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MOSL: BULLS & BEARS (December 2021): India Valuations Handbook — OMICRON drives a pullback

BULLS & BEARS (December 2021): India Valuations Handbook — OMICRON drives a pullback

 

Strategy: OMICRON drives a pullback

• Elevated volatility, the market consolidates in Nov’21: The Nifty ended its six-month winning streak in Nov’21, ending ~4%, or 688 points, lower at 16,983. Nov’21 was characterized by elevated volatility, with the benchmark oscillating in a wide range (~1,400 points) and pulling back ~8% from record highs of Oct’21. Much of the market anxiety can be attributed to global factors (Fed’s taper announcement, rising bond yields, higher crude oil prices, and strengthening of the US Dollar Index). A big fundraise in the primary market also put some pressure on the secondary market. Sentiments were battered across global equity markets on 26th Nov’21 with the detection of a new COVID-19 variant – Omicron – in South Africa. Nov’21 saw the highest inflows by DIIs since Mar’20 at USD3.6b. FIIs saw outflows for the second consecutive month at USD0.8b.
• Macro rebounds – Real GDP grew 8.4% YoY in 2QFY22; expect 5-5.5% YoY growth in 2HFY22E: Real GDP/GVA grew 8.4%/8.5% YoY in 2QFY22 (v/s our forecast of 8.2%/7.8% and Bloomberg consensus of 8.3%/7.6%). While fiscal consumption grew 8.7% YoY in 2Q as against a decline of 4.8% YoY in 1Q, private consumption spending grew 8.6% YoY in 2Q (lower-than-expected) v/s 19.3% YoY in 1QFY22. Total consumption expenditure contributed 5.6% to real GDP growth. Nominal GDP grew 17.5% YoY in 2QFY22 as against a contraction of 4.4% YoY in 2QFY21.
• 2QFY22 results review – Cyclicals drive earnings beat: Corporate earnings for 2QFY22 came in above our expectations, led by commodities. The MOFSL universe reported a sales/EBITDA/PBT/PAT growth of 31%/21%/38%/38% YoY (est. 25%/20%/32%/27%). Sales/EBITDA growth for Nifty constituents were in line at 31%/21% (est. 25%/20%), while PBT/PAT growth came in at 40%/36% (est. 31%/25%).