7.7% 7.4% 4.2% 7.4%
Healthcare 3.9% 4.1% 8.4% 9.2% 6.0%
Construction 3.7% 3.0% 1.5% 6.7% 2.9%
Telecommunication 4.0% 3.2% 3.8% 2.7% 3.0%
Metals & Mining 3.6% 3.8% 2.3% 3.6% 3.5%
Power 3.2% 4.8% 1.8% 1.2% 3.8%
Consumer Durables 2.7% 2.5% 4.1% 6.6% 3.2%
Construction Materials 2.1% 2.2% 0.6% 1.0% 2.0%
Services 0.9% 1.3% 3.1% 3.0% 1.7%
Consumer Services 1.5% 3.5% 4.5% 1.2% 3.6%
Capital goods 0.9% 2.3% 14.0% 10.4% 5.7%
Chemicals 0.4% 5.5% 4.1% 2.2%
Realty 0.6% 4.4% 2.9% 1.4%
Textiles 0.9% 0.8% 0.3%
Media, Entertainment &
2.3% 0.2%
Publication
Diversified 0.7% 0.1%
Forest Materials 1.4% 0.1%
Source: BSE, NSE, Bloomberg, Avendus Wealth. Data as on 30th September 2024

o Inflation Prints: Globally, both core and headline inflation have started to cool off and reaching near the central
bank’s target range (Exhibit 9). India is also seeing the same trend with CPI coming in below 4% in Aug’24 due to
favourable base effect while food inflation still being elevated at 5.3%. The target CPI rate for most of the
developed economies including US, Europe and UK is at 2%. The target CPI rate for India is 4% with a band of
+/- 2%.
o Real Rates: Central banks across the world have begun lowering interest rates, causing real rates to decrease
slightly. In contrast, India’s real interest rate has risen to 3% as inflation has decreased and the RBI has
maintained steady rates. Such high real rates could dampen the growth prospects for the economy and could
curb private capex revival (Exhibit 10). Indian yield curve continues to be flattish with 1 Year, 3 Year, 5 Year and
10 Year currently at 60-75 bps over the upper tolerance band of inflation at 6%. (Exhibit 13)
o Central Bank Action: The RBI has kept interest rates unchanged for the eighth consecutive meeting, citing
concerns that rising food prices could impact the headline inflation. On the other hand, the US Fed kicked off its
easing cycle with a somewhat surprising 50 bps cut considering progress on inflation and the balance of risks.
Fed is expected to have two more rate cuts in this calendar year (Exhibit 11).
o Liquidity: Liquidity conditions remained surplus on a daily basis for most of the quarter until September 16th.
Liquidity turned deficit for a short period due to advance tax filing and GST payments in the last month. However,
the banking system returned to surplus liquidity by the quarter-end due to RBI injecting funds in the system,
strong pace of government spending and heavy foreign flows in Indian capital markets. The daily avg. surplus
for the quarter was ~INR 1.8 trn, indicating the central bank’s ease with increased liquidity, suggesting a
reasonable likelihood of a policy stance shift in October. (Exhibit 12)
o Market Borrowing: The government of India is sticking to the FY25 gross borrowing target of INR 14 trn. The
2HFY25 borrowing were in line with expectation of INR 6.6 trn with a gross borrowing of INR 7.4 trn. in the first
half. The proportion of second half borrowing in FY25 stands at 47.2% which is higher than previous two financial
year. The borrowings will be concentrated around the 10-15 years securities with 37.6% allocation, while we will
be seeing higher allocation (38.2%) to long dated securities i.e. 30 years+.
o Union Budget FY25: Since the announcement of election results in June 2024, there were speculation about
the introduction of populist policies in the first budget of the newly formed coalition government. But the
government was able to strike a balance between employment, economic growth and fiscal prudence. A big
positive was the government’s fiscal deficit target for FY25. This has been estimated at 4.9% of GDP, vs the
earlier estimate of 5.1% presented in Feb’24. More importantly, it has guided for a fiscal deficit target of 4.5%
for FY26 and would further go down over the years. The government is committed to stay on the fiscal glide path,
which is a key monitorable by international rating agencies to improve the creditworthiness of India in global
markets.
o Geo-political Risk: The Israel-Hamas conflict has intensified with Israel targeting attacks in Lebanon, Yemen,
Gaza and Syria. The Middle East conflict could escalate if Israel and Iran confront each other, potentially driving
up oil prices. On the other hand, the risk perceptions from the Russia-Ukraine war have softened. Crude price
has also cooled off in the last quarter in anticipation of oversupply and low demand. Given the uneven monsoons,
both the global factors need to support the economy to bring the domestic food prices under control.
o Considering the yield differential between US and India 10 year is substantially lower (297 bps) than the long-
term average (483 bps), India is expected to experience a modest rate cut cycle. We anticipate that the RBI will
continue its wait-and-watch approach, focusing on domestic inflation, with the first rate cut likely by December.
We expect the total quantum of rate cut to be 50 bps by the end of FY25 by RBI.
o India 10-year G-sec has already seen a yield drop of ~50 bps to 6.75% in the last 6 months due to global
monetary easing cycle and robust foreign flows. We expect 10-year yield could further drop by 25 bps and hover
around 6.50% by the end of FY25.

Exhibit 9: CPI trajectory of Key Developed economies and India.
6.7%
5.0% 5.1%
4.5%
3.7% 3.7%
3.0%
2.5%
2.0% 2.2% 2.2%
1.6%
US UK Germany India
Sep-23 Jun-24 Sep-24
Source: Bloomberg.
Exhibit 10: Movement in Real Rates

(September 2023 to September 2024)
4.00 3.01
3.00 2.20 2.19 1.88
1.75 1.78
2.00 1.34 1.14
0.63 0.46
1.00
0.00
-1.00
-2.00 -1.30
-3.00 -1.81
US UK Germany India
Sep-23 Jun-24 Sep-24
Source: Bloomberg.
(for the respective countries)
Exhibit 11: US Fed no. of Rate Cuts Expectation Exhibit 12: Net system liquidity deficit (INR bn)
Number of Hikes/Cuts Priced In (Cumulative) 3000
7 1000
6
-1000
5
-3000
4
3 -5000
2 -7000
1 -9000
Sep-19
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
Mar-24
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-20
Sep-21
Sep-22
Sep-23
Sep-24
0
Nov-24 Dec-24 Jan-25 Mar-25 May-25
Source: Bloomberg. Source: Bloomberg.

The positive bars in the above chart indicates liquidity deficit. As
shown above, surplus liquidity across the quarter.

Exhibit 13: India Inflation Target band (b/w 2 to 6%) Vs Repo, 1 year, 3 year, 5 year and 10 year.
6.50% 6.55% 6.66% 6.67% 6.75%
6.00%
2.00%
Repo 1 Yr 3 Yrs. 5 Yrs. 10 Yrs.
Sep-24 Upper band Lower Band
Source: Bloomberg.
o If one must stick to liquidity buckets where should invest?

