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Modi Reforms Drive Growth of Indian Research

New and diverse companies trigger demand for more investment analysis. The big winner: homegrown Kotak Securities.

  • Katie Gilbert

From The All-India Research Team 2016 ranking

When the pro-business Narendra Modi was named India’s prime minister in 2014, he ushered in a reform agenda designed to improve the country’s economic competitiveness and attract global investment. His reforms are showing some signs of success, albeit in fits and starts: Inflation and interest rates have fallen, as has the current-account deficit, helped by the plunge in oil prices. Those trends, in turn, have buoyed the domestic financial sector. “The macro has never looked as good for India as in the past several years,” says Sanjeev Prasad, Mumbai-based Kotak Securities’ co-head of institutional equities.

Kotak, the brokerage subsidiary of Kotak Mahindra Bank, is taking full advantage of the Modi boomlet. Kotak, one of India’s largest and oldest brokerage firms, retains its No. 1 ranking in the 2016 All-India Research Team, Institutional Investor’s exclusive annual ranking of the nation’s best sell-side equity analysts. The firm, which last year was the first domestic bank in India to come out on top, earns 14 total team positions in 2016, three more than in 2015, and six more than Credit Suisse and Morgan Stanley, which tie for second place.

Kotak also scores six first-team positions, compared to only two last year, which may be more significant than the total team numbers. If you assign a weighting of four to first-place positions, three to second-place spots, and so on, Kotak Securities pulls away from the pack, with a weighted total of 39 to Credit Suisse’s 26 and Morgan Stanley’s 15. The weightings are a kind of quality measure, favoring firms that have more higher-ranked analysts on the team.

Also striking about this year’s All-India team is UBS’s surge up the ranking from 14th place last year to this year’s fourth-place finish. The Swiss bank won six total team positions in 2016, versus only one last year. Gautam Chhaochharia, UBS’s Mumbai-based head of India research, says the firm has been actively working to improve the quality of its analyst team, and to make better use of the bank’s global reach and ability to collaborate across regions and sectors.

“We look at India as a long-term growth market,” Chhaochharia says. “We want to be up there in terms of capturing this opportunity for our clients and for our business.”

The 2016 All-India Research Team features 68 analysts, including six appearing for the first time. The ranking reflects the opinions of more than 270 buy-side analysts and money managers at nearly 170 institutions that collectively manage an estimated $135 billion in Indian equities.

Favorable macroeconomic trends have spurred the growth of new industries in India. In September the country saw its first insurance company initial public offering. Green shoots have also been sprouting in health care, pressing the firms to expand their research rosters. “We’ve never had a health-care analyst, only a pharmaceutical analyst,” says Prasad, who started at Kotak as an oil-and-gas analyst, then covered cement, telecommunications, and media before being named head of research in 2004 and co-head of equities in 2007. “Now we have a category of health-care services that are coming in a big way — hospitals, clinics,” he says. “We’ve had to expand our coverage to cover all the health-care providers.”

Over the last two years, Kotak has boosted the number of covered companies from 150 to 191. Prasad is aiming to push that number to 225 by March 2018, without hiring many new analysts.

Nischint Chawathe, a Kotak financials/nonbanks analyst who debuts on the All-India team at No. 1, says he and his colleagues have been working to master their growing and diversifying sector. “Earlier we’d say, ‘Okay, all financials move together,’ but now we are able to pinpoint and say that there are so many stocks, and there are different drivers.”

“The longer-term growth opportunity looks even more robust than two years back, because of the progress of reforms,” says UBS’s Chhaochharia. Echoing Kotak’s Prasad, he notes that UBS has been tracking the growing number of Indian midcap stocks. But he finishes with a warning: Near-term growth isn’t likely to match many investors’ overexuberant expectations. •