IGI Logo

Strategy: Nifty closes at record high in Aug’21; India outperforms global markets

* Nifty closes above 17k; adds 1k points in 19 trading days: The Nifty exceeded the 17,000 mark in Aug'21 to reach a record high, after remaining muted over the last two months. It ended 8.7% higher MoM in Aug'21 to close at 17,132. The rally was driven by positive Asian cues, strong inflows by FIIs/DIIs, and a good end to the 1QFY22 corporate earnings season. FII inflows returned to USD1b in Aug'21, after recording the highest outflows in July'21 since Mar'20 (-USD1.7b). DIIs saw inflows for six consecutive months to USD0.9b. The Nifty Midcap 100 (+2.2%, MoM) and Nifty Smallcap 100 (-2.5%, MoM) underperformed the markets in Aug'21. In the last 12 months, midcaps have risen 70% v/s a 50% rise for the Nifty. In P/E terms, the Nifty Midcap 100 is now trading at a 9% discount to the Nifty.

* Macro rebounds - best ever real GDP growth of 20.1% YoY in 1QFY22: Real GDP/GVA grew 20.1%/18.8% YoY in 1QFY22 (v/s our forecast and the Bloomberg consensus of 21%/19.6%). Growth in real GDP was largely attributable to 13.8% YoY growth in consumption and 56.7% YoY growth in Gross Capital Formation (GCF). Nominal GDP grew 31.7% YoY in 1QFY22, against a contraction of 22.3% YoY in 1QFY21.

* 1QFY22 Results Review - Strong start to FY22: Corporate earnings in the first quarter of FY22 have been in line with the elevated expectations, aided by the deflated base of 1QFY21 and localized and less stringent lockdowns v/s 1QFY21. Nifty sales have been in-line (50% YoY; est. 48%), while EBITDA/PBT/PAT growth has come in at 41%/103%/101% YoY (est. 38%/89%/94%). The MOFSL Universe has reported sales/EBITDA/PBT/PAT growth of 51%/50%/120%/117% YoY (est. 46%/46%/111%/114%).

* India the best performing market in Aug'21: Barring Brazil (-2% MoM) and Korea (-0%), Aug'21 saw all the key global markets - such as India (+9%), China (+4%), Japan (+3%), the US (+3%), Russia (+3%), MSCI EM (+2%), Taiwan (+1%), Indonesia (+1%), and the UK (+1%) - end higher in local currency terms. In the last 12 months, MSCI India (+51%) has outperformed the MSCI EM (+19%). In the last 10 years, MSCI India has outperformed the MSCI EM by 181%. In P/E terms, MSCI India is trading at an 80% premium to MSCI EM, above its historical average of 57%.

* Technology, Utilities, Telecom, Finance, and Consumer outperform market: Among the sectors, Technology (+13%), Utilities (+12%), Telecom (+11%), Finance (+10%), and Consumer (+10%) were the outperformers in Aug'21. Media (-11%), PSU Banks (-4%), Real Estate (-3%), Metals (-1%), Healthcare (-1%), and Autos (-0%) were the only laggards. Bajaj Finance (+21%), Bajaj Finserv (+20%), Tech Mahindra (+20%), TCS (+20%), and Bharti Airtel (+18%) were the top performers. UPL (-8%), JSW Steel (-7%), Grasim Inds (-3%), Bajaj Auto (-3%), and Tata Motors (-2%) were the top laggards. In this edition, we dive deep into the valuation metrics of the Banking sector.

* Polarized markets; valuation divergence to continue: Markets are scaling new highs led by strong earnings delivery, benign liquidity and buoyant sentiments. Good 1QFY22 earnings delivery has boosted hopes for a solid FY22 with 30%+ projected Nifty earnings growth, on the back of a strong 15% earnings growth in FY21. Mid-Caps and Small-caps have been outperforming in CY21 amidst a very busy primary market activity. 1QFY22 Management commentaries across the board suggest an improved demand environment post June'21, led by the easing of restrictions, lower active COVID-19 cases, and a pickup in vaccinations. Amid the buoyant sentiment and elevated activity in the primary markets, Nifty valuations at 21.8x 12m forward EPS remain rich. Thus, consistent delivery on earnings expectations becomes crucial going ahead. We remain OW on BFSI, IT, Metals, Cement, and Capital Goods; Neutral on Consumer, Auto, and Healthcare; and UW on Telecom, Energy, and Utilities.

* Top ideas: Largecaps: ICICI Bank, SBI, Infosys, HCL Technologies, UltraTech, HUVR, Titan, Divi's Labs, Hindalco, and SBI Cards. Midcaps: Max Financials, Chola Finance, JK Cements, Indian Hotels, Deepak Nitrite, Orient Electric, Solara, Zensar Tech, L&T Technology, and ABFRL.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer