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MOSL: BULLS & BEARS (October 2022): India Valuations Handbook — Market turns volatile amidst fear of monetary policy tightening; FIIs turn sellers

.  BULLS & BEARS (October 2022): India Valuations Handbook — Market turns volatile amidst fear of monetary policy tightening; FIIs turn sellers

Strategy: Market turns volatile amidst fear of monetary policy tightening; FIIs turn sellers

• Markets witness elevated volatility, consolidate in Sep’22: The Nifty’s two-month winning streak ended in Sep’22. With extreme volatility, the index oscillated within a range of ~1,350 points before closing 665 points, or 3.7% MoM, lower at 17,094. This elevated volatility was triggered by global and macro headwinds. The US Fed raised interest rates by 75bp driving a broader risk-off in the global equity markets with Dollar index up 17% YTD’CY22. Indian currency depreciated 2.3% in Sep’22 even as Forex reserves are down by USD96b in YTD’CY22.  The RBI hiked its key policy rate (repo) by 50bp to 5.9% on 30^th Sep'22 and revised GDP growth down to 7% v/s 7.2% earlier.
• All major economies end lower in Sep’22: Barring Brazil (flat MoM), Sep’22 saw all key global markets such as Russia (-17%), Korea (-13%), MSCI EM (-12%), Taiwan (-11%), the US (-9%), Japan (-8%), China (-6%), the UK (-5%), India (-4%), and Indonesia (-2%) close lower in local currency terms. Over the last 12 months, the MSCI India index (-2%) has outperformed the MSCI EM index (-30%).
• FII outflows v/s DII inflows: FIIs reported outflows of USD1.6b in Sep’22 after recording the highest inflows in Aug’22 (since Dec’20). Net outflows stood at USD22.6b YTD. DIIs turn buyers of USD1.7b in Sep’22 after recording outflows in Aug’22. Net inflows stood at USD28.9b YTD.
• All major sectors ended lower in Sep’22: Healthcare (+2%), Telecom (+1%), and Consumer (+1%) were the only gainers. While, Utilities (-9%), Oil & Gas (-9%), Real Estate (-8%), Technology (-5%), and Automobiles (-4%) were the key laggards.
• Our view: Our 18^th Annual Global Investor Conference concluded in the fourth week of Sep’22 with outstanding participation from investors and corporates alike. Corporates across the sectors highlighted potential for margin expansion in 2HFY23E as the benefits of recent compression in commodity prices manifest themselves in P&L going forward. The lean balance sheets of both corporate India and Indian Banking sector are encouraging corporates to come out and talk about CAPEX after several years of indifference. With the recent correction, the Nifty now trades at 20.4x FY23E EPS, above its LPA, and offers limited near-term upside in our view. The upside from hereon will be a function of stability in global and local macros, and continued earnings delivery v/s our expectations. In our model portfolio, we maintain our OW stance on BFSI, IT, Consumer, Telecom and Auto with UW/Neutral stance on Energy, Metals and Healthcare.
• Top ideas | Largecaps: Reliance Industries, Infosys, ICICI Bank, SBI, Bharti Airtel, ITC, Maruti Suzuki, Titan Company, Ultratech Cement, IndusInd Bank, Hindalco, Apollo Hospitals, and Macrotech Developers.
  Midcaps/smallcaps: Varun Beverages, Ashok Leyland, Jubilant Foodworks, Metro Brands, Vinati Organics, Cams Services, Angel One, Lemon Tree Hotel, and VRL Logistics.