• Time frame <1M: Overnight Funds
• 1-3M: Liquid funds
• 3-6M: Ultra Short Term/Money Market Funds
• 6-12M: Low duration funds, arbitrage funds, Arbitrage+, long-short funds
• 12-18M: Long-short funds, Floating rate funds (selectively), select corporate bonds
Yield curve is shown in the (Exhibit 14)
o Is it favourable to take higher risk within the liquidity bucket?
• Allocation might be in line with the liquidity preference.
• Depending on the risk tolerance investors might go up one notch higher between the Liquid and Ultra Short
Duration (Money for 3M might be allocated to Ultra Short Duration category for investors seeking higher yield)
(Exhibit 14)
Exhibit 14: Indicative pre-tax yield of investment option in less than 1 year investment horizon
10.5%
7.3% 7.3% 7.5% 7.8% 8.0% 7.4% 7.7% 7.4%
6.7% 7.0% 6.7% 6.5% 6.8%
Arbitrage
Bonds (<3M)
Bonds (<6M)
Bonds (12M)
Overnight
Corp FD - 6M
Liquid Funds
Ultra Short
Long Short
Low Duration
Corp FD -
Bank FD - 3M
Bank FD - 6M
Bank FD -
Duration
Funds
Funds
12M
Funds
Funds
12M
Funds
Net yields for mutual funds as of 30th June 2024. | Source: Avendus Bond Desk, ICRA Online, Bank websites, respective fund houses. Bank
FD rates are shown for <2 cr. Corporate FD rates are shown for 5-10 cr. Corporate FD rates as of 30th June 2024.
o Which instrument to prefer for liquidity parking: Arbitrage or Long-short?

• FY25 union budget announced increase in STCG tax for equities from 15% to 20% and increase in STT of
futures from 0.0125% to 0.02%. Both the changes have negatively impacted the returns generated by the
Arbitrage funds
• Less than 6 months: For corporate investors, the post-tax returns for arbitrage funds is at par to debt
MFs/bonds while for individuals, arbitrage funds still yield better post-tax returns as compared to debt
MFs/bonds.

• More than 6 months: Long-short funds can offer an alpha of ~131 bps over arbitrage funds for an individual
investor and 124 bps for corporates (Exhibit 15). Please note, long-short funds can be volatile in the short term.
Therefore, we suggest investors to consider a minimum investment horizon of six months.
Exhibit 15: Liquidity parking preferred in Long-short Fund over Arbitrage Funds
Arbitrage Funds Long-Short Fund Spread (a-b)
Investor Category Pre-Tax Post-Tax Pre-Tax Post-Tax
(a) (b) (a-b)
Individuals 6.70% 5.10% 10.50% 6.41% 1.31%
Corporates 6.70% 5.17% 10.50% 6.41% 1.24%
Source: AWM product desk. Data as of 30th September 2024.

Please note: Returns are annualized and net of fess. For pre-tax returns, we have used return guidance from Avendus Absolute
returns Fund for the Long-short category and weighted average blend of top 6 performers in the Arbitrage category. We have
calculated returns by taking avg. gross spread of arbitrage portion at 6.8-7.1% and debt portion yielding 7.1-7.3% for the Oct’24
month.
o Should I enter now or wait for rates to increase further? If yes, which segment of the curve should I participate in?
• Domestically we are closer to the peak of the interest rate cycle with the Repo rate at 6.50%. RBI is in a pause
mode for now.
• In the G-Sec space, the yield curve is flat from 1 year onwards. The rate one gets for 10-year maturity is only
20 bps higher than what gets for 1-year maturity.
o Should I participate through long duration funds/bonds?
• Some tactical allocation might be explored in longer end of the curve due to rate cuts and increased demand.
• The spread between India 10-year and US 10-year is currently at 297 bps. The Median over the last 10 years
has been 484 bps. Hence, we expect India rate cut cycle to be slower as compared to US.
• The inclusion of Indian Government Bonds in JPM & Bloomberg Emerging Market Bond Index has also
increased demand for the same.
• With borrowings going down and increase in demand, yields may fall meaningfully in the FY25.
• Considering that the yield on India's 10-year g-sec has already fallen by ~50 bps over the past six months, we
anticipate an additional reduction of 25 basis points by the end of FY25, along with a rate cut expectation of
50 bps by RBI.
• Investors can look to participate in the tactical play through long term G-secs gives higher post-tax returns
than the long-term funds.
o Should allocation be made to Active Fund managers?
• Consider active managers in the short term and medium-term space. They have the ability to modulate
duration based on interest rate expectations and select papers that are mispriced.
o Should allocation be made to Multi Asset Allocation Funds?
• FY25 union budget announced changes in taxation of the funds holding less than 65% allocation to debt
instruments. The long-term capital gain from these funds will now be taxed at 12.5% with a min. holding
period of 24 months while short-term capital gains unchanged at marginal rate.
• Investors who are looking for gross returns of 7.0-7.5% over a period of more than 2 years, can look to
participate in multi-asset allocation funds with 50-64% allocation to debt instruments and rest of the
allocation towards arbitrage strategy.
o Should allocation be made to Fund of Funds?
• Debt mutual funds are now subject to marginal taxation irrespective of the holding period. The taxation
change has yielded the post-tax returns from debt MFs unattractive.
• As an alternate to debt mutual funds, investors can look at investing in Fund of Funds where the fund wrapper
has 65% allocation to debt mutual fund/s and rest of the allocation towards arbitrage category. This strategy

yields better post-tax returns as the capital gains are taxed at 12.5% if held for more than 2 years. Moreover,
return and risk profile remains similar to the debt mutual funds.
• Post the FY25 budget, we are expecting a lot of new funds to come in this FOF category.
o How much should I allocate between the High Quality and High Yield bucket?
• Depending on the risk profile with strong diligence bespoke opportunities might be evaluated in both AA and A &
below space.
• Proven structured credit managers with a good track record and high focus on underwriting could be looked at.
• Venture Debt space might be looked at by participating with experienced managers having a good track
record and high focus on underwriting, risk management and monitoring.
• Currently, AAA bonds are trading around 8% making the post-tax yield of 4.4-4.3% for individuals. Since these
post-tax yields are not able to beat the inflation, investors can look at quality high yield bonds.
o Should investors consider moving from existing debt mutual funds to high yield investment options?
• FY25 union budget announced changes in taxation of debt mutual funds invested before 1 April 2023. Long Term
tax rate for these investments has been reduced from current 20% to 12.5%, however, they would not be able to
enjoy indexation benefit. And Holding period to qualify for long term has been reduced to 24 months.
• Given the above changes and depending on the investor’s risk profile, they can look to exit debt mutual funds
and lock-in higher yield by investing in structured credit funds/high yield bonds offering 12-13% pre-tax returns
(Exhibit 16).
Exhibit 16: Minimum yield from a new investment to come at par with existing debt mutual funds
(Investments done before 1Apr 2023 and have completed 2 years)
Current Current Min. Pre-tax Yield

Investor Category
Pre-tax Yield Post-tax Yield from a New Investment
Individuals 7.50% 6.38% 10.46%
Corporates 7.50% 6.43% 10.54%
Source: AWM product desk. Data as of 30th September 2024. Pre-tax yield is the avg. of top performing debt MFs across categories
(excluding: Overnight, Liquid and Ultra Short Funds). New Investment indicates allocation to high-yield bond or structured credit fund.

