Bulls and Bears - Strategy : Pain continues; steepest MoM decline since Mar`20 By Motilal Oswal
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* Market slumps for the third consecutive month: The Nifty slid 4.8% MoM in Jun'22 after a 3% fall in May'22. The market closed in the red for the third consecutive month and notched the steepest MoM decline since Mar'20
* Major economies end lower in Jun'22: Barring China (+7% MoM), Jun'22 saw key global markets such as Korea (-13%), Taiwan (-12%), Brazil (-12%), the US (-8%), MSCI EM (-7%), the UK (-6%), India (-5%), Indonesia (-3%), Japan (-3%), and Russia (-3%) end lower in local currency terms. Over the last 12 months, MSCI India (flat) has outperformed MSCI EM (-27%). Over the last 10 years, it has outperformed MSCI EM by 163%. In P/E terms, MSCI India is trading at an 104% premium to MSCI EM, above its historical average of 61%.
* FII outflows v/s DII inflows: FIIs recorded outflows for the ninth consecutive month, with outflows of USD6.3b in Jun'22 - the highest since Mar'20. Domestic inflows remained robust at USD6b in Jun'22. In CY22 till date, inflows stood at USD26.7b.
* Corporate profit-to-GDP ratio is at a decade high in CY22: Notwithstanding the COVID-induced gloom and weak economic recovery, corporate profit has bounced back from the lows. Corporate profit-to-GDP ratio rebounded to a 10-year high of 4.3% (long-period average of 3.7%) in CY22 as profit grew at a faster pace (up 48% YoY) (refer detailed report).
* Volatility and sharp see-saw moves to continue: The adverse macro backdrop, with heightened worries on rising interest rates, elevated crude oil prices, and liquidity tightening, has kept the market volatile and jittery. After the correction, the Nifty trades at 18.4x FY23E, below its 10-year average P/E of 19.5x. We find more value in largecaps than midcaps, given the relative valuation equation.
* Top ideas |
Largecaps: Reliance Industries, Infosys, ICICI Bank, State Bank of India, Bharti Airtel, ITC, Titan Company, UltraTech Cement, Mahindra & Mahindra, Hindalco, and Apollo Hospitals.
Midcaps/smallcaps: Cholamandalam Investment and Finance, Macrotech Developers, Gland Pharma, Star Health, Jubilant FoodWorks, L&T Technology Services, Motherson Wiring, Angel One, Sapphire Foods, VRL Logistics, and Lemon Tree Hotel.
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