We expect demand recovery from 2Q-3Q, supported by (1) strong digital playbook, (2) recovery in deal contracting with increase in consolidation deals (advantage Indian Tier-1s) as enterprises consolidate their tech portfolio, and (3) tech budget normalisation in 2Q for impacted verticals. Following -1.5/-6.0% QoQ in 4Q20/1Q21E, we have factored -0.6/+1.5/+2.8% QoQ in revenue over 2Q-4Q21E. The IT sector margin is expected to decline 95bps QoQ. Profitability is expected to be impacted by lower utilisation, pricing, cross-currency (GBP), lower forex gains and should be offset by (1) INR depreciation, (2) lower travel and discretionary spend, (3) deferral of wage increase and variable payouts cuts/deferrals, and (4) lower sub-contracting. We expect the margin trajectory to bottom out in 2Q. Subsequent margin recovery is premised on (1) demand recovery leading to utilisation recovery (onsite utilisation to precede offshore), and (2) continuity in optimal SG&A, including travel and sub-contracting rationalisation. IT sector (coverage universe) is expected to post -6.1/-3.7% QoQ/YoY in 1QFY21E revenue with cross-currency impact of -15 to -70bps QoQ. We expect Tier-1 IT revenue to decline between 5% and 9% QoQ while Tier-2 IT is expected to display a wider divergence (-2 to -14% QoQ). COVID-related economic impact on sectors like travel and transportation, O&G;, retail & CPG (discretionary) will be accentuated in 1Q (dual impact of price/volume cuts and deal deferrals/cancellations), while BFSI, healthcare, retail & CPG (non-disc.) and hi-tech verticals will be more resilient (deal-deferral impact, but resilient on pricing/volume).

We see limited upsides across our coverage universe post the recent run-up, except financials and infra names where anyways recovery could take longer. Our preferred sectors are Telecom, IT, Chemicals, Pharma, Insurance, large banks, Cement, Gas while we are underweight consumption (staples, discretionary and autos). Our large cap picks in model portfolio include RIL, Bharti, Infosys, ITC, SBI Life, ICICI Bank, Axis Bank, L&T. Within mid-caps we like Max Life, IGL, Gujarat Gas, Crompton Consumer, Alkyl Amines, Galaxy Surfactants, JK Cement, KNR Construction. Nifty (ex-financials) is back to pre-covid peak levels and overall Nifty valuations back to ~18x FY22 PE (after consensus building in only 2% EPS decline in FY21 and 35% yoy growth in FY22). While earnings are difficult to predict near term, it remains to be seen if consensus can be right in FY21/FY22 after 6 consecutive years of significant overestimation. We still see downside risks to our and consensus FY21 and FY22 estimates. HSIE coverage universe has seen 12%/27%/15% EPS cuts for FY20/FY21/FY22 since Feb and building in -5%/36% yoy growth in FY21/FY22. Key swing sectors from overall earnings picture remain Energy and Financials which disappointed in FY20 and likely to remain so in FY21.

We have a BUY on Maruti, Hero and Escorts and are cautious on CVs (Ashok Leyland) and premium discretionary (Eicher). Amidst the COVID disruption, auto/logistic companies have done well by controlling costs, scaling down capex and improving capital allocation in 4QFY20. These cost control measures have led to better-than-expected EBITDA margins. While capex has been cut by 30-70% across the board, companies have also allocated capital better by exiting loss-making global segments and seeking alliances with partners for sub-scale businesses. The NIFTY AUTO index has, resultantly, rallied ~50% from its lows due to the above and a pick-up in volumes for entry-level and rural-centric products (tractors, 2Ws and A segment cars).

In the FMCG universe, Nestle, Radico, Jubilant and Britannia outperformed, clocking a revenue growth of 11/15/4/2% respectively. Packaged Food and Hygiene products saw a surge in sales, which should continue in 1QFY21. Also, primary sales are expected to be strong in 1QFY21 due to partial restocking. Most companies have resumed normal operations in June, and expect a gradual pickup here onwards. Rural is expected to do better, at least in the near term, led by reverse migration and robust agri economy. However, we remain cautious and selective within the sector due to the unfavourable medium-term risk-reward, given modest absolute growth relative to expectations and valuations. Despite defensive characteristics, we are underweight on the sector in our model portfolio. We recommend BUY on ITC and Radico and ADD on UNSP and Colgate. The HSIE Consumer-Index sales declined by 7% YoY in 4QFY20 (+10% in 4QFY19 and +5% in 3QFY20) as the COVID-induced lockdown has heavily impacted supply chain across categories. The three-year CAGR (which normalises all base adjustments over the past three years) in 4QFY20 was +5% YoY, supported by healthy growth of the past two years. Categories which outperformed our index in 4QFY20 are QSR and Dairy, clocking 2/-1% YoY growth. The Hair Care, Personal Care and Footwear categories have been impacted the most, contracting by 17%, 18%, and 12% YoY respectively.

