FREE

MOSL: BULLS & BEARS (April 2017)-India Valuations Handbook — Markets end FY17 on high note--valuations at modest premium

​BULLS & BEARS (April 2017): India Valuations Handbook — Markets end FY17 on high note; valuations at modest premium to averages

Strategy: Markets end FY17 on high note

• Markets end FY17 on high note; sharp pick-up in FII flows: After declining 9% in FY16, the Nifty delivered 19% returns in FY17. Over last 24 months, the index has come back full circle, crossing 9K after first touching that level in March 2015. At 22.5x trailing 12 months and 18.1x FY18E P/E, we believe valuations do not leave much room for upside, unless accompanied by an earnings recovery. The Mid-cap index has delivered 35% returns in FY17, with consistent DII flows ensuring its outperformance v/s the Nifty. FII flows exhibited a solid recovery at USD7.8b in FY17 (outflow of USD1.5 b in FY16), while DII flows were healthy at USD4.5b (USD12.1b in FY16).
• Momentum intact in March: The Nifty ended higher for the third consecutive month (+3.3% in March), as the resounding victory of the central government ruling party (BJP) in the key state of UP boosted investor sentiment, fuelling strong foreign flows. Mid-caps too performed well (Nifty Midcap100 up 4.3% in March), with MoM expansion of valuation premium over large-caps. The market saw eighth consecutive month of domestic mutual fund inflows (USD369 m in March). FII flows came in at USD4.6b – the highest monthly flows in 5 years. Over last 12 months, MSCI EM and MSCI India have delivered 15% returns each. However, over last five years, MSCI India outperformed MSCI EM by 104%. In March, India-Sensex (+6%), Korea (+4%), Indonesia (+4%) and MSCI EM (+2%) were the best performers among the key global markets in USD terms. Brazil, Russia and China, on the other hand, delivered negative returns.