MOSL: Morning India (07/March/19): India Strategy (A tale of divergence in Indian equities; Are we at the turning point of performance for mid/small caps?)
MOrning India (07/March/19): India Strategy (A tale of divergence in Indian equities; Are we at the turning point of performance for mid/small caps?)
Today’s top research theme
India Strategy: A tale of divergence in Indian equities; Are we at the turning point of performance for mid/small caps?
- Nifty/Midcap returns have been driven by a narrow set of stocks. The trend in both these indices indicates that the street favors quality amid tepid earnings delivery.
- Nifty has outperformed the mid-cap index over past few months. We look at this divergence through various lenses: Contribution of top-15 to top 100 market cap, large-cap v/s mid-cap rolling differential returns, etc.
- With improving asset quality of PSBs, profits for small/midcap universe should recover significantly (+91% YoY) in FY19. For the universe ex PSU banks, we estimate 16% growth in FY19 (FY18: 12%). Return ratios should normalize over next two years.
- With meaningful correction in mid-cap valuations, premium over large-caps has largely disappeared. Our analysis of mid-caps v/s large-caps on several frontiers suggests improving relative attractiveness of mid-caps.
Piping hot news
FIIs buy $2.37 billion in equity in Feb, most in 15 months
- Foreign institutional investors (FIIs) seem to have returned to India after several months of aggressive selling, hoping for a rate cut by the Reserve Bank of India (RBI) in its next monetary policy meeting and a general easing in geopolitical tensions. FIIs bought $2.37 billion in equity in February, their biggest purchase since November 2017, according to data compiled by the Securities and Exchange Board of India (Sebi). In 2018, FIIs were net sellers of equity worth $4.55 billion.
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