Our TP is INR 86 (8x EV/e Sep-21E standalone earnings and INR 25 from investments).The stock is currently trading at 2.4x FY22 EV/e. Our ADD recommendation on ONGC with a TP of INR 86 is premised on rich OCF yield of 6/35% and divided yield of 14% for FY21/22E. We believe the current valuations are contextually low after adjusting for investments (OVL+ other) at 4.0x FY22 PER

Key risks include (1) Slowdown in government capex; (2) High cost inflation; (3) Extended lockdowns across States; (4) Lower than expected leasing in Kota BOT project. We maintain BUY on AHLU with unchanged TP of Rs 265 (10x FY22E EPS) despite 20% 3QFY20 miss on APAT. We downgrade our FY21E EPS by 68% to factor in higher than earlier envisaged COVID impact on execution, esp. in urban centres like MMR/NCR. We retain FY22E estimate. Ahluwalia is well placed to counter near term COVID related execution challenges owing to robust order book and strong BS. Execution efficiency now stands at ~25% and will normalise only by 4QFY20 ramping up gradually (May-15%, June-25%, July-35-40%, Aug-50%. We continue to remain patient as execution has started across all projects and will pick up full steam only by Sep-20, with overhang of stuck projects & write-offs now largely behind. While Parivahan/Gardanibagh/Mohammadpur projects are in preparatory stage with all approvals now in place and work having started, Rs 5.5bn Charbagh Station redevelopment has been foreclosed due to environment hurdle. Rs ~1.5bn Delhi Govt order has also been cancelled. The Robust balance sheet, net cash status and better than peers RoE/RoCE are other comforting factors, even as EBIDTA margins have trended downwards on one offs.

Current trends in the industrial and service segment are a consequence of higher working capital limit utilisation by businesses, and the moratorium, we believe. Non-food credit growth is likely to trend down gradually until the effect of the moratorium wears off. Post that, one can expect a more perceptible decline as we do not see any major uptick in credit demand. Non-food credit growth slowed slightly to 6.8% YoY (vs. 7.3% in Apr-20). This was a result of a sustained slowdown in personal loan growth, which came in at 10.6% YoY (slowest in the last ~10 years). The personal loan segment has been impacted the greatest by COVID-19 (the segment registered a 17% YoY growth in Feb-20). Industrial (+1.7% YoY) and service credit (+11.2% YoY) growth figures were nearly identical to Apr-20s.

Current state of business: Business has normalised currently, post washout in April and sub-normal business in May. Demand at consumer level is being witnessed across categories. Management is not witnessing any down-trading in different product categories; hence, don't foresee major risk to realizations. Recovery has been swifter in rural India. Tier 1 and 2 cities are still not doing well in terms of demand as key distribution centres in metros are not fully functional due to local regulations. Havells is at marginal disadvantage due to comparatively lower presence in rural markets. Industrial demand has not picked up yet. However, some green shoots are visible in the form of government orders. Capacity utilisation of plants has reached normalised levels. Company has sorted out labour issues. Havells India - Takeaways from call recently hosted by HDFC Securities Institutional team

Our TP is INR 280 based on Sep-21E cash flows (WACC 10%, Terminal growth rate 3.0%). The stock is trading at 12.0x FY22 EPS. Our ADD recommendation on PLNG with a TP of INR 280 is premised on a robust volumes offtake in 2HFY21 and FY22E as (1) Benign LNG prices will ensure high LNG imports, in turn allowing full utilisation at Dahej on its expanded capacity, and (2) Completion of Kochi-Mangalore pipeline by Jul-20, which will subsequently raise utilisation at Kochi.

