EUR 120.00 For Business Accounts Only

MOSL: BULLS & BEARS (June 2019)-India Valuations Handbook — Markets rally for third straight month

BULLS & BEARS (June 2019): India Valuations Handbook — Markets rally for third straight month; Political uncertainty behind

 

Strategy: Markets rally for third straight month; Political uncertainty behind

• Markets applaud political stability, surpass April highs: The Nifty rallied for the third straight month by 1.5% to 11,923 in May, surpassing its previous all-time of 11,856 in April. Market sentiment bolstered toward the latter part of May with a single party – the BJP – forming a majority government in the recently concluded general elections, ending months of political uncertainty. FIIs were net buyers (USD1.4b) for the fourth straight month, while DIIs too turned net buyers (USD 0.8b) after three tepid months. Mid-caps outperformed large-caps, with the Nifty Midcap100 gaining 2.2%. Notably, over the last 12 months, the Mid-cap index declined 5% v/s the Nifty’s rise of 11% due to their unsustainable valuation premium v/s large-caps, the preference for large-caps in a volatile environment and the lack of pick-up in earnings growth.
• Fourth-quarter earnings growth in-line: The 4QFY19 corporate earnings-report season was largely in line with our expectations for both the Nifty and the MOFSL Universe. The Nifty delivered 15.8% earnings growth v/s our estimate of 16.8%, while MOSL Universe earnings growth stood at 23.6% v/s our estimate of 29% (dragged by PSU Banks). Of the 19 sectors that we track, 7/4/8 posted profits that were above/in-line/below our estimates. Automobiles, Cement, Metals, Utilities and Mid-cap universe profits exceeded our estimates, while Private Banks, PSU Banks, Healthcare, Retail and Telecom missed our profit expectations. Our Nifty EPS forecast for FY20 remained stable at INR604. However, downgrades outweighed upgrades in the broader markets, with 52 companies under our coverage universe witnessing 5%+ earnings downgrades v/s 27 which saw earnings upgrade of 5%+.