MOSL: Morning India (26/June/19): 1. India Strategy (Performance and valuation divergence entrenches further); 2. Axis Bank (Annual Report Update); 3. Torrent Power; 4. Real Estate
MOrning India (26/June/19): 1. India Strategy (Performance and valuation divergence entrenches further); 2. Axis Bank (Annual Report Update); 3. Torrent Power; 4. Real Estate
Today’s top research theme
India Strategy: Performance and valuation divergence entrenches further
- The Nifty had put up an impressive show in March and early Apr’19, led by strong FII flows amidst the general elections and with election verdict turning out better than market expectations, Nifty scaled 12000 mark in Jun19. However, the euphoria was short lived; Volatility levels have picked up, especially in mid and small-cap indices, as market sentiment remains exposed to slowdown in the economy.
- As the markets consolidate, the picture has turned more polarized with a few stocks accounting for the gains in the Nifty. In Nifty, Top 15 stocks have delivered 30% returns, while other 35 stocks are down 11% – a significant divergence .The divergence between these two segments of the market has become quite stark in terms of both performance and valuations – one trading at a substantial premium and the other at a huge discount to their long-period average valuations.
- At 19.5x FY20E P/E, we do not see material room for further valuation re-rate. Valuation headroom for the Nifty is limited in an environment of continued earnings downside risks, in our view. Mid-caps now trade at a 14% discount to large-caps and offer relatively good risk-reward.
TOP IDEAS: LARGE-CAPS: ICICI Bank, HDFC, SBI, Titan, L&T, Coal India, Infosys, Bharti Airtel, Maruti. | MID-CAPS: Federal Bank, DCB, Indian Hotels, Crompton Consumer, KEC International, Ashoka Buildcon, ABFRL, Zensa
Piping hot news
Development agenda won’t be diluted: PM Modi in Lok Sabha
- Narendra Modi, delivering the first parliamentary speech of his second term as Prime Minister, on Tuesday pledged to continue working for financially and socially weaker sections, saying his government “did not divert" from the development path. Outlining the focus of the second term of the government, Modi listed innovation in agriculture and provision of drinking water to all homes as key priorities, along with combating terrorism and fighting corruption. Days ahead of the first Union budget of this government, Modi also reiterated his resolve to see India scaled up to a $5 trillion economy.
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