We maintain our ADD rating on the stock. We believe that while Subros will benefit from a recovery in volumes at Maruti Suzuki- its largest customer (which accounts for over 3/4th of revenues), the diversification initiatives are delayed due to the COVID outbreak (home AC segment ramp-up is pushed back, CV and other segments will witness sluggish trends).

We maintain our REDUCE rating with a TP of Rs 136, as we believe that RBK faces challenges on both sides of the b/s- potential stress from high unsecured loan exposure and a weak deposit franchise. Key takes from RBKs FY20 AR are as follows: (1) The share of top 20 depositors increased 40bps to 18.8% despite the ~1% (and ~8.1% QoQ in 4QFY20) fall in overall deposits. AR commentary indicates that the bank continues to focus on bulk deposits. (2) The bank appeared to have made some progress on asset-side granularity and this appears to be the focus, which is desirable in context of FY20 asset quality trends. (3) Borrowings from institutions and agencies and the RBI contributed to a majority of incremental borrowings, and overall borrowings grew at ~4x total assets. (4) Segment-wise asset quality data was in line with expectations. These disclosures concur with our stance on the bank.

We maintain BUY with reduced TP to Rs 348/sh (vs Rs 377/sh earlier) to account for higher debt. SDL reported operationally weak 4QFY20 with pre-sales of 0.9mn sqft (-20% YoY) as sales in Bengaluru (73% of sales in 4QFY20) fell by 22/20% YoY/QoQ. Pre-sales for FY20 remained flattish at 4.1mn sqft. To add to weak operational performance, SDL evaluated overall portfolio and has recognized 1.93mn sqft of bookings (Rs 12.4bn value and Rs 2bn in collections, ~10% of area under construction) with low/delayed collection as probable cancellation and made it available for sales. Whilst sector as a whole is facing cancellation headwinds, SDL has disclosed same in the results. Silver lining lies in sharp recovery of presales in June near pre-Covid level. We estimate SDL to report industry leading 1QFY21 presales at 60-65% of pre covid levels and collections at ~70%+. SDL with its strong brand positioning, robust unused bank limits (Rs 15bn) and premium positioning in residential segment is well placed to ride COVID headwinds.

We value Emami at 17x on FY22E EPS and arrive at a TP of Rs 207. Maintain REDUCE. Emami's 4QFY20 performance was disappointing as the co registered a 17% yoy decline in consolidated revenues. Boroplus, Male Grooming and Kesh King saw sharp revenue decline of 77/42/26% yoy. 4Q performance was impacted by weak category growth (even prior to Covid-19) and lockdown. Emami continued to gain market share in most of its portfolio. Co could not react fast enough to cut costs, resulting in EBITDA contraction of 36% yoy with EBITDAM declining by 569bps yoy. Co is now focusing on strategic launches and relaunches in hygiene and healthcare to drive revenue growth. Benign commodity inflation and expected savings of Rs 500-600mn from cost saving initiatives in FY21 could see margins expand for the co. However, Emami's portfolio is discretionary in nature and we expect recovery will take slightly longer than other FMCG cos. Hence, we cut EPS estimate by 6% for FY21E/FY22E.

Our TP is INR 1,900 based on Sep-21E cash flows (WACC 10%, Terminal growth rate 3.0%). The stock is trading at 15.8x FY22 EPS. Our BUY recommendation on GALSURF with a TP of INR 1,900 is premised on ((1) 55% revenues come from MNCs, which ensures stickiness of business, (2) EBITDA margins are stable at >12% since fluctuations in RMC are easily passed through to customers, and (3) Strong return ratios (RoE/RoIC of 26.3/24.1% in FY22).

We expect re-rating to happen in near term as 3QFY21 will see major turnaround on profitability. We maintain BUY. Key risks (1) Geographic concentration (2) Order conversion within estimated timelines (3) Extended lockdown (4) Prolonged monsoon. JKIL delivered 22/(6)/(24)% 4QFY20 Rev/EBIDTA/APAT beat/(miss) as margins collapsed owing to lockdown impact, esp. in urban centers like NCR/MMR (~90% of order book). Labor availability is ~20% and is gradually ramping up, expected to normalize by 3QFY21E. We expect about 35-40% execution for 1QFY21 and 45-50% during 2QFY21 (YoY). Whilst order backlog is robust at 4x FY20 book/bill, near term execution challenges have sprung up as Metro/Tier-1 cities are the worst impacted due to COVID-19 in terms of labor migration. We have revised our FY21/22E Rev estimates by (23)/(0.5)% and APAT by (85)/(3.8)%. At 4.1x FY22E EPS, 1HFY21 losses/execution disappointment is already priced in.

