India Daily, December 01 2016
Total Page:16
File Type:pdf, Size:1020Kb
INDIA DAILY December 1, 2016 India 30-Nov 1-day 1-mo 3-mo Sensex 26,653 1.0 (4.4) (6.2) Nifty 8,225 1.0 (4.7) (6.3) Contents Global/Regional indices Dow Jones 19,124 0.0 6.0 3.8 Special Reports Nasdaq Composite 5,324 (1.0) 3.3 1.8 Strategy FTSE 6,784 0.2 (1.9) 0.6 Strategy: 'Passive' joyride and jitters Nikkei 18,625 1.7 6.8 10.0 Hang Seng 22,949 0.7 (0.9) (0.9) Daily Alerts KOSPI 1,982 (0.1) (1.3) (2.5) Results Value traded – India Cash (NSE+BSE) 340 259 260 Tata Power: Coal shows promise Derivatives (NSE) 3,638 2,432 3,223 GSPL: Higher other income offsets subdued volumes Deri. open interest 2,335 2,185 2,605 Sector alerts Forex/money market Energy: Short-term relief from OPEC deal, not enough for a medium-term seal Change, basis points 30-Nov 1-day 1-mo 3-mo Economy alerts Rs/US$ 68.4 (27) 161 143 Economy: Further protracted growth recovery 10yr govt bond, % 6.5 (2) (53) (66) Net investment (US$ mn) 29-Nov MTD CYTD FIIs (95) - 4,205 MFs 171 - 5,272 Top movers Change, % Best performers 30-Nov 1-day 1-mo 3-mo VEDL IN Equity 229.9 0.6 4.6 35.0 CAIR IN Equity 251.6 1.5 3.7 25.5 HZ IN Equity 282.6 0.1 3.7 25.2 ONGC IN Equity 288.9 1.4 (0.1) 22.1 HPCL IN Equity 471.2 (0.9) 1.4 16.8 Worst performers HDIL IN Equity 62.0 1.3 (23.4) (30.8) JPA IN Equity 8.1 5.9 (26.4) (27.7) SHTF IN Equity 904.5 (0.5) (14.2) (24.7) ACEM IN Equity 210.8 2.8 (13.8) (23.9) RCOM IN Equity 37.8 3.3 (18.8) (23.1) Kotak Institutional Equities Research [email protected] . Mumbai: +91-22-4336-0000 For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. INDIA Strategy Macro DECEMBER 01, 2016 UPDATE BSE-30: 26,653 ‘Passive’ joyride and jitters. The recent market correction exposes the hollowness of ‘macro’ trades. The Indian market’s valuations, especially those of high P/E stocks, were simply too expensive, supported as they were by low global yields and unrealistic assumptions of low ‘global’ cost of equity in perpetuity. The Indian market has seen large FPI outflows on (1) higher global bond yields and (2) demonetization but these factors are less relevant versus the fact that valuations were rich before the correction. Higher DM yields and demonetization are good talking points; market was simply too expensive QUICK NUMBERS In our view, the recent market correction and purported reasons for correction (higher DM US 10-year bond bond yields and demonetization) should be viewed against the fact that the Indian market’s yields jump 55 bps valuations were simply quite expensive before the correction. As highlighted several times, in the past month valuations were being supported by unrealistic assumptions of cost of equity, in turn ‘influenced’ by the loose monetary policies of the global central banks. This had led to large US$26 bn of debt mispricing of cost of equity or in other words, mispricing of country and company-specific risks. and equity outflows in emerging Overall valuations reasonable on FY2018E basis; however, de-rating story may not be over markets in October We find valuations of the market (Nifty-50 Index) more reasonable at 18.9X FY2017E ‘EPS’ and and November 15.6X FY2018E ‘EPS’ (see Exhibits 1-2) after the recent correction in the market. However, we expect (1) the recent sharp increase in DM yields and (2) the demonetization measure of the Listed funds Indian government to keep multiples of high P/E stocks in check. In fact, we do not rule out invested in India further de-rating in the multiples of (1) consumer durable and (2) building and construction saw redemptions of material stocks (see discussion later). India’s macroeconomic position will likely stay favorable US$1.4 bn in past over the next 12-18 months due to (1) likely lower