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MOSL: Morning India (04/October/18)-1. Bulls & Bears (Markets stranded in a whirlpool of macro headwinds); 2. Shriram Trans.Fin. (Corporate guarantee revoked); 3. EcoScope; 4. Diesel Gensets

MOrning India (04/October/18): 1. Bulls & Bears (Markets stranded in a whirlpool of macro headwinds); 2. Shriram Trans.Fin. (Corporate guarantee revoked); 3. EcoScope; 4. Diesel Gensets

 

Today’s top research idea

Bulls & Bears: Markets stranded in a whirlpool of macro headwinds

• Market volatility last month reminds us of the Green Day band's title song "Wake me up when the September ends." The market performance was a tough pill to swallow with the odds that something could jolt the bull-run increasing throughout the month. The whirlpool of macro headwinds - rising crude prices, depreciating INR, tightening liquidity and ILFS debt default - became extremely prominent, driving one of the biggest market corrections in many months (Nifty down 6% MoM in September, after rising by 3% in August and 6% in July).
• Mid-caps lost a massive 13.9% in September, underscoring elevated market volatility and panic. On a 12-month basis, mid-cap returns (down 5%) have now turned negative and continue lagging the Nifty's returns (up 12%). Consequently, valuation premium of mid-caps v/s large-caps has moderated to 19%.
• Real Estate (-20%), PSU Banks (-19%), Media (-15%), Autos (-13%) and NBFCs (-11%) featured among the top losers in the month. Technology (+1%) was the sole positive performer in the month.
• The Nifty trades at 20x FY19E EPS, off from the recent highs but still rich. Our portfolio strategy remains premised on "When the going gets tough, the tough get going." Our preference still remains with large-caps, given the premium of mid-caps to large-caps amidst an environment of challenging macros, potential slowdown in domestic equity flows and a forthcoming busy political calendar.

Piping hot news

As Rupee plumbs new lows, RBI allows oil companies to take ECBs under automatic route

• The Reserve Bank of India (RBI) Wednesday relaxed policy on borrowing from overseas to allow state-owned fuel retailers to raise up to USD 10 billion external debt for working capital needs. Till now oil marketing companies were not allowed to raise external commercial borrowing (ECB) for working capital needs on a long-term basis. They could raise a maximum of one-year overseas loan by way of buyers credit, repay it within 12 months and raise it again thereafter.