Maintain BUY with a SoTP of Rs 442. ICICIBC has realised ~Rs 31bn in 1QFY21 so far, from stake sales in ICICIGI (Rs 22.5bn) & IPRU (Rs 8.4bn) while retaining majority stakes. The move bolsters the banks already strong capital base (16.1%, +40bps) and allows it to make further COVID-19 related provisions, while limiting the RoAE impact. This demonstrates its ability to augment its capital base, without raising funds (media articles suggest that it is looking to raise $ 3bn). Even without said (potential) fund raise, the bank is well positioned to withstand COVID-19 related stress and capture any resurgent growth. ICICIBC remains our top pick amongst large private banks.

Our TP is INR 100 (6x EV/e Sep-21E standalone earnings and INR 77 from investments).The stock is currently trading at 4.4x FY22 EV/e. Our ADD recommendation on Oil India with a TP of INR 100 is premised on rich OCF yield of 28/36% and divided yield of 3/7% over FY21/22E. We believe the current valuations are contextually low at 3.7x FY22 PER.

GICRE is India's largest reinsurer but continues to make high underwriting losses (FY20 COR: 113.8%). A calibrated approach to underwriting is expected to change this over FY21-23E. While we are not fully convinced about the pathway to underwriting profitability, inexpensive valuations- FY22E P/ABV of 0.6x result in our BUY recommendation with a TP of Rs 185. We estimate an FY22E adj. RoE at 7.4%, and value GICRE at 0.7x FY22E ABV less 10% discount. We continue to rate GICRE a BUY with a TP of Rs 185 (Mar-22E P/ABV of 0.6x). Higher losses in agriculture and aviation led to increased 4QFY20 claims ratio of 89.1%, +1,917/-1,788bps YoY/QoQ. This resulted in underwriting losses of Rs 7.2bn. Investment income was hit by higher provisions of Rs 3.8bn bringing yield down to 7.7%. 4QFY20 APAT was Rs 12.2bn (+37.5% YoY). NEP: Led by healthy growth in property/health i.e., 71.7/17.5% YoY, 4QFY20 NEP grew 43.6% YoY to Rs 76.6bn. For FY20 the company delivered an NEP of Rs 443.5bn (+16.0% YoY).

We value ITC on SoTP and arrive at a TP of Rs 221 (implied P/E of 17x). Risk reward remains attractive. Maintain BUY. ITCs 4Q was marginally lower than estimates but lockdown impact was not as severe as it was visible in other cos. Net revenue was down by 6% yoy while HUL/Dabur/Colgate/Marico clocked decline of 9/17/7/8% yoy in the domestic business. Cig revenues declined by 6% yoy with ~10% yoy volume dip. FMCG comparable growth of 5% yoy was better than estimate (even better than Britannias 2% growth). Recovery in Cig and FMCG in May and June is encouraging. FMCG, Paperboards and Packaging are now operating at 80-85% of normal levels. Co has not witnessed downtrading trend or any meaningful drop-outs of cig consumers due to lockdown. Packaged food enjoyed pantry loading benefits and part of personal care also recovered. Co has good portfolio to capitalise on health and hygiene trend. FCF grew by robust 30% yoy, FCF and dividend yield stands at 7% and 5% in FY20. We cut EPS estimate by 5% for FY21 to factor impact of extended lockdown.

While we are lowering our FY21 volume estimates, it will be partially offset by improved cost management. We set a TP of Rs 445 @ 22x FY22E EPS (in-line with its historic average trading multiple). Key Risks: A sharper than expected economic recovery and policy clarity on the upside, a further delay in the DFC on the downside. We downgrade CONCOR to ADD after the sharp ~50% rally from the recent lows. While the logistics company will be a beneficiary of the DFC in the medium term, the stock will be driven by the policy guidelines of the IR ahead of its proposed privatisation, in the near term. There is a proposal to increase the land license fee by ~3x (media reports also suggest that CONCOR will have to purchase the railways land). Further, as the DFC is delayed due to COVID, volumes are expected to decline in double digits in the current fiscal.