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MOSL: Morning India (25/January/18): 1. India Strategy; 2. Financials – Banks; 3. United Spirits; 4. Interglobe Aviation; 5. Pidilite Inds; 6. Biocon; 7. Idea Cellular Etc….

MOrning India (25/January/18): 1. India Strategy; 2. Financials – Banks; 3. United Spirits; 4. Interglobe Aviation; 5. Pidilite Inds; 6. Biocon; 7. Idea Cellular; 8. Container Corpn; 9. M&M Financial; 10. Canara Bank; 11. PNB Housing; 12. L&T Infotech; 13. Crompton Gr. Con

Today’s top research theme

India Strategy: Hardening bond yield offsets the valuation cushion; Earnings recovery important to sustain valuations

• Market is no longer inexpensive: In our previous note ‘De-constructing market valuations’, we had argued that even though the market was slightly expensive on P/B v/s RoE framework, it was reasonably valued if one looked at P/B v/s excess RoE framework. However, with bond yields hardening, the advantage of lower CoE has dissipated and the market is no longer inexpensive even on P/B v/s excess RoE framework.
• Excess RoE is (RoE-CoE) and is more meaningful as PE doesn’t factor in cost of equity (CoE). Essentially, lower cost of capital explained the valuation uplift.
• We apply the excess RoE v/s P/B framework to BSE 100 index constituents and highlight stocks which are within +/-40% range of their fair value using the statistical relationship between P/B and excess RoE for the stocks.

Piping hot news

Future Group eyeing Rs 40,000 crore retail business in 2018-19

• The Future Group is expecting its retail business to reach Rs 40,000 crore in 2018-19. "We are looking at retail business of Rs 40,000 crore by next year; out of which Hyderabad will contribute Rs 4,000 crore," Future Group CEO Kishore Biyani told reporters here. "We will touch Rs 40,000 crore by next year as a Group. Future Group. Currently, this year, we should be Rs 30,000 crore," he said.