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According to the India Strategy- The Eagle Eye Report by Motilal Oswal Financial Services Limited (MOFSL), the Nifty crossed the 17K mark in August of this year, putting India ahead of emerging market and global peers. Nifty outperforms Midcap/Smallcap index for first time in CY21. From the lows in March of this year, global equities markets have increased by 75% in market capitalization to USD 119 trillion. While closely tracking the reduction in real yields, Bank Nifty has lagged Nifty. As top 100 firms gain from cost efficiency and pricing power to enhance EBITDA margins and profits, big corporations are getting bigger. The first quarter of FY22 earnings season has broadly met expectations, with cyclicals leading the way. GDP- 1QFY22 Real/Nominal GDP increased by 20.1 percent /31.7 percent YoY, helped by a soft 1QFY21 base. Investment and private consumption were sharp contributors to economic growth.  Macro Trends- Government gross receipts as % of BE at multi-year high while fiscal deficit is at multi-year lows. In the months of July and August, the south west monsoon was in short supply. COVID-19 active cases fell to 387k in August of this year, with vaccination rates increasing to 6.1 million per day in August vs. 4.3 million in July.

Key highlights from  the report

Broad-based gains in Nifty constituents; IT, Consumer lead

*  40/50 Nifty companies posted gains in Aug’21. Bajaj Twins outperformed during the month, while Defensives made a comeback.

*  In CY21YTD, Metals continues to lead outperformance, while Auto remains a laggard.

59% of BSE-200 constituents post gains in Aug’21

* 59% of BSE-200 constituents gained in Aug’21. Adani Transmission / Adani Gas gained by 77%/63% MoM.

* In CY21YTD, 46 companies have gained more than 50%, while 8 companies have gained 2x.

41% of BSE-200 constituents decline

* 41% of BSE-200 companies declined in Aug’21. Vodafone Idea, Aurobindo Pharma, and IOB declined by more than 20%

* In CY21YTD, 23 companies have posted declines – Vodafone Idea, Bandhan Bank, RBL Bank, Alembic Pharma, Amara Raja, Zee, Biocon, and Aurobindo Pharma have declined more than 20%.

Average daily cash volumes flat MoM; Non-Insti participation down

*  Average daily cash volumes were flat MoM at INR681b in Aug’21. Non-Institutional participation was down to 57% from 65% in previous month.

* Monthly Institutional cash trading volumes were up MoM to INR6.2t, highest in five months.

World Mcap increases 75% since Mar’20

* The world Mcap has increased by 75% since the lows of Mar’2020 and exceeded USD119t.

* It took 77 months for world equities to reach the same pre-GFC peak after GFC was behind.

Nifty scales ‘Peak 17K’ in 19 trading days

* The Nifty moved from 16K to 17K within 19 trading days, one of the fastest 1000 point milestone in its journey.

* HDFC Bank, RIL, and TCS contributed 50% of the 1000 points move from 16k to 17k.

Banks Nifty underperforms Nifty; Closely tracking real yields

* The fall in real yields, as a result of decline in 10-year bond yields, and the pick-up in inflation, has driven the U-PF of Bank Nifty.

* The two shared a near perfect correlation over the years.

Big getting bigger: Top 100 companies’ EBITDA margins rise 500bps in FY21

* From BSE-500 (ex-financial companies), the Top 100 companies (by market cap) have benefitted from the pandemic as they were able to control costs while maintaining pricing power to increase their EBITDA margins and profitability.

* FY21 EBITDA margins (ex-financials) increased by ~500bps/~300bps in FY20/FY19.

1QFY22 : In line with expectations; cyclicals lead earnings growth

* 1QFY22 earnings for the MOFSL Universe were largely in-line. Cyclical sectors such as Metals and O&G led earnings growth.

* For the MOFSL Coverage Universe, sales/EBITDA/PAT increased 51%/50%/117% YoY. Nifty FY22 EPS was unchanged at INR732.

Real GDP growth in-line at 20.1% YoY, aided by low base

* Real GDP/GVA grew 20.1%/18.8% YoY in 1QFY22 (v/s our forecast and the Bloomberg consensus of 21%/19.6%).

* Nominal GDP grew 31.7% YoY in 1QFY22, against contraction of 22.3% YoY in 1QFY21.

Apr-Jul’21 fiscal deficit at 21% of BE; rainfall in deficit over June-Aug’21

* Government gross receipts as a percentage of BE stood at the highest level of 35% of BE. The fiscal deficit for the first four months was just 21.3% of BE.

* The monsoon has been 9% below normal due to a rainfall deficit in July’21 and Aug’21. Kharif sowing, however, is near normal.

GST collections down 4% MoM; PMI declines to 52.3

* Daily e-way bill generation remains flat MoM at 2.1m/day. GST collections are down 4% MoM to 1.12t.

* Fertilizer sales are flat YoY at 6.9m tn. The Manufacturing PMI slipped to 52.3 in Aug’21 (from 55.3 in July’21).

Active COVID-19 cases decline 8% MoM; 650m vaccines administered

* Active cases declined 8% in Aug’21 as new cases declined 7% MoM.

* The pace of vaccination increased to 8.4M doses/day in the last seven days of Aug’21. More than 680m doses have been administered till 4th Sep’21.

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