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MOSL: BULLS & BEARS (July 2021): India Valuations Handbook — Nifty surges to record peak; midcaps/smallcaps outperform

BULLS & BEARS (July 2021): India Valuations Handbook — Nifty surges to record peak; midcaps/smallcaps outperform

 

Strategy: Nifty surges to record peak; midcaps/smallcaps outperform

• Nifty maintains its winning streak: The Nifty touched a fresh high of 15,916, ending Jun’21 ~1% higher MoM at 15,722. The Nifty is up 12.4% in CY21 YTD. The rally was on the back of strong FII inflows, receding of the second COVID wave boosting confidence in an economic recovery, and an in line earnings season. FIIs continued their buying streak in Jun’21 at USD1.5b. DIIs saw inflows for the fourth consecutive month at USD1b. Midcaps/smallcaps outperformed largecaps by 3.7%/4.1% in Jun’21. In the last 12 months, midcaps have risen 83% v/s a rise of 53% for the Nifty. In the last five years, midcaps have outperformed by 5%. The Nifty Midcap100 P/E now trades at par with Nifty-50.
• Nifty delivered best in a decade earnings growth in FY21: 4QFY21 and FY21 earnings ended on a solid note with Nifty closing FY21 with a solid 23%/15% earnings/EPS growth for Nifty. For 4QFY21, Nifty Sales/EBITDA/PBT/PAT growth stood at 16%/32%/85%/76% YoY (est. 18%/27%/75%/63%). MOFSL’s Universe reported sales/EBITDA/PBT/PAT growth of 16%/37%/98%/76% YoY (est. 19%/35%/91%/72%). On a two-year CAGR basis, MOFSL’s Universe reported an EBITDA/PBT/PAT growth of 14%/17%/18%. Sales/EBITDA/PBT/PAT grew (-5%)/17%/32%/23% YoY for Nifty constituents in FY21. Metals, Auto and BFSI led the 4Q earnings and Nifty EPS was revised upwards by 2.6%/1.4% to INR746/INR872 for FY22E/23E.
• Major economies end higher in Jun’21: Barring China (-1% MoM), Japan (-0.2%), and MSCI EM (-0.1%), Jun’21 saw all key global markets – such as Taiwan (+4%), Korea (+3%), the US (+2%), Russia (+2%), India (+1%), Indonesia (+1%), Brazil (+0.5%), and the UK (+0.2%) – end higher in local currency terms. In the last 12 months, MSCI India (+52%) has outperformed MSCI EM (+38%). In the last 10 years, MSCI India has outperformed MSCI EM by 127%. In P/E terms, MSCI India is trading at an 88% premium to MSCI EM, above its historical average of 57%.