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MOSL: Morning India (9/February/18): 1. India Strategy; 2. FoE (Economy); 3. Cadila Healthcare; 4. Petronet LNG; 5. Aurobindo Pharma;

MOrning India (9/February/18): 1. India Strategy; 2. FoE (Economy); 3. Cadila Healthcare; 4. Petronet LNG; 5. Aurobindo Pharma; 6. BHEL; 7. SAIL; 8. ABB; 9. Bharat Forge; 10. ACC

 

Today’s top research theme

India Strategy - Volatility returns, but earnings story improving

• We believe the recent market correction is largely driven by hardening of bond yields and rich premiums of mid-caps v/s large caps. We had pointed out in our recent note that post the rise in bond yields, the markets (especially mid-caps) were looking expensive on our P/B v/s excess RoE framework and needing earnings support in the absence of cushion from lower cost of capital.
• The gap between earnings and bond yields has declined further, making equities relatively less attractive v/s bonds.
• The narrative of market is shifting from ‘Strong Macros, Weak Micros’ to ‘Strong Micros, Moderating Macros’. After a period of flat earnings over FY14-17, we see semblance of a recovery, with earnings growth estimated at 22% for 2HFY18 and 25% for FY19. Importantly, the earnings estimates for FY18 have been stable, unlike the case in FY15/16/17, providing confidence in the anticipated growth recovery in subsequent years.
• Our preferred mid-cap ideas are HAVELLS, EMAMI, JSPL, IGL, RBL, EXIDE, Oberoi Realty, REPCO, MCX and TEAMLEASE.
• Among the large-caps, we like HDFC, ICICI Bank, Larsen & Turbo, M&M, Motherson Sumi, Titan, HPCL and NMDC.

Piping hot news

Modi govt clears construction of 1,86,777 affordable houses

• The ministry of housing and urban affairs has approved the construction of 1,86,777 more affordable houses under its flagship Pradhan Mantri Awas Yojana (Urban), with an investment of Rs 11,169 crore, a government release said. The central assistance for the same will be Rs 2,797 crore. The approval was given at the 30th meeting of the Central Sanctioning and Monitoring Committee, it said, adding that the total homes sanctioned under PMAY(U) has now gone up to 37,83,392.