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MOSL: BULLS & BEARS (February 2020)-India Valuations Handbook — Nifty rings in CY20 with a correction

BULLS & BEARS (February 2020): India Valuations Handbook — Nifty rings in CY20 with a correction

 

Strategy: Nifty rings in CY20 with a correction

• Tested by elevated volatility, markets consolidate in Jan’20: The Nifty ended its four-month winning streak to end 1.7% or 206 points lower at 11,962 in Jan’20. The month was characterized by extreme volatility, with the benchmark oscillating in a wide range of ~500 points and pulling back significantly from a record-high level. Much of market anxiety can be attributed to the caution ahead of the Union Budget and concerns about the outbreak of Coronavirus and its potential impact on the global economy. Institutional flows, however, were robust in the month, with FIIs infusing USD1.4b and DII flows turning positive (at USD0.3b) after two months. Nifty Midcap-100 outperformed with 5.3% return in Jan’20. Notably, over the past 12 months, Mid-caps are up 6.5%, as against the Nifty’s rise of 10.4%. The Nifty Mid-cap100 P/E ratio is now at 21.3x, at a 17% premium to large-caps.
• Earnings season largely in line, tax cuts drive profit beat: As of 3rd Feb’20, 101 MOSL Universe companies and 30 Nifty companies have released their third-quarter results. Sales, EBITDA, PBT and PAT for the 30 Nifty companies have grown at -0.3%, 16.9%, 15.2% and 24.8% YoY, as against our estimate of -1.1%, 12.5%, 13.7% and 22.5% YoY, respectively. Of the 30 Nifty companies that have announced their earnings, 23 have either met or exceeded our PAT estimates. For the MOFSL Universe, sales, EBITDA, PBT and PAT have increased 0.2%, 15.3%, 10.3% and 19.8% YoY versus our estimate of -0.1%, 12.5%, 9.4% and 18.2% YoY, respectively. Private Banks, NBFC, Cement and IT sectors have met expectations, while Consumer has delivered a beat.