inflation and interest rates and (2) stable one month CAD and fiscal position, which should support valuations above long-term historical averages. However, current multiples are still 15-20% away from our preferred valuation range. Sharp increase in global bond yields leads to large outflows from EM equities The recent sharp increase in DM bond yields (see Exhibit 3), especially in US bond yields, due to the market’s growing expectations about higher fiscal spending and deficits (infrastructure spending accompanied by reduction in corporate tax rates) in the US, has resulted in large equity outflows from emerging markets (see Exhibit 4). Six EMs for which daily FPI flow data is available saw inflows of US$23 bn in the September quarter post ‘Brexit’ (see Exhibit 5); they have now seen outflows of US$10 bn in October and November. Sanjeev Prasad Listed fund activity across the region was negative due to reversal of macro ‘yield’ trade [email protected] Mumbai: +91-22-4336-0830 Recent data from EPFR shows redemptions across EM markets (see Exhibit 6) with China and India seeing large redemptions from listed funds. This reverses the large inflows that they saw in Sunita Baldawa [email protected] the past few months post the June 23, 2016 ‘Brexit’ referendum, arising from a sharp decline in Mumbai: +91-22-4336-0896 DM and EM bond yields on expectations of further monetary stimulus by global central banks, especially the BoE. The BoE did cut rates and announce a QE program, adding to the QE Anindya Bhowmik [email protected] programs of the BoJ and the ECB. Mumbai: +91-22-4336-0897 Kotak Institutional Equities Research [email protected] Mumbai: +91-22-4336-0000 For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Strategy India Exhibit 1: Overall valuations are more reasonable after the correction but not of high-growth stocks Valuation summary of Nifty-50 sectors (full-float basis), March fiscal year-ends, 2016-18E Mcap. Adj. mcap. Earnings growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Div. yield (%) RoE (%) (US$ bn) (US$ bn) 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E Automobiles 93.8 50.8 11.4 26.1 15.0 19.0 15.1 13.1 9.5 7.6 6.4 3.4 2.9 2.5 1.0 1.2 1.3 18.1 19.3 18.9 Banking 184.1 138.4 19.7 44.0 24.7 21.0 14.6 11.7 2.2 2.0 1.7 1.0 1.2 1.5 10.4 13.5 14.7 Cement 30.2 13.8 46.0 20.7 21.5 22.3 18.5 15.2 10.7 8.6 6.8 2.7 2.4 2.1 0.7 0.7 0.7 12.1 13.1 14.0 Consumers 81.2 43.9 4.1 16.1 13.3 34.9 30.1 26.5 23.3 19.8 17.3 11.7 11.1 10.5 2.0 2.3 2.8 33.7 36.8 39.7 Energy 100.1 37.1 11.5 7.8 8.6 11.3 10.5 9.7 7.6 6.5 5.8 1.3 1.2 1.1 2.2 2.3 2.6 11.5 11.4 11.4 Industrials 23.5 18.3 51.8 37.3 25.3 27.7 20.2 16.1 20.2 16.2 13.5 2.2 2.1 1.9 1.5 1.9 2.3 7.9 10.2 11.9 Infrastructure 8.4 3.6 23.5 (16.1) 4.0 16.2 19.4 18.6 14.5 13.1 12.5 3.5 3.0 2.7 0.5 0.8 0.9 21.5 15.7 14.5 Media 6.4 3.6 33.2 35.8 14.8 36.4 26.8 23.4 20.1 16.5 14.5 4.6 4.3 3.9 0.5 0.8 0.9 12.7 15.9 16.6 Metals & Mining 39.6 13.0 46.2 29.5 10.5 14.7 11.4 10.3 8.5 7.1 6.6 2.6 2.4 2.2 4.0 4.5 5.0 17.8 21.2 21.4 Pharmaceuticals 55.6 29.3 20.1 14.7 17.4 23.8 20.8 17.7 14.6 12.2 10.1 4.4 3.7 3.1 0.7 0.7 0.9 18.4 17.8 17.8 Technology 138.1 61.5 8.1 8.8 9.4 15.8 14.6 13.3 10.6 9.4 8.3 3.8 3.3 2.9 2.4 2.5 2.8 23.8 22.8 22.0 Telecom 33.2 10.5 (16.2) (41.4) 62.9 29.0 49.4 30.3 7.0 7.0 6.2 2.1 2.1 2.1 1.7 1.7 2.4 7.2 4.3 6.9 Utilities 37.2 14.0 7.8 17.8 11.9 13.3 11.3 10.1 10.2 8.8 7.5 1.6 1.5 1.3 1.9 2.3 2.5 12.0 12.8 13.0 Nifty-50 Index 831.4 437.8 14.3 19.2 15.6 18.3 15.3 13.3 10.3 8.9 7.7 2.6 2.3 2.1 1.6 1.9 2.2 14.0 15.1 15.6 Nifty-50 Index (ex-energy) 731.3 400.7 15.0 21.9 17.1 20.0 16.4 14.0 11.1 9.6 8.3 3.0 2.7 2.4 1.6 1.8 2.1 14.8 16.2 16.8 Notes: (a) We have used consensus numbers for Aurobindo, Bosch and Kotak Mahindra Bank.