presenation for sep'18 webinar - kotak securities · •inr depreciation is eating away...

Market Outlook‐ By Rusmik Oza

‐ Sr. VP (Head of Fundamental Research)

5th Sep’18

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Performance: Regional markets

Source: Kotak Institutional Equities (KIE)

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Performance: Sectoral Indices


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Performance: Sectoral Indices


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GDP: Expect 7.3% growth in FY19 (Vs 6.7% in FY18)


Q1‐FY19 GDP uptick is on account of improvement in Agriculture & Industry growth Base effect has helped Manufacturing report healthy growth of 13.5% (Vs ‐1.8% in Q1FY18) Expect GDP growth to moderate (i.e. Q2FY19: 7.3%; Q3FY19: 6.9% & Q4FY19: 7%).

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GST: Still below Budgetary target


GST revenues are way below the budgeted target Government needs a monthly run rate of Rs.1.15 tn for the rest of FY19. Our house target of GFD/GDP is ~3.5% Risk of higher borrowing & higher yields in 2H‐FY19

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IIP: 1H‐FY19 to report healthy nos. on base effect


Jun’18 IIP growth was 7% Vs 3.9% of May’18. Expect high IIP growth in 1H‐FY19. Core Sector (38% of IIP) grew by 6.6% in Jul’18 Vs. 6.7% in Jun’18 and 2.9% in Jul’17.

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Trade Deficit & CAD: Still below target


Monthly Trade Deficit has widened to USD 18 bn in Jul’18 CAD/GDP may rise to 2.6‐2.8% of GDP in FY19E (already close to 1.9%) This will increase borrowing cost for corporates and lead to further weakness in the INR

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Crude: Iran sanctions could lead to spike in crude prices


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Monsoon update: Below normal but reservoir levels better


Till 29 Aug’18, cumulative rainfall was 6.3% below normal.

Central , South & West = favourable rainfall As on 24th Aug’18, sowing is 1.3% lower than

same period of last year. Reservoir levels = 14% above long term avg.

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INR: Still looks weak (can depreciate further)


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Flows: Local Flows dominate led by MFs

Source: Kotak Institutional Equities (KIE) Source: Kotak PCG Sep’18 Market Outlook report

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Earnings: Excluding Banks Q1FY19 earnings is very healthy

Source: Kotak PCG Sep’18 Mthly Outlook report

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Nifty 50 Earnings: KIE estimates

Source: Bloomberg & Kotak Institutional Equities (KIE) – from Sep’18 PCG Market Outlook report

KIE is building in Nifty earnings CAGR growth of 21% For FY18‐20E.

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Nifty 50 Earnings: FY19E has seen >10% cut in last 6 months

Source: Kotak Institutional Equities (KIE) & PCG

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Earnings: KIE sectoral earnings estimates

On a 2 year CAGR basis, KIE expects Automobile, Banking, Cement, Consumers, Pharma and Metals & Mining to report better numbers


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Market Breadth: 3 stocks contributed to ~50% rise in last one year


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Market Breadth: FPIs & MFs underweight in top Nifty stocks


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Nifty Valuations: On the higher side

Nifty valuations rich at 18.4x Fw PE but not in bubble zone. Very less room for re‐rating – given macro headwinds.

Source: Bloomberg & Kotak Private Client Group

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22.0Nifty 50: 1 Year Fw rolling PE chart

Close 200 WMA

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India Valuations: Market Cap to GDP above LTA of 78%

Source: Kotak PCG, Sep’18 Market Outlook report

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Sector Valuations: Automobile & Cement

Source: Kotak Institutional Equities (KIE) Source: Kotak Institutional Equities (KIE)

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Sector Valuations: PSU and Pvt Sector Banks


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Sector Valuations: Consumer Staples & Discretionary


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Sector Valuations: Energy & Industrial


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Sector Valuations: Metals & Utilities


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Sector Valuations: Pharma & Technology


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Valuations: MSCI EM Vs MSCI India

Source: Bloomberg, Kotak PCG Research

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Valuations: MSCI India Premium over MSCI EM


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Valuations: Nifty 50 Vs Mid Cap


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Delivery: Percentage of delivery at 4 Year low


• Focus still remains on Trade war, currencies & global yields.

• Market breadth has been very shallow with poor delivery volumes.

• INR depreciation is eating away majority of profits made by FPIs in India.

• Earnings growth (mfg sector) will look good for 1H‐FY19E. 2H‐FHY19 = challenging

• Nifty & Mid Cap Index is trading at 18.3x & 21.3x, respectively on 1 Yr Fw EPS.

• Valuations look stretched due to rally in high quality & high PE stocks.

• Trading and tactical play market. Buy & Hold may not work for some time.

• Long term investors need to have 2‐3 year view & spread the buying in tranches.

• Focus on Good management, superior earnings growth & reasonable valuations.31

Observations & Investment Strategy

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Top Picks: For the month of Sep’18 (with one year view)

For detailed reports kindly visit Kotak Securities ‐ Private Client Group ‐ Path: Login to www.kotaksecurities.com > Research > Equity Reports > Stock Recommendation Snapshot

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Thank You

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Q&A Session

presenation for sep'18 webinar - kotak securities · •inr depreciation is eating away...

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