26 July 2017
India Strategy
BSE Sensex: 32,382
NIFTY MILESTONE JOURNEY
Index base period (3
November 1995) value
set at 1,000
S&P CNX: 10,021
Nifty hits 10k mark after a stirring 22-year journey
Taking a trip down the memory lane – Nifty: Then and Now
A flashback – 1995 to 2017
n
Nifty @ 1,000
1995
2004
Journey to 2k was
most excruciating,
taking a total of 2,282
trading days
Nifty @ 2,000
n
2006
Market cap of Nifty
touches 14t
Nifty @ 3,000
2006
Crossed 4k level in Dec
2006; exited the year
with 40% return
Nifty @ 4,000
n
2007
Crossed 5k in Sep
2007, crossed 6k in the
same year
Nifty @ 5,000
For the first time in its history, the Nifty has crossed and closed above the
psychological 10K mark. With this, the Nifty has now become the second Indian
benchmark index to trade in five digits.
The Indian markets remain buoyed by continued liquidity inflow amid a strong
macro backdrop. Domestic MF inflows in CY17 YTD stand at USD7b, matching
inflows recorded in the entire last calendar year. Even more notable are FII
flows of USD8.6b, higher than those recorded in CY15 and CY16. We note that
the macro backdrop remains best in recent times, with inflation under control,
twin deficits in check, stable currency, and policy momentum intact (evident
from the smooth and timely GST implementation). Only missing link in an
otherwise positive set-up is earnings recovery, in our view. Nifty earnings have
remained flat for the last five years (4% CAGR over FY12-17) and hold the key
for further re-rating, in our view.
In markets, one always looks at the future. Today, we make a small departure
to this trend and look back at the past. In this note, we will also share some
interesting tidbits of the Nifty’s journey from 1,000 in 1995 to 10k today.
While traversing its journey from 1K to 10K, the Nifty has delivered 11% CAGR
returns. Meanwhile, the market capitalization of the index has expanded 48x
from INR1.5t to INR70.6t, implying a CAGR of 20%.
The journey of Nifty from 1k to 2k was most excruciating, which took a total
2,282 trading days (almost nine years). The move from 6K to 7K also took some
time (1,589 trading days, 6.5 years), with the markets being stranded in a long
phase of correction in the aftermath of the Global Financial Crisis (GFC) in 2008.
From 26 June 2009, the index shifted its computation to free-float
methodology.
Out of the 50 stocks in Nifty, 15 have been part of the index since its inception -
RIL, HDFC BANK, HDFC, SBI, HUL, ITC, TATA MOTORS, HERO MOTORS, TATA
STEEL, HINDALCO, ACC, AMBUJA, L&T, DR. REDDY and TATA POWER.
The combined market-cap of these 15 stocks increased at 18% CAGR since
inception. These 15 stocks weigh 46% in Nifty today v/s 53% at inception.
Best performers (mkt. cap multiple since Nifty inception, % CAGR): HDFC Bank
(693x – 36%), Hero Motocorp (126x – 26%), HDFC (68x – 22%), ITC (65x – 22%),
Dr Reddy's Lab (65x – 22%) and Reliance Inds (55x – 21%).
Over the years, the sectoral representation in the Nifty has undergone a sea
change, in consonance with the changes in the underlying economy – new
sectors have evolved, while some of the erstwhile dominant sectors of the
economy have lost relative importance in the new India.
1
Nifty up 10x in ~22 years, market cap expands 48x
n
2007
Fastest 1k jump, taking
just 52 trading days
Nifty @ 6,000
n
2014
Journey to 7k was also
agonizing, taking 1,589
trading days
Nifty @ 7,000
n
2014
2 fastest 1k jump,
taking 77 trading days,
post BJP winning Lok
Sabha election
Crossed 9k on strong
buying from FIIs and
mutual funds
nd
Nifty @ 8,000
30% of index constituents unchanged over 22 years
n
Nifty @ 9,000
n
n
2017
2017
Macro backdrop
remains best with
continued strong
inflows in equities
Nifty @ 10,000
Sunrise and Sunset: Some sectors acquire prominence, others fade
n
Gautam Duggad
- Research Analyst
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Deven Mistry
- Research Analyst
(Deven@MotilalOswal.com); +91 22 3982 5440
July 2017
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
 Motilal Oswal Financial Services
India Strategy | Nifty@10,000
n
n
n
Consumer (with 17.6%) had the highest weight in the Nifty at inception. Today, it
stands shoulder-to-shoulder with IT, Oil & Gas and Auto, with ~10-11% weight.
PSU Banks had the second highest weight of 12.2% at inception, while Private
Banks (0.4%) had the lowest weight, with sole representation of HDFC Bank.
