Market Outlook January 2018 1
Equity Markets 2
3
Key Interesting Events Seen In 2017 4
Key Interesting Events Seen In 2017 5
Key Interesting Events Seen In 2017 6
Key Events – December 2017 • BJP won its 6th consecutive term in Gujarat with 99 of 182 seats and also secured a comfortable win in Himachal Pradesh with 44 of 68 seats. Key to note in Gujarat is while BJP has done well in urban seats the race was tighter than expected for the rural seats. • In line with street expectations, RBI held status quo on policy rates at 6% (voted 5-1) and maintained neutral policy stance. The MPC statement however struck a vigilant tone on inflation and revised its 2HFY18 CPI forecast marginally higher to 4.3-4.7% from 4.2-4.6% earlier • The Finance Ministry notice in the last week of Dec confirmed fears of fiscal slippage as it announced extra borrowing of INR 500 bn (0.3% of GDP) through government bonds over and above the budgeted net borrowing of INR 3482 bn for FY18. • Oct IIP slowed to 2.2% vs 3.8% in Sep as manufacturing sector slowed to 2.4% vs 3.4% last month. Capital goods output was in the green for the 3rd straight month • FIIs reversed position to net sellers in Dec after 2 consecutive months of buying with net outflows $ 1025mn. The total net inflows from FIIs for the year 2017 stood at $7.8bn. DIIs continued to remain buyers for the 9th straight month with net inflows of $1.2bn led by Mutual Funds at $951mn. • . 7
Assembly election outcome Win but by a smaller margin… ELECTION OUTCOME Source: Election Commission of India MOST OF BJP’S LOSSES IN FARMER - DOMINATED SAURASHTRA REGION Source: NDTV,*Congress figure includes one seat of an independent supported by the party 8
Political map of India… BJP adds Himachal Pradesh to its kitty 9 Source: CLSA, RBI, Census of India
Election calendar Tight political calendar for 2018… Source: CLSA, Rajya Sabha, Election Commission. 10 *The number of members the BJP gets to nominate (sans election) is included in the above data.
GST Collections still short – Oct 2017 (GST collections, Rs. bn) Higher than budgeted expenditure, weak GST collections and sharply lower than budgeted non-tax revenues are the main reasons for fiscal stress 11 Source: CGA, Spark Capital Research
Small slip in fiscal for FY18 also…. If the gov’t intends to maintain the budgeted expenditure, the fiscal deficit will likely slip by 40-50bp Revenues & Expenditure Table 12 Source: CLSA, CGA, Ministry of Finance documents
Annual Performance Of Sensex And Nifty Indices Sensex’s and Nifty’s Performance (%) 13 Source: Bloomberg, Kotak Institutional Equities
High PE, But On Low Profitability Base Source: Bloomberg, CMIE, ACE Equity, MOSPI, CLSA
2018 and beyond… …Key Events with large range of outcomes Budget along GST Election FOMC hikes Global events RBI Policy path of fiscal Collections in CY2018 action in 2018 • On • Trump – prudence? • How many • Hike? development protection • Need to • Targeted plank hikes ? barriers for • Pause? watch out Fiscal deficit trade? • On populist for collection next year? • China – CNY measures in next few • Subsidy dole (farm stabilising? months out or infra waivers/subsi • Eurozone spend dy etc) election – maintained? more surprises in store 15
Long Term Theme Emerging : Disruptor versus Disrupted 3D printing and artificial intelligence is disrupting traditional models of manufacturing Robotics is disrupting human way of providing services 16
Rural Sector Recovering 17 Source: CMIE, Ministry of Finance
Lead Indicators Show Possible Uptick in Growth 18
THE INFRASTRUCTURE OPPORTUNITY… …MORE THAN ASSET OWNERS A MULTI-SECTORAL OPPORTUNITY Logistics Oil and Gas Industrials Infrastructure Financing Outsourcing Utilities Urban Infrastructure Construction India Real Estate Airport and Air Transport Story Ports and Shipping Cement Demographics Infrastructure Power SEZ Development Road and Railways Telecom 19
Market Performance 20