o The office REITs in India are set to benefit from the growing office space demand in India aided by de-notification
of SEZ area. Most REITs are currently in a portfolio expansion mode in order to benefit from improvement in
demand.
o In REITs, discount to NAV has narrowed from last quarter. Currently discount is in the range of 3% to 15% (Exhibit
17A). Selective REITs looks attractive at the current level and could be part of long-term allocation. A potential
rate cut by RBI should also act as a positive kicker for the REIT prices.
o REITs in India are still at their early stage compared to other global markets. The market capitalization of Indian
REITs is < 10% compared to USA, Singapore, and other countries in the APAC.
o In the InvITs, although the price appreciation is limited by the long duration and depreciating nature of the
infrastructure assets, but they have been consistent with high quarterly distribution.
o With wider acceptance of the investment vehicle, evolution of the regulatory structure in line with global best
practices, there is a likelihood of expansion into other sub-asset classes such as Industrial, Data Center,
Hospitality, Healthcare and Education.
o Recently, government revised taxation for REITs and InvITs by bringing it at par with equity shares. This comes
as a positive development for the asset class as now the holding period to be eligible for LTCG has been reduced
from 3 years to 1 year for listed instruments and 2 years for unlisted instruments.
o India's office space market is witnessing strong growth, with Q2FY25 gross leasing volume reaching 19.89
million sq. ft., second only to the performance in Q3FY24. GCCs accounted for 36.2% of all leasing activity, while
global companies maintained a 56.2% share by the end of the quarter. (Source: JLL India)
o For investors who are comfortable with interim volatility and have a time horizon of >3 years, alternate asset
class like REITs and InvITs can be considered.
o There could be price volatility. However, the cash flows from these products have remained consistent. There is
also a possibility of some capital appreciation with a time horizon of 3 years.
o However, investors need to be selective as distribution yields may vary based on market price. (Exhibit 17A)
Exhibit 17A: Listed REITs and InVITs with Pre-Tax and Post-Tax Yield
Premium Distribution Yield Post tax
Distribution
Instrument CMP NAV (CMP over
Yield Pre-Tax Individuals LLP Corporates
NAV)
Embassy REIT 390 402 -3% 5.8% 4.8% 4.9% 5.1%
Mindspace REIT 356 381 -7% 5.3% 5.1% 5.2% 5.2%
Brookfield REIT 285 336 -15% 6.5% 4.7% 4.8% 5.2%
Nexus REIT 145 145 0% 5.7% 4.8% 4.9% 5.1%
Indigrid InvIT 143 144 -1% 10.5% 6.8% 7.2% 8.0%
Powergrid InvIT 89 13.5% 9.1% 9.5% 10.6%
Bharat Highway Invit 115 9.1% 6.6% 6.8% 7.3%
Exhibit 17B: Since Inception Performance of REITs and InVITs (as of 30th September 2024)
IPO Price as of CAGR
IPO Distribution Price Distribution Total
Instrument Listing 30th Since
Price since IPO Returns Returns Returns
Date Sep'24 inception
Embassy REIT Sep-19 300 390 116 30% 39% 69% 10%
Mindspace REIT Aug-20 275 356 71 29% 26% 55% 11%
Brookfield REIT Feb-21 275 285 65 4% 23% 27% 7%
Nexus REIT May-23 100 145 9 45% 9% 55% 37%
Indigrid Invit Jun-17 100 143 90 43% 90% 133% 12%
Powergrid Invit May-21 100 89 38 -11% 38% 26% 7%
Bharat Highway
Mar-24 100 115 7 15% 7% 22% 43%
Invit

REITs/InvITs price as of 30th Sep’24. Distribution yield is calculated based on current market price and doesn’t account for any change
in market price. For REITs, distribution is considered basis past average payouts and for InvITs, distribution is considered basis
management guidance. Performance less than 1 year absolute & greater than 1-year compounded annualized performance. DPU for
REITs are considered basis past distribution and for InvITs basis management guidelines. The distribution matrix into capital repayment,
dividend and interest is basis average of last one year. Tax rate considered for individual is 39%. NAV as per independent valuation
reports of respective companies as of 31st Mar’24. This is subject to change on half yearly basis. Post tax distribution is calculated as
MMR for interest income, dividend are not considered as it is tax exempt in hand of unitholders and capital distribution is taxed at LTCG
(assuming investor will hold units for 1yr+) For REITs, returns depends on following factors 1) Distribution (capital repayment + interest+
dividend), 2) Rental escalation, 3) Narrowing / Widening discount to Net asset value (NAV), 4) Increase in-place rent and 5) Growth of
asset. For InvITs, returns depends on following factors 1) Distribution (capital repayment + interest+ dividend), 2) Narrowing / Widening
discount to Net asset value (NAV) and 3) Growth and life of asset. Source: Bloomberg & Company presentation.

o Gold prices went up by 13.2% in this quarter and made a historic surge to hit a life-time high of USD2,672 per
ounce (in Sep’24), marking the highest closing since the inception of contracts in 1974. Silver has gone up by
7% in this quarter but is still significantly below (36%) it’s all time high of USD49 per ounce in April’11. (Exhibit:18,
19)
o The sharp surge in gold prices is driven by the US Fed’s 50 bps rate cut and the anticipation of further rate cuts in
2024, which caused the dollar index to decline and resulted in strong inflows into the precious metal.
o The negative correlation between TIPS 10Y and gold price is back to normal after deviating for the last two
quarters. During this quarter, gold prices rose 13.2% while US 10 Year TIPS went down by 51 bps from 2.11% to
1.60%. This is due to surge in gold prices as central banks have started cutting interest rates and inflation has
also started to cool off. (Exhibit:20)
o Central Banks have maintained the continuity of adding gold to their vault. This year we have already seen global
central banks adding 473 metric tonne in the first six month which is 5% above the previous record of 460 metric
tonne in H1CY23. With the current pace, it appears that the central banks are on course for third consecutive
year of buying ~1000 metric tonne of gold. (Exhibit:21)
o From a medium to long term perspective, we continue to remain positive, and it provides a good hedge in
disciplined portfolios following asset allocation.
o The precious metal has proved almost a perfect hedge to equity markets during the times of crisis (Exhibit:22). In
addition to the hedge, allocation to gold also provides flexibility to invest in assets classes which have corrected
during the crisis.
o Gold ETFs may be preferred over Index Funds as they offer LTCG tax benefit for a min. investment horizon of 1
year as compared to 2 years for an index funds. Sovereign Gold Bonds may be added as per availability.
o Silver prices have surged due to increase in demand because of industrial usage. Gold to Silver ratio is trading
higher at 84.6 as compared to its 20-year average of 68.8 (Exhibit:23). Silver ETFs could be considered as its beta
is greater than that of Gold and would rise faster if there is a turnaround.
o In the last 2 decades, silver has outperformed the gold twice in 5 years bucket (Exhibit:24A). Between 2010 –
20, silver has under-performed gold which is getting reflected in the long-term point to point under-
performance of silver in comparison to gold (Exhibit:24B). In the period mentioned the industrial usage of silver
went down, which is coming back with increased usage in chip manufacturing.
Exhibit 18: Gold Price (USD) Movement Exhibit 19: Silver Price (USD) Movement
(Gold surged to all-time high) (Silver is significantly below (36%) its all-time high)
3000 50
45
2500 40
2000 35
30
1500 25
20
1000 15
500 10
5
0 0
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Sep-22
Sep-23
Sep-24
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Sep-22
Sep-23
Sep-24
Source: Bloomberg Source: Bloomberg
Exhibit 20: QoQ Movement of Gold prices (USD/oz) and TIPS 10 Year
Date TIPS 10Y % Change % Gold Price Change %
30/09/2024 1.6 -0.5 2,635 13.2%
30/06/2024 2.1 0.2 2,327 4.3%

31/03/2024 1.9 0.2 2,230 8.1%
31/12/2023 1.7 -0.5 2,063 11.6%
30/09/2023 2.2 0.6 1,849 -3.7%
30/06/2023 1.6 0.5 1,919 -2.5%
31/03/2023 1.1 -0.4 1,969 8.0%
31/12/2022 1.6 -0.1 1,824 9.8%
Exhibit 21: Net Central Bank Gold Purchases (metric tonne) Vs Gold Prices (USD/ounce)
470 2500
370 2000
270 1500
170 1000
70 500
-30 0
Net Central Bank Gold Purchases (LHS) Gold Price (RHS)
Exhibit 22: Gold: Hedge to Equity?
Nifty 50 Returns Gold Returns