Today, at 23.9%, Private Banks have the highest weight, while PSU Banks have
just 3.3% weight.
Textile and Chemicals, which had 8.3% weight at inception, have no
representation today. On the contrary, Information Technology and Telecom,
which had no presence in the index in 1996, today form 14% of the index.
The drivers of market earnings growth have changed over the last decade. While
the large part of the first decade of the 21
st
century was characterized by stronger
earnings performance from Cyclicals and Infrastructure sectors, the story has
changed post the Global Financial Crisis. Financials and Consumer/Consumer
Discretionary have exhibited earnings outperformance over 2008-17. The same is
reflected in the change in their market capitalization ranks.
The disproportionate influence of Financials and Consumer/Consumer
Discretionary in the current cycle has been reinforced – these sectors have
delivered best earnings performance and are re-rated significantly. Naturally,
they have gained in prominence in the market cap rankings.
Biggest gainers in market cap ranks are:
Maruti, IndusInd Bank, Ultratech, Asian
Paints, Eicher Motors, HDFC Bank and HUL.
Similarly, the underperformance of
Cyclicals is reflected in the change in market-cap ranks at the bottom, with
Tata
Steel, Hindalco, ACC and Tata Power
being the key losers.
Key changes in market-cap ranks v/s January 2008 peak
n
n
n
Valuations ~25% above long-period averages; 19% premium to Jan 2008
levels
n
n
The Nifty is trading at a trailing P/E of 22.3x, at a 25% premium to its own long-
period average. Comparing the Nifty’s current valuations with those in January
2008 (earlier peak), we note that the index now trades at a 19% premium.
Nifty trailing P/B, at 3.1x, is at a 10% premium to LAP, but at a 22% discount to
January 2008 P/B of 3.9x.
Exhibit 1:
The journey of Nifty from 1K to 10K…
Number of trading days taken to
achieve key milestones
1,589
52
203
212
2,282
284
77
92
623
5,415 days to achieve 10k milestone
1,000
Nov 1995
2,000
Dec 2004
3,000
Jan 2006
4,000
Dec 2006
5,000
Sep 2007
6,000
Dec 2007
7,000
May 2014
8,000
Sep 2014
9,000
Mar 2017
10,000
July 2017
Source: NSE, MOSL
26 July 2017
2
 Motilal Oswal Financial Services
India Strategy | Nifty@10,000
Nifty delivers 11% CAGR in ~22 years; total Nifty market cap up 48x
n
n
n
n
Since inception, the Nifty has delivered a CAGR of 11%; however, its total
market cap is up 48x, implying a 20% CAGR.
15 stocks have consistently remained on the index since inception. On a
cumulative basis, the market cap of these stocks has gone up 35x, a CAGR of
18%.
The best Nifty performers (market cap multiple since Nifty inception): HDFC
Bank (up 693x), Hero Motocorp (126x), HDFC (68x), ITC (65x), Dr Reddy's Lab
(65x) and Reliance Inds (55x).
These 15 stocks represented 53% weight of the index in March 1996, and now
account for 46.4%.
Exhibit 3: Nifty market cap has increased by 48x; 20% CAGR
75
Exhibit 2: Nifty is up 10x in last ~22 years
12,500
10,000
7,500
5,000
2,500
0
Nifty Index
10x in 21.7 Years
(11% CAGR)
10,021
Nifty Mkt cap (INR t)
48x in 21.7 Years
(20% CAGR)
70.6
60
45
30
1,000
15
0
1.5
Source: NSE, Capitaline, MOSL
Source: NSE, Capitaline, MOSL
Exhibit 4:
15 common stocks since inception of Nifty
Company
Reliance Inds.
HDFC Bank
ITC
HDFC
St Bk of India
Hind. Unilever
Larsen & Toubro
Tata Motors
Hero Motocorp
Tata Steel
Ambuja Cem.
Hindalco Inds.
Dr Reddy's Labs
ACC
Tata Power Co.
Total of Above
Mkt Cap 1996
Current Mkt
Weight 1996 (%)
(INR B)
Cap (INR B)
95
6
55
38
112
103
55
103
6
67
26
54
7
32
16
775
6.5
0.4
3.8
2.6
7.6
7.0
3.8
7.0
0.4
4.6
1.8
3.7
0.5
2.2
1.1
53.0
5277
4498
3571
2602
2553
2521
1653
1457
742
549
526
497
449
320
223
27440
Current
Weight (%)
7.1
9.3
6.6
6.9
2.9
2.2
3.8
2.3
1.3
1.0
0.5
0.9
0.9
0.4
0.4
46.4
Mkt cap
Appreciation (x)
55
693
65
68
23
24
30
14
126
8
20
9
65
10
14
35
Source: NSE, Capitaline, MOSL
26 July 2017
3
 Motilal Oswal Financial Services
India Strategy | Nifty@10,000
Exhibit 5:
Top 10 companies by weight in Nifty-50
Company
SBI
HUL
Tata Motors
Reliance Inds.
