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MOSL: BULLS & BEARS (September 2018)-India Valuations Handbook — India clinches best performance among Ems

BULLS & BEARS (September 2018): India Valuations Handbook — India clinches best performance among EMs; DII buying continues moderating

 

Strategy: India clinches best performance among EMs; DII buying continues moderating

• Nifty maintains winning streak: Market bulls have something to talk about in our August edition of ‘Bulls & Bears’. The Nifty ended 3% higher MoM in August after a strong 6% rally in the previous month. The market appears to have dismissed macro worries, especially on external balances front with crude oil at USD78/barrel and the INR at 71 against the USD. FIIs sold USD0.3b, while DII inflows moderated to USD0.4b from USD2-2.2b in May/June and USD0.6b in July. Mid-caps outperformed large-caps by 2.6% in August after three consecutive months of underperformance. However, the Mid-cap index continues lagging the Nifty on a trailing 12-month basis (9% return v/s Nifty’s 18%). Despite this sharp underperformance, valuation premium of mid-caps v/s large-caps is still at 28%.
• 1QFY19 earnings season was in line, excl. Corporate Banks: Aggregate sales of MOSL Universe grew at a 25-quarter high of 22.9% YoY (est. of 22.2%), EBITDA increased 19.3% YoY (est. of +23.5%) and PAT rose 13.8% YoY (est. of +25.2%). We note that the performance was disproportionately impacted by Corporate Banks. Excluding Corporate Banks, MOSL Universe sales/EBITDA/PAT grew 23.0%/21.1%/26.7% v/s estimate of 22.6%/24.1%/31.3%. Of the 19 sectors we track, 2/8/9 posted profits that were above/in-line/below our estimates. Nifty sales/EBITDA/PAT grew 23.7%/17.0%/10.0% v/s our estimate of 22.7%/22.7%/25.9%, dragged by Corporate Banks (SBI, ICICI, Axis). Excluding them, Nifty PAT growth was 24.6% (est. of 29.3%). Our FY19/20 Nifty EPS estimates have been cut by 5.6%/1% to INR547/688 v/s INR580/694 earlier. Nearly 80% of the earnings cut is driven by ICICI, SBI and Tata Motors. We are building in 19/26% EPS growth for the Nifty for FY19/20. Excluding Corporate Banks, Nifty earnings growth is expected at 16%/17% for FY19/20.