Period
(Absolute %) (Absolute %)
08-Jan-08 to 09-Mar-09 -59% 39%
04-Nov-10 to 20-Dec-11 -28% 39%
17-Jun-13 to 27-Aug-13 -15% 25%
22-Jun-15 to 12-Feb-16 -19% 21%
14-Jan-20 to 23-Mar-20 -38% 8%
18-Oct-21 to 17-Jun-22 -17% 8%
Source: Bloomberg

Exhibit 23: Gold / Silver Ratio
120 112.8
100
80 84.6
68.8
60
40
32.6
20
Jul-16
Sep-24
Jul-09
Sep-10
Sep-17
Jul-23
Nov-04
Nov-11
Nov-18
Mar-07
Mar-14
Mar-21
Jan-06
Jan-13
Jan-20
May-08
May-15
May-22
Exhibit 24A: 5 yr. period Absolute Return (USD) Exhibit 24B: Point to Point Absolute Return (USD)
Periods Gold Return Silver Return What did well? USD return Gold Return Silver Return What did well?
2019-24 78% 80% Silver 5Y 78% 80% Silver
2014-19 23% 1% Gold 10Y 119% 81% Gold
2009-14 23% 8% Gold 15Y 169% 97% Gold
2004-09 142% 147% Silver 20Y 553% 392% Gold
Source: Bloomberg. Data as of 26th September 2024 Source: Bloomberg. Data as of 26th September 2024

o VC/PE deal activity in India in YTD2024 continued to be on a slower side as compared to CY 23 as well as the
peaks of CY21 & CY22 during same period. (Exhibit:25A)
• During YTD2024, PE/VC funds invested USD ~20 bn across 577 deals in India which is 15% lower than the
investment done in CY23 during same period1. In the first 5 months, the decline was ~29% yoy indicating
some catch up in deal flow in the period after May-24. (Exhibit:25B)
• In terms of Industry contribution, IT & ITES contributed almost 31% of the total deal value during YTD 2024, followed
by BFSI (driven by large ticket deals like Warburg acquisition of Shriram Housing Finance worth USD 554 mn)
• There has been an increase in focus on Quick commerce and E commerce from investors. Some notable deals during
this year in growth/ late stage in this segment includes the following. Many companies in portfolio of funds distributed
by AWM saw a sharp increase in their revenue contribution from Quick Commerce as distribution channel
o Zepto raising USD665 mn funding in round led by Glade Brook , Step Stone, Nexus Venture Partners, Epiq
Capital (distributed by AWM before)
o Swiggy witnessing high interest in the secondary market ahead of its expected IPO
o Purplle (Portfolio company of Blume Ventures, distributed by AWM before) raising USD 120 mn from ADIA
o PharmEasy USD216 mn in round led by Ranjan Pai's Manipal Education and Medical Group along with
others existing investors
o PE/VC Exits for YTD 2024 was at USD 16 bn, which is similar to the figure for same period in 2023. Top exit came from
the Healthcare sector (Advent’s exit from Bharat Serum in a deal worth USD 1.63 bn). (Exhibit:26A)
• Public market exits have seen an uptick during YTD 2024, with the amount realized from public markets
going up from USD ~8 bn (Jan-Aug’23) to USD ~10.3 bn (Jan-Aug ’24). (Exhibit:26B)
o IPO activity remains strong with many companies getting listed during the year. First Cry, a late stage
investment opportunity showcased by Avendus last year also completed its IPO in early August, and got
listed at ~40% premium of its issue price.
o A robust pipeline of companies are lining up and have filled DRHP with SEBI in order to go for IPO –
Swiggy (Size: INR ~11K cr.), Mobikwik (Size: INR 700 cr.), Avanse.
• Market performance of many PE/VC backed listed companies continued to improve as they are focused on operating
performance and profitability. (Exhibit: 27)
o For early-stage equity investments, we stick to our thesis of making allocations through long term funds following
disciplined approach of building portfolios over multiple years. Our preference is partnering with managers who have a
stable team and consistent track record of investments & exist over multiple cycles.
o For growth & late-stage equity investments, investors can look for allocation through funds as well as direct investments
in well capitalized, scaled up companies, backed by high quality investors with exit visibility.
o We see high interest in late-stage direct equity deals scaling up as indicated by huge demand for investment in unlisted
shares of Swiggy, NSE etc.
o In terms of sectors, we remain positive on consumer, digital and financial services sectors from a long-term perspective
while also looking at opportunities in emerging sectors like electric mobility, deep tech.
Source: Venture Intelligence, INC42, Screener, PWC: Creating holistic value for family businesses, Economic Times. YTD2024: Jan-
Aug’24
o Investors can look at alternate debt strategies as they provide attractive yields compared to traditional fixed
income funds
• Demand for Private credit investment is on rise owing to steady income generation, tax parity with other fixed
income options.
o Structured credit funds have been increasingly gaining momentum as many new managers emerged
in this asset class. These funds act as a good option to invest in high yield credit, however investors
should do proper diligence on team strength, track record, quality of underwriting & deal structuring
of the manager before committing to invest.

o Investors looking for regular, consistent income distribution with some equity upside should consider
the venture debt option. With the muted equity funding environment, venture debt has emerged as
an appealing alternative for companies that are delaying their next fundraise and hence helping
venture debt managers get better quality deal flow. The managers believe this to be a good time to
build their portfolio.
o Special situation funds are becoming an emerging asset class. Many managers are coming up with
innovative solutions providing equity upside and downside protection through debt. Their thesis of
investing in stressed/ distressed, asset heavy opportunities with a turnaround potential provide
higher returns than traditional debt options.
• Investors’ interest has increased towards shorter duration fixed income funds and many managers (like
Baring, Alteria) are exploring shorter term offerings.
• In all these spaces, we maintain our thesis to primarily work with highly specialized and experienced
managers who have relevant track record, right team size and high focus on underwriting, risk management
& monitoring
Exhibit 25A: PE/VC Investments

1600
1475 1432 70.0
1400
60.0
1200
1086
958 953
50.0
1000
40.0
649
800
600
577 30.0
20.0
400
36.5 39.0 64.9 48.6 32.7 24.0 20.3

10.0
200
0 0.0
2019 2020 2021 2022 2023 YTD 2023 YTD 2024
Amount (USD bn) # Deals
Source: Venture Intelligence, INC42, PWC: Creating holistic value for family businesses, Economic Times; YTD2024: Jan-Aug’24
Exhibit 25B: PE/VC Investments across categories

# Deals 2019 2020 2021 2022 2023 YTD 2023 YTD 2024
Early 556 524 806 783 467 316 280
Late 148 115 190 167 150 90 92
Growth 303 251 411 417 271 188 170
Buyout 51 40 44 43 47 36 33
PIPE 28 27 22 19 18 18 -
Pre-IPO - - 1 2 - - 2
Other - - 1 - - - -
Total 1086 957 1475 1431 953 649 577

Exhibit 26A: PE/VC Exits
350 40
36.9
295
35
282
300
250
233 30
200
210 195 193 25
157 20
150
23.2
18.5
15
100
10.5 16.2 16.0
6.9
10
50
5
0 0
2019 2020 2021 2022 2023 YTD 2023 YTD 2024
Amount (USD bn) # Deals
Exhibit 26B: Exits via Public Market
USD Bn 2021 2022 2023 YTD 2023 YTD 2024
Public market Exits 12 8 13 8 10

% Share 34% 43% 56% 49% 65%
Exhibit 27: Market Performance of PE/VC backed listed companies
Market Cap (USD Bn) Dec-22 Dec-23 Mar-24 Jun-24 Current