Tata Steel
Bajaj Holdings
L&T
ITC
Hindalco Inds
IDBI Bank
Weight as of
Mar 1996 (%)
7.6
7.0
7.0
6.5
4.6
4.4
3.8
3.8
3.7
3.7
Company
HDFC Bank
Reliance Inds.
HDFC
ITC
ICICI Bank
Infosys
L&T
TCS
Kotak Mah. Bank
SBI
Weight as of
26 July 2017 (%)
9.3
7.1
6.9
6.6
5.3
5.2
3.8
3.6
3.2
2.9
Source: NSE, Capitaline, MOSL
Four stocks
continue to
remain part of
top ten since
inception
Interesting observations from sectoral weight changes since inception
n
n
n
n
n
Consumer (17.6%) and PSU Banks (12.2%) had the highest weights in March
1996.
Private Banks had a meager 0.4% weight in the index then, with HDFC Bank as
the sole representative. Today, Private Banks account for the maximum weight
at 23.9%, while PSU Banks form just 3.3% of the index.
Consumer sector’s weight has shrunk to 10%. Some of the consumer companies
that were part of the Nifty in 1996 (Brooke Bond, Ponds) have got
merged/acquired.
Textiles and Chemicals, which had 8.3% weightage in 1996, have no
representation in the Nifty today. On the other hand, Technology and Telecom
sectors, which were still in their infancy in mid-90s and had no representation in
Nifty then, now account for 14% of the index.
Auto weights have remained static at 11%.
Exhibit 7:
Sector weight in Nifty on 26 July 2017 (%)
Exhibit 6:
Sector weight in Nifty during March 1996 (%)
Source: NSE, Capitaline, MOSL
Source: NSE, Capitaline, MOSL
From the earlier peak of Jan’08, Nifty has delivered only 5% CAGR
n
n
26 July 2017
Notwithstanding the recent buoyancy in the markets, if one were to compare
the Nifty performance with the earlier peak of January 2008, then the returns
exhibit only modest CAGR of 5%, largely reflecting the anemic earnings
performance.
From the recent bottom levels of February 2016, Nifty is up 44% in 17 months.
4
 Motilal Oswal Financial Services
India Strategy | Nifty@10,000
Exhibit 8:
Nifty is up 1.6x from its peak of Jan 2008
12,000
9,500
7,000
6,288
4,500
2,000
Exhibit 9:
Nifty is up 44% from its bottom of Feb 2016
10,500
Nifty Index
1.6x in 9.6
Years
(5% CAGR)
10,021
9,500
8,500
7,500
6,500
Nifty Index
44% up from
low of Feb
2016
10,021
6,971
Source: NSE, Capitaline, MOSL
Source: NSE, Capitaline, MOSL
Exhibit 10: Performance from recent bottom of Feb 2016
Company
CMP (INR)
NIFTY INDEX
10021
STOCKS TRADING HIGHER THAN 50%
Vedanta
281
Hindalco Inds.
222
Yes Bank
1712
Tata Steel
566
Maruti Suzuki
7565
Indiabulls Hous.
1189
IOCL
374
Adani Ports
393
IndusInd Bank
1580
St Bk of India
296
ICICI Bank
310
HDFC Bank
1748
BPCL
471
Reliance Inds.
1623
Power Grid Corpn
217
GAIL (India)
376
Larsen & Toubro
1180
Kotak Mah. Bank
987
HDFC
1633
ITC
294
Eicher Motors
29002
Tata Motors
457
STOCKS TRADING HIGHER THAN 0-50%
Bosch
24280
UltraTech Cem.
4074
Tata Power Co.
83
ACC
1706
Hero Motocorp
3717
NTPC
166
Ambuja Cem.
265
Axis Bank
529
Zee Entertainmen
531
Hind. Unilever
1165
Bharti Airtel
426
Asian Paints
1134
Aurobindo Pharma
748
Bank of Baroda
163
CMP vs Feb 2016
Bottom (%)
44
304
230
155
128
122
112
105
98
96
95
87
85
85
72
65
64
63
63
57
54
54
53
49
47
45
42
42
40
40
40
40
38
32
32
27
26
Exhibit 11: Performance from earlier peak of Jan 2008
Company
CMP (INR)
NIFTY INDEX
10021
The Multi-baggers
Eicher Motors
29002
Aurobindo Pharma
748
IndusInd Bank
1580
Lupin
1124
Asian Paints
1134
Maruti Suzuki
7565
Yes Bank
1712
HCL Technologies
893
BPCL
471
Hero Motocorp
3717
Sun Pharma.Inds.