Strong Performance By Majority Sectors Over The Last 1 Year IT and Pharma lagging in returns BSE Sectoral Indices 120 106.4 100 80 60 47.8 40.0 39.1 34.0 40 32.1 31.5 19.3 19.8 16.5 20 10.8 7.5 6.6 6.1 5.8 5.4 5.1 3.7 3.6 2.2 0.8 2.6 0.5 0 (0.1) (%) (20) Realty Metals Capital Bankex Oil & Gas Auto FMCG Power PSU Tech IT Services Healthcare Goods 1m return % 1 yr return % 21 *As on 29 Dec 2017, Source: Axis Capital, Bloomberg
Performance Across Market Cap - Strong Performance Down the Capitalisation Curve 70 59.6 60 47.3 50 In percent 40 28.6 30 20.5 20.0 19.9 18.9 20 12.3 8.7 8.3 10 6.2 5.5 5.6 5.5 3.0 0 Nifty Nifty Midcap S&P BSE Smallcap 1m returns 1y returns 3 yr CAGR 5 yr CAGR 10 yr CAGR 22 *As on 29 Dec 2017, Source: Bloomberg
Mid Caps are at a Premium 23 Source: Bloomberg, CLSA
Laggards become Leader 24
Most Global Markets Had Strong Showing In The Last Year 2.5 HK (HSI) 36.0 3.0 India (Nifty) 28.6 6.2 Brazil (IBOV) 26.9 1.8 US (Dow Jones) 25.1 2.0 China (HSCEI) 24.6 (0.4) Korea (Kospi) 21.8 6.8 Indonesia (JCI) 20.0 0.2 Japan (Nikkei 225) 19.1 (0.9) 18.1 Singapore (Straits) 0.8 Taiwan (TSWE) 15.0 0.7 Swiss (SMI) 14.1 (0.8) Germany (DAX) 12.5 4.6 Malaysia (KLCI - FTSE) 9.4 (1.1) France (CACS 40) 9.3 4.9 UK (FTSE 100) 7.6 (1.8) EURO (Euro Stoxx 50) 6.5 1M 1Yr 0.4 Russia (MICEX) (5.5) (10) 0 10 20 30 40 25 * As on 29 Dec 2017, Source: Bloomberg. Performance data in local currency
Valuations 26
Stock Picking Will Be Critical Sensex sectoral long-term valuation snapshot: Forward PE* 80 70 60 Max 50 Top Quartile 40 30 Current 20 L ower Quartile 10 Min 0 Auto BFSI Engg FMCG IT Metals Oil Pharma Power Telecom Sensex Source: Axis Capital, Bloomberg Note: * Since April-2005 IT and Power at lower end of valuations, other sectors moving towards upper end of valuation zone 27 *As on 29 Dec 2017
Indian higher than most peers on Valuation P/E Multiple CY17/FY18 of Indices India (Sensex) 23.3 US (Nasdaq) 21.4 US (Dow Jones) 17.9 Japan (Nikkei 225) 17.0 Malaysia (KLCI - FTSE) 15.9 Thailand (SET) 15.7 UK (FTSE 100) 14.6 Singapore (Straits) 14.1 Brazil (IBOV) 12.6 HK (HSI) 12.1 Korea (Kospi) 9.1 (x) 6 10 14 18 22 26 Source: Internal Estimates , Bloomberg 28 * For India & Japan Fiscal year is FY18 while others it is CY17
Greater Power comes Greater Responsibility MF Equity collections in CY17 were ~80% of collections in last trade Source: CEIC, AMFI, IIFL Research. Note: Based on sum of ‘ELSS’, ‘Other ETF’, ‘Growth’ and 65% 29 Of ‘Balanced’ category collections. * CY17 flows based on period of Jan to to Nov-17
Trend In Equity And Derivatives Flows Net Investments by FPIs, DIIs and MFs in the cash market (US$ mn) Net foreign flows in the derivatives market (US$ mn) Notes: A) DII- Domestic Institutional Investors (Includes Bank, DFIs, Insurance, New Pension Scheme and MF) 30 B) FII data till Dec 26, MF data is till Dec 21 and DII data is for full month till Dec 28, Source: Kotak Institutional Equities Research
Domestic Flows May Sustain Into Equity Funds In CY 18 • Mature investor base understanding • Low FD Return the benefits of compounding • Uncertain real of equities as Flows to equities estate asset class environment & Lower time limit • SIP as a tool to for LTCG counter volatility 31
Earnings Projected to Pick Up in FY19 32 Source: Companies, CLSA
Nifty EPS Growth 33
25 Markets Consolidating As It Awaits Economy To Take Off Past performance is not a reliable indicator of expected future performance Sensex P/E Sensex ‘EPS’ 12 18 24 30 6 FY93 81 FY93-97 Jul-93 Sensex CAGR 14% 20.63 FY93-96: 45% FY94 129 Jul-94 CAGR FY95 181 Jul-95 FY96 250 Jul-96 FY97 266 Jul-97 FY98 291 FY98-03 Jul-98 FY93-FY17: 12% CAGR FY96-03: 1% CAGR FY99 278 Jul-99 Sensex CAGR -1% 21.47 FY00 280 Jul-00 Sensex P/E (x) Jul-01 FY01 216 Jul-02 FY02 236 10.72 Jul-03 FY03 272 Jul-04 FY04 361 FY05-09 Jul-05 FY05 446 Average of Sensex CAGR FY03-08: 25% Jul-06 15.3x FY06 540 39% CAGR Jul-07 FY07 720 21.06 Jul-08 FY08 833 Jul-09 FY09 820 Jul-10 FY10 834 Jul-11 FY11 1,024 Jul-12 FY10-17 FY12 1,111 CAGR -1% 5.5% CAGR Sensex FY08-17: Jul-13 FY13 1,180 Jul-14 FY14 1,331 Jul-15 FY15 1,352 Jul-16 FY17-19E: 11.3% CAGR FY16 1,332 Jul-17 FY17 1,347 FY18-19e Mar-17 FY18E 1,461 Mar-18 Mar-19 FY19E 1,670
Recommend
More recommend