(as of 14-Aug-24)
Zomato 6.00 13.00 19.00 21.00 29.50

Policy Bazaar 2.00 4.00 6.00 8.00 8.15
Nykaa 5.00 6.00 6.00 6.00 6.19
Paytm 4.00 5.00 3.00 3.00 4.00
Source: Screener

o Gross bank credit offtake growth slowed to 5.3% for the December-July period compared to the 11.1% for the
same period last year.
o Credit growth slowed to 13.7% in July 2024, on a y-o-y basis from 19.5% in July 2023. In addition to high base
effect, this is also attributable to RBI measures on unsecured consumer credit and NBFCs along with a focus on
managing the Credit to Deposit ratio (which has remained around 80%).
o Advances to services sector growth slowed to 4.5% for the December-July period compared to the growth of
12.6% for the same period last year as growth in advances to NBFCs decelerated
o Services sector witnessed a decrease in credit growth to 14.0% y-o-y in July 2024, from 23.4% recorded in July
2023. This decline in growth can be attributed to reduced credit expansion in the NBFCs (risk weights) and trade
sectors, which was partially offset by a rise in commercial real estate.
o The personal loans segment’s growth rate slowed to 6.8% for the December-July period compared to the growth
of 20.1% for the same period last year as along with an unfavourable base, merger growth in housing and
unsecured consumer loans decelerated.
o On Y-o-Y basis, the personal loans segment witnessed a growth of 14.4% for July 2024 supported by growth in
credit card outstandings, gold loans, and housing loans. Y-o-Y growth was down from 31.2% previous year.
o Private credit deals in India surged 22.4 per cent to an all-time high of USD6 bn in the first half of CY2024,
compared to USD4.9 bn worth of deals reported in the same period of calendar 2023. For full year CY23 deals
done worth USD8.6bn.
o Over the past two and a half years, private credit transactions have surpassed USD20 bn, spread across 96
deals.
o Some of the large deals concluded in H12024 include USD0.7 bn debt raised by Reliance Logistics and
Warehousing from institutional investors and sovereign funds, USD300 mn secured by Vedanta Semiconductors
Private Limited secured to address existing debt obligations and USD293 mn obtained by Matrix Pharma for
M&A financing from a consortium of five private credit funds
o We expect compression in NIMs of lenders as competitive borrowing landscape will curtail ability of lenders to
pass on the increase in liability costs. Expected rate cut(s) in FY25 may also put pressure on margins as floating
rate loans will gradually reprice lower even as deposits reprice at a slower pace. Banks may look to raise funds
from alternative routes like AT1 bonds, Infrastructure bonds, and Tier 2 bonds to support disbursements in
absence of adequate deposit growth.
o Our view on the credit outlook continues to remain cautiously optimistic.
o We anticipate some moderation in overall credit growth led by the decline in growth of NBFCs and more
particularly personal finance lenders. However, overall credit costs are largely expected to be benign on account
of stable and positive domestic macroeconomic indicators.
o We expect positive credit growth for the next 12-24 months. In addition to traditional bank finance and NBFC
lending, significant capital in the private credit space which is chasing higher yield deals is resulting in yield
compression for better quality trades.
o We believe pricing of borrowings should be determined by the risk inherent in underlying business/ portfolio of
the entity (for instance: personal vs MSME lending, secured vs unsecured lending, home loans vs vehicle
financing, etc.), which need not be homogeneous even within the same rating category

Over the past quarter, US equity markets have experienced significant fluctuations in reaction to new
macroeconomic data releases – in particular on Friday, 2 Aug 2024, when the release of Jul unemployment and non-
farm payrolls report revealed a weaker than expected labour market, inflation worries which dominated investors’
minds on H1 2024 soon transformed into growth scare as markets are now worried the Fed has made a policy
mistake by keeping rates restrictive for too long and could engineer a ‘hard landing’ that is hard to counteract even
with large rate cuts. Even with the latest rate decision by the Fed to cut rates by 50bps on 18 Sep, equity market
movements post the rate announcement have remained volatile as investors tussle on whether this was a pro-active
move to stabilise the economic cycle or an implicit admission by the Fed that they may be late to cutting rates and
the Fed could have insights on the state of the economy not known to market participants. Amidst all the market
chaos that happened in the past month, we want to repeat our core message that investors should focus on the
bigger picture and not get swayed by headlines or volatilities in equity markets. In this quarter’s commentary, the
‘bigger picture’ is that disinflationary trend remains intact, economic growth in the US remains resilient though minor
slowdown is expected in the remaining half of 2024, and the Fed is transitioning into a rate cut cycle which should
stabilise the economic cycle and create a conducive environment for risk assets.
Disinflationary trend remains intact
The latest August CPI increased by 0.28% month-over-month, exceeding market expectations of 0.20%. However,
this does not negate the broader disinflation trend. The uptick in headline inflation was largely driven by three
categories: Shelter excluding hotels, airline fares, and other lodging away from home (including hotels), all of which
are likely influenced by seasonal factors rather than a structural re-acceleration of inflation. In fact, a comparison of
median CPI with the headline figure shows a significant divergence, indicating that the disinflation trend remains
intact. (Exhibit: 28)
Exhibit 28: Core CPI Vs Median Component of Core CPI
Source: Bloomberg
Some signs of economic slowdown but economic growth remains resilient

Depending on which single data point you pick, you will come to different conclusions on the state of the US economy
and labour market.
There are numerous macroeconomic data points that ‘rationalises’ market fears on growth weakness:
o The August non-farm payroll report may be better than the July numbers but remains less than market
expectations at +142K vs market expectations of +165K.
o On 21 Aug, the Bureau of Labor Statistics released its preliminary annual benchmark review, revealing that there
were 818,000 fewer jobs in March 2024 than previously reported. This revision reduces the average monthly

job gains between April 2023 and March 2024 to 173,500, down from the initially estimated 242,000, indicating
that U.S. job growth may have been significantly weaker than earlier figures suggested.
o The latest August ISM Manufacturing data reignited concerns about economic growth, coming in at 47.2, below
both the breakeven level of 50.0 and the market expectation of 47.9.
Yet other macroeconomic data points paint a more resilient economy:
o The latest August ISM Services data was 51.5, an increase from 51.4 in the previous month and higher than the
breakeven level of 50.0.
o August retail sales rose by 0.1% month-over-month, surpassing market expectations of a 0.2% decline. The
unexpected increase, driven by robust online purchases that outweighed a dip in auto dealership receipts,
indicates that the economy maintained solid momentum throughout much of the third quarter. Additionally, the
Commerce Department's report revealed that July retail sales were slightly stronger than initially reported.
Composite variables give a more holistic picture of the US economy instead of single individual data points. US
Leading Economic Indicator (LEI) index shows 100.2, a slowdown from previous month of 100.4 and July figure of
101.1 but far from signalling a contractionary recession in the next 6 months. ((Exhibit: 29)
Exhibit 29: US LEI Score Lag vs GDP QoQ Growth
Source: Bloomberg, Correlation analysis using last 20 years of monthly data (since 2004).
The Fed has begun the easing cycle with a large 50bps cut
There is considerable market concern that the Fed may have insights not known to market participants, with the
larger-than-expected rate cut being perceived as an acknowledgment of delayed policy action and potential
economic trouble. However, we believe this line of thinking is highly speculative and conflates cause-and-effect. We
see this rate cut as a positive and proactive step, reflecting the Fed's commitment to its dual mandate optimizing
between employment and inflation, and with inflation pressures subsiding, this sizeable rate cut at the start of a rate
easing cycle demonstrates the Fed’s focus towards supporting employment.
Rate easing over the next two years should help prevent further economic slowdown and increase the probability of
the US economy experiencing a ‘soft landing’ – Two years ago, as the Fed began its aggressive rate hikes to combat
inflation, many corporates adopted a more cautious stance, delaying spending and expansion. However, with the
current clear trend of disinflation and the Fed’s commitment to easing rates over the coming years, business leaders
are likely to gain the clarity and confidence needed to resume growth and investment. Segments of the economy
that have been significantly impacted by high interest rates—such as durable goods, automobile sales, and housing—
should see a notable improvement in consumer affordability as the Fed begins cutting rates, providing much-needed
support for these industries. All these factors should be conducive for equities in the next 12-18 months.

