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MOSL: BULLS & BEARS (April 2019)-India Valuations Handbook — Markets – Nifty wraps up best month in three years

BULLS & BEARS (April 2019): India Valuations Handbook — Markets – Nifty wraps up best month in three years

 

Strategy: Markets – Nifty wraps up best month in three years

• Markets bid adieu to FY19 in style: There couldn’t have been a better finish to FY19 as the Nifty rallied by an impressive 7.7% in March to close at 11,624 (+15% YoY), within a whisker of an all-time high. The last time the benchmark did this well in a month was way back three years ago. Supportive global backdrop (dovish central bank narrative in the US), a deluge of FII flows and the rising confidence in the NDA making a comeback in the center post elections all had enough spark to light the market rally. At USD4.8b, FII inflows in March were highest since Mar’17. DIIs, meanwhile, sold USD2b. In FY19, the Nifty Midcap100 (-2.7% YoY) underperformed the Nifty (+14.9% YoY) significantly, largely due to the unsustainable valuation premium of mid-caps to large-caps and the lack of pick-up in earnings growth. Currently, valuation premium of mid-caps versus large-caps stands at 5%.
• Macros largely stable in March: Indian macros have been stable, with currency, crude and 10-year bond yields moving in a narrow range. The dovish global central bank narrative augurs well for emerging markets like India. Consistent low inflation print will likely lead to another rate cut in the RBI policy decision on 4th April, in our view. Post the bold aerial strikes carried out by India in response to the Pulwama terror attack in Feb’19, Mr Modi’s popularity ratings have seen an uptick and several opinion polls have predicted a return of the current government, albeit with a reduced majority. This has acted as a trigger for markets, which is looking for continuity of policy reform initiatives and strong decision making, in our view.
• India top performer among global markets: In March, India (+8%), China (+5%), the UK (+3%), Taiwan (+2%), the US (+2%) and MSCI EM (+1%) were the key global markets to close higher in local currency terms. On the other hand, Korea (-2%) and Japan (-1%) were down MoM. Over the last 12 months, MSCI India (+12%) has outperformed MSCI EM (-10%). Notably, over the last five years, MSCI India has outperformed MSCI EM by 168%. MSCI India’s P/E is at a premium of 106% to MSCI EM’s P/E, above its historical average premium of 47%.