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MOSL: BULLS & BEARS (August 2018): India Valuations Handbook — Nifty crosses new highs

BULLS & BEARS (August 2018): India Valuations Handbook — Nifty crosses new highs; FIIs turn buyers in July, DII buying moderates

 

Strategy: Nifty crosses new highs; FIIs turn buyers in July, DII buying moderates

• Nifty bounces back after two months of flat performance: The Nifty rallied 6% in July 2018 after two consecutive months of flattish performance. Improving global sentiment, moderation in FII selling, a decent start to the earnings season and a moderation in crude oil prices kept the markets buoyant, with the Nifty scaling new highs during the month. DII inflows stood at USD0.7b – a clear moderation v/s USD 2-2.2b in May and June – while FIIs turned modest buyers (bought USD0.2b after selling USD0.4b in June and USD1.4b in May). Mid-caps (+3.8%) underperformed the Nifty once again and also lagged the benchmark on a trailing 12-month basis (2% return v/s Nifty’s 13%). Despite this sharp underperformance, the valuation premium of midcaps v/s large caps is still at 24%.
• 1QFY19 earnings season is mixed, no relief on earnings downgrades: 1QFY19 earnings season at the half-way mark can be called as a mixed one, dragged as usual by corporate banks and Tata Motors. Sales, EBITDA and PAT for the 32 Nifty companies have grown at 22.1%, 20.7% and 2.5%, as against expectations of 19.7%, 20.5% and 12.7%, respectively. Excluding PSU Banks and Corporate-focused Private Banks, Nifty sales, EBITDA and PAT have grown 22.4%, 22.0% and 8.1% v/s expectations of 20.0%, 21.6% and 14.8%, respectively. For the MOSL Universe, sales, EBITDA and PAT grew 21.5%, 19.8% and 9.4% YoY, as against expectations of 19.6%, 20.2% and 15.2%, respectively. Excluding Private Corporate Banks, sales, EBITDA and PAT grew 21.7%, 21.0% and 13.8% v/s expectations of 19.8%, 21.2% and 17.3%, respectively. Our Nifty EPS estimates for FY19 have been cut by 3.6% to INR559 from INR580, driven by Tata Motors and ICICI, which account for 70% of the EPS cut. Our estimates for FY20 are largely stable at INR690/INR694 (preview).