Should we be worried about geopolitical tensions and wars?
Historically wars have varying impact on equity market drawdown such that it is difficult to establish a causal
relationship between wars and equity prices (in some wars the drawdown is short-lived while in others the drawdown
lasts longer). For example, the most impactful war on equity stock market is the 1990 Iraq’s invasion of Kuwait,
which led to a drawdown of the S&P 500 index by 16.9% over the course of 71 days. While the invasion is often cited
as the trigger for the equity market drawdown, it is important to note that prior to the invasion the Fed had already
raised the federal funds rate from 6.5% in February 1988 to 9.75% in May 1989 to combat rising inflation, which
had increased from 2.2% in 1986 to 3.9% by 1990. These rate hikes were already dampening economic activity,
suggesting that the economy was sluggish even before the invasion occurred. The Iraqi invasion of Kuwait also
caused a surge in oil prices, driving up inflation and compelling the Fed to maintain higher interest rates for an
extended period, which weighed on the outlook for equity earnings. The underlying driver of the market downturn
could have been the spike in oil prices rather than the conflict itself, potentially explaining why not all wars have
resulted in significant equity market drawdown as long as oil prices remained stable. Ultimately, investors could
potentially miss out on a fundamental-driven rally by turning too risk averse from headline news surrounding wars.
Exhibit 30: Market Returns during Geopolitical tensions
S&P 500 Returns Days

Market Shock Events Event Dates
Total
One Day Bottom Recovery
Drawdown
Cuban Missile Crisis 16 Oct 1962 -0.3% -6.6% 8 18
Kennedy Assassination 22 Nov 1963 -2.8% -2.8% 1 1
Gulf of Tonkin Incident 2 Aug 1964 -0.2% -2.2% 25 41
Munich Olympics 5 Sep 1972 -0.3% -4.3% 42 57
Yom Kippur War 6 Oct 1973 +0.3% -0.6% 5 6
Reagan Shooting 30 Mar 1981 -0.3% -0.3% 1 2
Iraq’s Invasion of Kuwait 2 Aug 1990 -1.1% -16.9% 71 189
US Terrorist Attacks 11 Sep 2001 -4.9% -11.6% 11 31
Madrid Bombing 11 Mar 2004 -1.5% -2.9% 14 20
London Subway Bombing 5 Jul 2005 +0.9% 0.0% 1 4
Boston Marathon Bombing 15 Apr 2013 -2.3% -3.0% 4 15
Bombing of Syria 7 Apr 2017 -0.1% -1.2% 7 18
North Korea Missile Crisis 28 Jul 2017 -0.1% -1.5% 14 36
Saudi Aramco Drone Strike 14 Sep 2019 -0.3% -4.0% 19 41
Iranian General Killed in Airstrike 3 Jan 2020 -0.7% -0.7% 1 5
US pulls out of Afghan 30 Aug 2021 +0.4% -0.1% 1 3
Russia invades Ukraine 17 Feb 2022 -2.1% -6.8% 13 23
Source: Bloomberg, Correlation analysis using last 20 years of monthly data (since 2004)

Exhibit 31: Does it matter whether Kamala Harris or Donald Trump becomes President on 5 November?
Average Annualized S&P 500 Performance
Congress (1950 – 2023)
Democratic President Republican President
Democrat +8.7% +1.0%
Divided +15.7% +12.2%
Republican +14.6% +11.7%
Source: Yahoo Charts
Historical analysis shows that, much like geopolitical tensions and wars, there is little consistent relationship
between stock market performance and the political party of the U.S. president. Both Democratic and Republican
administrations have seen the stock market generally trend upwards over the long term, suggesting that a range of
other factors significantly influence market performance beyond the occupant of the White House. Additionally,
markets often view a divided Congress favourably, as the split control of the House and Senate creates legislative
gridlock, reducing the likelihood of abrupt policy shifts and preserving the status quo, which markets tend to prefer
over uncertainty. As the presidential race remains highly competitive, the likelihood of a divided Congress is
significant. Despite Kamala Harris’s strong performance in recent debates, her path to the presidency is far from
guaranteed. This uncertainty is compounded by the lack of concrete policy proposals from both candidates, and even
with detailed plans, enacting them could prove challenging in a divided Congress.
Conclusion
While there are many reasons for markets to worry about the sustainability of US equity market rally at the back of
strong performance thus far, we believe it is too premature to call a stock market peak and investors should continue
to put their cash to work by staying invested. Investors should expect continued volatility on equities on a forward-
looking basis, and it is advisable to continue investing via a staggered approach to capitalize on potential mispricing
opportunities that may arise.
Macroeconomic data continues to remain weak – while Caixin Manufacturing PMI is 50.4 which suggest some
‘greenshoots’ in China’s manufacturing sector, official manufacturing PMI which is a better representation of
domestic demand recovery remains weak at 49.1. Lower property prices continue to be a drag to consumer wealth
and serve as headwind to domestic demand recovery. Many investors had hoped that the Third Plenum meeting
held on July 15-18 would unveil concrete policy measures to bolster the sluggish economy and serve as positive
catalysts for the struggling Chinese equity markets. Nevertheless, investors were left disappointed as the meeting
was largely a political rhetoric – The Third Plenum reiterated the government’s commitment to balancing the public
and private sectors, fostering a robust national innovation ecosystem, empowering local governments with increased
oversight, boosting long-term domestic consumption, and prioritizing green transformation to achieve national
development goals. However, despite the emphasis on supporting private enterprises and addressing key economic
and social challenges, there was a notable absence of concrete policy plans to translate these objectives into
actionable measures. Consequently, the Hang Seng Index has remained flat, while the CSI 300 Index has continued
its decline since the Third Plenum meeting, with no significant signs of recovery.
We continue to believe that investors should approach China equities with a long-term perspective, as current low
valuations offer attractive entry points for contrarian investors. We advise against extrapolating current negative
macro headlines, as historically China’s GDP has shown little correlation with the forward performance of its equities.
Instead, fundamentals like forward EPS have proven to be more reliable indicators of future returns. Despite the
negative news, the fundamentals of Chinese equities remain relatively strong, with consensus EPS growth for
FY2024 and FY2025 projected at 14% and 12%, respectively. As global markets indiscriminately punish the
aggregate China equities index due to negative news, this creates significant discount opportunities for active stock
selectors. An example stock thesis from our whitelisted EM equities fund manager features a leading Chinese home
appliance manufacturer and the world's top producer of residential air conditioners, trading at a forward 12M P/E
of just 7.26x despite having a strong brand, advanced technology, and extensive online and offline distribution

network, and the company is poised to benefit from the Chinese government’s recent policy to subsidize up to 2,000
yuan for consumers replacing old home appliances.
The structural narrative of evolving corporate behavior and consumer investing habits that catalyzed the impressive
Japan equities rally in 2023 have remained intact and even further validated in 2024:
o The increasing number of recent M&As indicates significant changes in corporate behaviour. For instance, in
December 2023, Nippon Steel announced the acquisition of US Steel. In January 2024, Sekisui House acquired
MDC Holdings, a major US homebuilder. In February 2024, Renesas Electronics took over Altium, an Australian-
American electronic design automation software firm. These multibillion-dollar all-cash transactions, financed by
debt, demonstrate that these Japanese firms are thinking strategically about growth and are willing to take on
risk.
o Early in 2024, Japan also introduced a new tax exemption scheme for investment by individuals called NISA
(Nippon Investment Savings Account), which provides favourable tax exemptions for households making
investments and should encourage greater retail participation in Japan’s stock market. According to five large
internet brokers in Japan, these changes have led to January 2024 inflows into NISA tripling compared with
2023 levels, suggesting an evolving investment behaviour in the household sector which should serve as a
technical tailwind to Japan domestic capital markets.
Yet, the Japan equities collapsed from its all-time highs by almost 25% on 5 Aug when the Bank of Japan announced
its decision to raise interest rates to 0.25%, bringing the Nikkei 225 index (benchmark of broad Japan equities
market) back to the same price level in June 2023. Since then, Japan equities recovered but remain at a 11%
discount from its all-time highs. We believe this presents a rare opportunity to invest in Japan’s structural growth
story at more attractive valuations.

