EUR 350.00 For Business Accounts Only

MOSL: BULLS & BEARS (February 2019)-India Valuations Handbook — Not much new year excitement–markets end flat, institutional flows muted

BULLS & BEARS (February 2019): India Valuations Handbook — Not much new year excitement – markets end flat, institutional flows muted

 

Strategy: Not much new year excitement – markets end flat, institutional flows muted

• Volatile ride extends into another month: With no refuge from volatility, the Indian benchmark indices ended flat (-32 points) for the second consecutive month in Jan’19. FIIs turned net sellers after two months, offloading stocks worth USD0.1b. Domestic inflows, too, remained muted at USD0.3b. With the markets erratically lurching both ways, investors looked at large-caps as a safe haven. Consequently, the Nifty outperformed the Mid-cap index by 5% in the month. Currently, valuation premium of mid-caps versus large-caps stands at 12%.
• Earnings season largely in line, more upgrades than downgrades after a long time: 113 MOSL Universe companies and 34 Nifty companies released their Dec’19 quarter results until 3rd Feb’18. Among these MOSL Universe companies, 71%/75% have delivered PAT/EBITDA either in line or above our estimates. Encouragingly, the trend in earnings revision has improved significantly this quarter, with the upgrade-to-downgrade ratio at greater than one. Broader headline numbers of both MOSL Universe/Nifty have been in line with our estimates, with Consumption leading from the front and Corporate Banks exhibiting a smart recovery in asset quality.
• Budget in line with our expectations: As widely expected, the government attempted to fulfil populist demands in its last budget before the general elections. Nevertheless, the total cost of such populist schemes was much lower than feared. The two major announcements were (a) direct annual cash transfer costing INR750b per year to rural (not necessarily poor) population and (b) increase in tax exemption for income up to INR0.5m for individual tax payers, which should cost the government another INR185b. Both these announcements should further incentivize consumption. Additionally, the RBI’s monetary policy meeting on 7thFeb’19 would be viewed with key interest for a decision on rate cuts as inflation trajectory inches downward.