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MOSL : BULLS & BEARS (August 2022): India Valuations Handbook — Market makes a smart comeback in Jul’22; FIIs turn buyers after nine months

BULLS & BEARS (August 2022): India Valuations Handbook — Market makes a smart comeback in Jul’22; FIIs turn buyers after nine months

Market makes a smart comeback in Jul’22; FIIs turn buyers after nine months

• Market clocks the best return since Dec’20: The Nifty, after three consecutive months of decline, bounced back smartly in Jul’22 with 8.7% MoM gain – the highest since Dec’20. The Nifty Midcap 100 (+12% MoM) outperformed the markets during the month.
• India among the top-performing markets in Jul’22: Key global markets – the US (+9%), India (+9%), Japan (+5%), Korea (+5%), Brazil (+5%), Russia MICEX (+4%), the UK (+4%), Taiwan (+1%), and Indonesia (+1%) ended higher in local currency terms. However, China (-4%), and MSCI EM (-1%) ended lower. Over the last 12 months, the MSCI India index (+9%) has outperformed the MSCI EM index (-22%). Over the last 10 years, it has outperformed the MSCI EM index by 195%. In P/E terms, the MSCI India index is trading at a 116% premium to the MSCI EM index, above its historical average of 62%.
• FIIs record inflows after nine months: FIIs recorded inflows of USD0.8b in Jul’22 after nine months of outflows to the tune of USD33.3b; YTD’CY22 outflows stood at USD27.7b. Domestic inflows decelerated to USD1.3b in Jul’22; YTD’CY22 inflows stood at USD28.1b.
• All major sectors ended higher in Jul’22: Metals (+18%), Real Estate (+17%), PSU Banks (+14%), Capital Goods (+14%), and Private Banks (+14%) were the top gainers. While, Oil & Gas, Telecom, Technology, Healthcare, Infrastructure, and Autos underperformed the benchmark.
• Earnings season below expectations thus far: For 1QFY23, sales/EBITDA/PBT/PAT growth of the MOFSL Universe (136 companies), stood at 40%/6%/18%/17% YoY (est. 39%/7%/20%/22%), respectively. Excluding BFSI, the companies within MOFSL Universe posted a Sales/EBITDA/PBT/PAT growth of 43%/7%/4%/(1)% YoY (est. 43%/8%/11%/12%), respectively.
• Market is at a crossroads: With the current rally, Nifty now trades at 20x FY23E earnings, comfortably above the LPA and offers limited near-term upside in our view. We reckon the upside from here will be a function of stability in global and local macros and continued earnings delivery v/s. expectations. In our model portfolio, we maintain our OW stance on BFSI, IT, Consumer, and Autos.
• Top ideas | Largecaps: Reliance Industries, Infosys, ICICI Bank, SBI, Bharti Airtel, ITC, Maruti Suzuki, Titan Company, Ultratech Cement, Hindalco, and Apollo Hospitals.
  Midcaps/smallcaps: Macrotech Developers, Ashok Leyland, Jubilant Foodworks, Clean Science, M&M Financial, Angel One, VRL Logistics, and Lemon Tree Hotel.