(%)
Asset Class/ Category*
Conservative Balanced Aggressive
Equity 17.5 55.0 70.0
Large Cap Fund 10.0 20.0 20.0
Flexi Cap Fund 7.5 15.0 27.5
Mid & Small Cap Fund - 7.5 15.0
Thematic-Consumption Fund - 7.5 2.5
Sectoral-Banking Fund - 5.0 5.0
Alternate Equity 2.5 5.0 15.0
PE Fund Growth to Late Stage 2.5 2.5 5.0
Direct Deal - 2.5 5.0
VC Fund Early Stage - - 5.0
Cash & Debt 75.0 30.0 7.5
Arbitrage Fund 5.0 - -
Arbitrage+ 12.5 5.0 2.5
Multi Asset Allocation Fund 12.5 5.0 -
Long Short Funds 20.0 10.0 5.0
Bonds - NCD 10.0 5.0 -
Corporate Bond Fund 7.5 - -
Long Duration Fund 7.5 - -
Alternate Debt - 5.0 7.5
Structured Credit Fund - 5.0 5.0
Venture Debt Fund - - 2.5
Alternate Assets 5.0 5.0 -
Gold Bond 2.5 2.5 -
REITs InvITs 2.5 2.5 -
Total 100.0 100.0 100.0
Source: Allocations should be based on client specific needs & post-tax return. These references here should not be treated as an
investment advice by the recipient of this report. You are requested consult your investment adviser for your investment decisions and
their suitability to your investment objectives and risk profiling. Detailed disclaimer on last page.
*Global diversification up to 5% can be achieved through LRS, feeder funds etc.

o Market Risk: Portfolio is subject to the standard risks associated with equity markets.
o Concentration Risk: Certain portfolios may be concentrated consisting of a few stock ideas; may have higher
volatility as well as higher drawdowns as compared to a diversified fund.
o Liquidity Risk: Certain funds may be closed-ended, and investors shall receive proceeds only on completion of
tenure in accordance with the terms of the PPM.
o Market Timing Risk: Close-ended structures may also expose portfolio to risk of timing of point of entry and exit
in the strategy.
o Market Capitalization Risk: Certain portfolios may invest in securities of companies with small-to medium-sized
market capitalizations which involve higher risks in some respects than investments in securities of larger companies.
o Liquidity risk: These funds would be investing in unlisted debt or equity securities of private companies which are illiquid.
o Performance Risk: In case of default by any of the portfolio companies, the fund may or may not recover all or
part of the principal and/or interest amount, which could adversely impact investment value or returns.
o Long tenor: The fund life is generally longer and further extendable making it a long duration investment.
o Issuer/Credit risks: The funds may be exposed to general credit risks of the underlying borrowers including,
repayment, delays, defaults, etc.
o Change in Macro-economic factors: The fund performance is exposed to the risks due to the current changes in
the macro-economic scenario including rising interest rates, stagnancy in equity valuations and others.
o Force Majeure Event Risk: Occurrence of pandemics like COVID 19 may potentially impact the credit quality of
the portfolio companies in the fund and the impact is undeterminable.
o Investments in foreign markets may present risks not typically associated with domestic markets including
changes in currency rates; government supervision and approvals; increased social, economic, and political
uncertainty; and greater price volatility.
Avendus Wealth Management Private Limited (AWMPL) is a wholly owned subsidiary of Avendus Capital Private Limited (ACPL). ACPL (together with its
affiliates/subsidiaries/associates is termed as ‘Avendus’) is engaged in multiple financial service businesses inter-alia investment/merchant banking, lending,
broking, distribution, wealth management, asset management, portfolio management, equity capital markets, Research. Reference to ‘Avendus’ herein shall
individually or collectively be referred to its respective relevant Avendus group entity/ies as the context may require. Actual, potential, or apparent conflicts of
interest may arise as a result of the business activities carried out by Avendus.
Avendus, Avendus personnel and/or its advisors may in future engage in activities that may result in conflict which may not have been captured herein. Avendus
has policies and procedures in place for addressing such conflicts. Avendus and its directors/partners, affiliates shall exercise a standard of good faith in its
dealings.
Avendus entities may have multiple advisory, transactional, financial, and other interests in, and transactions with the Sponsors, Promotors/Partners of the
Sponsor/Investment Manager, the Fund and Portfolio Companies of the Funds referred across this document, and therefore may conflict with interests of
Investment Manager and/or Contributors. Contributors shall take decision at his/her/its sole discretion based on his/her/its own due diligence and by acquiring
the Units of the Fund, each Contributor will be deemed to have acknowledged the existence of such actual and potential conflicts of interest.
Avendus may have engaged in or may in the future engage in other dealings in the ordinary course of business with the companies referred across this document
and/or its affiliates/associates and/or subsidiaries and/or shareholders and/or promoters and/or investors. Potential investors shall take decision at his/her/its
sole discretion based on his/her/its own independent due diligence and by investing in these companies, each investor will be deemed to have acknowledged the
existence of such actual and potential conflicts of interest.
Avendus may have multiple advisory, transactional, financial, and other interests in, and transactions with the Issuer, its shareholders, its affiliates and/or
promoters that may conflict with interests of Issuer and/or investors. Avendus including its group/associate companies may earn fees and other compensation
from various services and products being offered. Avendus including its subsidiaries and associate company(ies) providing/availing services to/from you shall
undertake the same on arms-length basis, commercial consideration, and exercise standard of good faith in its dealings with clients/investors.
Investors shall take decision at his/her/its sole discretion based on his/her/its own due diligence and by acquiring the NCDs, each investor will be deemed to have
acknowledged the existence of such actual and potential conflicts of interest.

