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MOSL: BULLS & BEARS (January 2019)-India Valuations Handbook — Nifty clocks modest gains in a volatile year

BULLS & BEARS (January 2019): India Valuations Handbook — Nifty clocks modest gains in a volatile year; action in last quarter pulls up relative returns

 

Strategy: Nifty clocks modest gains in a volatile year; action in last quarter pulls up relative returns

• Nifty clocks modest gains in a volatile year: Just when the Indian benchmark indices appeared on pace for one of the worst performances in many years, the November-December run brought things on course to produce a respectable scorecard (Nifty up 3% for the year) – especially when compared to the US market which had a terrible year (-6% for CY18 and -9% in Dec’18). DII inflow was the strongest in nearly 10 years at USD15.9b, while FIIs recorded the first outflow (USD 4.6b) in seven years (for Dec’18, the FII/DII inflow trend was muted at USD0.3b/USD0.05b). Preference for large-caps in a volatile environment was clearly evident from Nifty’s outperformance v/s Mid-cap index by 19% and Small-Cap index by 32% in CY18. Nevertheless, after taking big hits through the year, Mid-caps saw some buying action in Dec’18, helping the Nifty Midcap100 (+2%) to outperform the benchmark Nifty (flat). Consequently, valuation premium of mid-caps v/s large-caps went up from 13% to 17%.
• India among the leaders in CY18: For CY18, Brazil (+15%), India-Sensex (+6%) and Russia (+2%) were the key global markets to close higher in local currency terms. On the other hand, China (-25%), Korea (-17%), MSCI EM (-17%), the UK (-12%), Japan (-12%), Taiwan (-9), the US (-6%) and Indonesia (-3%) ended lower. Over the last 12 months, MSCI India (flat) has outperformed MSCI EM (-17%). Notably, over the last five years, MSCI India has outperformed MSCI EM by 172%. MSCI India P/E is at a premium of 89% to MSCI EM P/E, above its historical average premium of 46%.