o Please note the performance-related information provided therein is not verified by SEBI.
o PMS clients have an option to be on-boarded directly by Avendus Wealth Management Pvt Ltd without intermediation
of distributors/advisors.
o Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
o Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of
the IA or provide any assurance of returns to investors.
This document is provided by Avendus Wealth Management Private Limited (the “AWMPL”) on a strictly confidential basis to a limited number of sophisticated
potential investors for exclusive use of the addressee. By accepting this document, the recipient acknowledges and agrees that (a) this document includes
confidential, proprietary, trade secret and/or other commercially sensitive information, and (b) it will, and will cause its representatives, affiliates and advisors to,
use the information contained herein solely for the purpose of evaluating the recipient’s potential interest and for no other purpose and will not, and will cause its
representatives, affiliates and advisers not to, divulge any information contained herein to any other party without express prior consent of AWMPL. It cannot be
copied (in whole or in part) and/or disseminated in any manner.
This document is for informational purposes only and does not constitute an offer or invitation to purchase or subscribe for any units, investment/ stocks in any
jurisdiction and no part of it shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. Any such offer or invitation to
purchase or subscribe for any products shall be made solely pursuant to the related documents. This document is a summary only, is not complete and does not
claim to contain all information that a potential investor may require for the purposes of making an investment. Potential investors or existing investors should not
construe any information contained herein as advice relating to business, financial, legal, taxation or investment matters and any decision to invest should only be
made following consultation with the potential investor’s own legal, accounting, tax and other advisors in order to make an independent determination of the
suitability and consequences of an investment. An investment is speculative and no assurance is or can be given that the investors will receive a return of their
capital. This is not a research report within the meaning of the Securities and Exchange Board of India (Research Analysts) Regulations 2014 as amended from
time to time. All data including prices, value, income and benchmark used in the document have been derived from and are dependent upon information obtained
from third party agencies. AWMPL cannot guarantee the accuracy of such information and has not independently verified the accuracy of such information. AWMPL,
its affiliates, directors, officers and employees shall not be liable for any error, omission, inaccuracies or delays in provision of the requisite information from such
third-party agencies. Performance related information provided herein is not verified by SEBI. No representation or warranty (expressed or implied) is made as to,
the fairness, accuracy, completeness or correctness of such information or opinions contained herein and nothing contained herein should be relied upon as a
promise, representation or indication of the future performance. Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee
performance or provide any assurance of returns to investors. Investment in securities market are subject to market risks. Read all the related documents carefully
before investing. Past performance is not an indicator of future performance. Neither AWMPL nor any of its affiliates has undertaken any regulatory, legal, tax or
accounting analysis relating to the suitability of the securities.
Certain statements made in this presentation may not be based on historical information or facts and may be “Forward Looking Statements”, including those
relating to general business plans and strategy, future financial condition and growth prospects, and future developments in industries and competitive and
regulatory environments. Although AWMPL believes that the expectations reflected in such Forward Looking Statements are reasonable, they do involve a number
of assumptions, risks and uncertainties. The statements contained in this document speak only as of the date of this document, and AWMPL does not undertake
or assume any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. Actual results may differ materially
from any Forward-Looking Statements due to a number of factors, including future and/or unforeseen changes or developments in the business, its competitive
environment and political, economic, legal and social conditions in India or other jurisdictions. Given these uncertainties, investors or potential investors are
cautioned not to rely on such Forward Looking Statements, and should rely entirely on their own independent enquiries, investigations and advice regarding any
information contained in this document. Any decision to invest should only be made after careful review of the product offering documents. Any reliance placed by
a potential investor on the information contained in this document is wholly at their risk. Certain investments can be subject to sudden and large falls in value that
could equal or exceed the amount invested. Value and income from investments may be adversely affected by exchange rates, interest rates, or other factors.
Investment involves risk. It is important to note that the capital value of investments and the income from them may go down as well as up and may become
valueless and investors may not get back the amount originally invested.
You agree to indemnify and hold AWMPL and/or its affiliates, its directors, officers and employees and agents harmless from any and all costs, claims, liabilities
and expenses (including legal fees and expenses) arising out of or in connection with any breach of the foregoing acknowledgements and undertakings made by
you in this document.
AWMPL may alter, modify or otherwise change in any manner the content of this document, without warning or obligation to notify any person of such revision or
changes. AWMPL, its affiliates, employees, disclaim any and all liability for any direct, indirect or consequential loss or damages suffered by any person as a result
of relying on any statement, valuation or report in, or omission from, this document. The information provided herein is not intended for distribution to, or use by,
any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject AWMPL or its affiliates to any licensing or
registration requirements. It is the responsibility of any potential investor to satisfy itself as to full compliance with the applicable laws and regulations of any
relevant jurisdiction.
Avendus Wealth Management Pvt Ltd., 901, Platina, 9th Floor, Plot No. C-59, Bandra Kurla Complex, Bandra (E), Mumbai 400051, T: +91 22 6648 0050/
6648 0950 ; F: +91 22 6648 1440; www.avendus.com; Email: contact.wm@avendus.com . CIN: U67120MH2008PTC179931
Avendus Wealth Management Private Limited is registered with SEBI as a Portfolio Manager - Registration number INP000005257 and as Investment Adviser –
Registration Number INA000006527. AWMPL is an AMFI-registered Mutual Fund Distributor with ARN 86906. (For more registration details please refer to our
website)

Awm House View - q3 Fy25

Uploaded by

Copyright:

Available Formats

Awm House View - q3 Fy25

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Awm House View - q3 Fy25

Uploaded by

Copyright:

Available Formats

Avendus Wealth Management House View – Q3 FY24 1

Released in Oct 2024

Avendus Wealth Management House View – Q3 FY25 2

Avendus Wealth Management House View – Q3 FY25 3

Exhibit 1: Select asset class returns (in USD terms)

Dollar Index -5% -5% 7%

Avendus Wealth Management House View – Q3 FY25 4

The document has the following flow:

Happy reading and thoughtful investing!

Avendus Wealth Management House View – Q3 FY25 5

Avendus Wealth Management House View – Q3 FY25 6

100% CY04-13 CY14-23 CAGR

Avendus Wealth Management House View – Q3 FY25 7

Source: Bloomberg, NSDL Source: AMFI

Avendus Wealth Management House View – Q3 FY25 8

Avendus Wealth Management House View – Q3 FY25 9

Source: Bloomberg, Avendus Wealth Source: Bloomberg, Avendus Wealth

Avendus Wealth Management House View – Q3 FY25 10

14% 15.3% 70%

% Mid Cap % Small Cap % Large Cap (RHS)

Avendus Wealth Management House View – Q3 FY25 11

Avendus Wealth Management House View – Q3 FY25 12

Avendus Wealth Management House View – Q3 FY25 13

Avendus Wealth Management House View – Q3 FY25 14

Exhibit 10: Movement in Real Rates

Sep-23 Jun-24 Sep-24

Source: Bloomberg. Source: Bloomberg.

Avendus Wealth Management House View – Q3 FY25 15

6.50% 6.55% 6.66% 6.67% 6.75%

Repo 1 Yr 3 Yrs. 5 Yrs. 10 Yrs.

Sep-24 Upper band Lower Band

o If one must stick to liquidity buckets where should invest?

o Which instrument to prefer for liquidity parking: Arbitrage or Long-short?

Avendus Wealth Management House View – Q3 FY25 16

Source: AWM product desk. Data as of 30th September 2024.

Avendus Wealth Management House View – Q3 FY25 17

Current Current Min. Pre-tax Yield

Avendus Wealth Management House View – Q3 FY25 18

Avendus Wealth Management House View – Q3 FY25 19

Avendus Wealth Management House View – Q3 FY25 20

Source: Bloomberg Source: Bloomberg

Avendus Wealth Management House View – Q3 FY25 21

Net Central Bank Gold Purchases (LHS) Gold Price (RHS)

Source: Bloomberg, Avendus Wealth

Exhibit 22: Gold: Hedge to Equity?

Nifty 50 Returns Gold Returns

Avendus Wealth Management House View – Q3 FY25 22

Avendus Wealth Management House View – Q3 FY25 23

Avendus Wealth Management House View – Q3 FY25 24

Exhibit 25A: PE/VC Investments

36.5 39.0 64.9 48.6 32.7 24.0 20.3

2019 2020 2021 2022 2023 YTD 2023 YTD 2024

Amount (USD bn) # Deals

Exhibit 25B: PE/VC Investments across categories

Avendus Wealth Management House View – Q3 FY25 25

2019 2020 2021 2022 2023 YTD 2023 YTD 2024

Amount (USD bn) # Deals

Exhibit 26B: Exits via Public Market

USD Bn 2021 2022 2023 YTD 2023 YTD 2024

Public market Exits 12 8 13 8 10