580
TCS
2556
HDFC Bank
1748
Hind. Unilever
1165
Bosch
24280
UltraTech Cem.
4074
Dr Reddy's Labs
2707
ITC
294
Zee Entertainmen
531
M&M
1414
Tata Motors
457
Kotak Mah. Bank
987
Cipla
575
HDFC
1633
Axis Bank
529
Infosys
994
IOCL
374
STOCKS TRADING HIGHER THAN 0-100%
Wipro
289
Ambuja Cem.
265
Bank of Baroda
163
ACC
1706
Adani Ports
393
Vedanta
281
Power Grid Corpn
217
GAIL (India)
376
Tech Mahindra
389
CMP vs Jan 2008
Peak (%)
59
7107
1338
1150
822
809
705
558
493
476
438
423
417
409
392
383
319
284
281
246
241
208
197
174
165
148
139
106
97
87
81
73
63
51
50
43
41
26 July 2017
5
 Motilal Oswal Financial Services
India Strategy | Nifty@10,000
CMP vs Feb 2016
Bottom (%)
CMP vs Jan 2008
Peak (%)
Company
CMP (INR)
Company
22
16
16
15
15
14
11
10
8
CMP (INR)
Bajaj Auto
2841
Tata Motors-DVR
271
TCS
2556
M&M
1414
Bharti Infra.
414
ONGC
164
Cipla
575
HCL Technologies
893
Wipro
289
STOCKS TRADING LOWER THAN FEB'16
Tech Mahindra
389
Dr Reddy's Labs
2707
Infosys
994
Coal India
261
Sun Pharma.Inds.
580
Lupin
1124
-6
-10
-10
-13
-34
-36
ICICI Bank
310
27
St Bk of India
296
27
Larsen & Toubro
1180
22
Hindalco Inds.
222
17
Reliance Inds.
1623
6
STOCKS TRADING LOWER THAN 2008
Bharti Airtel
426
-13
ONGC
164
-26
Tata Steel
566
-37
NTPC
166
-37
Tata Power Co.
83
-45
Source: NSE, Capitaline, MOSL
Source: NSE, Capitaline, MOSL
Key changes in market-cap ranks v/s January 2008 (peak phase)
n
n
n
n
The changes in market capitalization ranks vis-à-vis the peak of January 2008
reveal an interesting trend, as shown in Exhibit 13.
The disproportionate influence of Financials and Consumer/Consumer
Discretionary in the current cycle has been reinforced.
Biggest gainers in market cap ranks are:
Maruti, IndusInd Bank, Ultratech, Asian
Paints, Eicher Motors, HDFC Bank and HUL.
The underperformance of Cyclicals is reflected in the change in market-cap
ranks at the bottom, with
Tata Steel, Hindalco, ACC and Tata Power
being the
key losers.
Exhibit 13: Mkt. cap movements from peak of Jan 2008
Company Name
Maruti Suzuki
IndusInd Bank
UltraTech Cem.
Asian Paints
Eicher Motors
HDFC Bank
Hind. Unilever
Vedanta
HCL Technologies
ONGC
Power Grid Corpn
Bharti Airtel
Tech Mahindra
Cipla
Ambuja Cem.
Adani Ports
Bank of Baroda
GAIL (India)
NTPC
Hindalco Inds.
ACC
Tata Steel
Tata Power Co.
Mkt Cap Rank July Rank Change Current
(INR b)
2017
Vs High of 2008
2,285
8
16
946
28
16
1,119
24
15
1,088
25
15
790
32
14
4,498
3
13
2,521
7
10
1,044
26
9
1,274
21
8
2,105
10
-8
1,137
23
-8
1,704
14
-10
380
47
-10
463
44
-11
526
39
-12
814
31
-13
376
48
-16
635
37
-17
1,372
20
-17
497
43
-18
320
49
-19
549
38
-24
223
50
-28
Source: NSE, Capitaline, MOSL
6
Exhibit 12: Mkt. cap movement since low of Feb 2016
Company Name
Vedanta
Yes Bank
IOCL
Maruti Suzuki
St Bk of India
Tata Steel
Hindalco Inds.
IndusInd Bank
Adani Ports
ICICI Bank
HDFC
Aurobindo Pharma
Bharti Infra.
Infosys
Bank of Baroda
Wipro
HCL Technologies
Cipla
Coal India
Tech Mahindra
Dr Reddy's Labs
Sun Pharma.Inds.
Lupin
Mkt Cap
(INR b)
1,044
783
1,814
2,285
2,553
549
497
946
814
1,990
2,602
438
765
2,283
376
1,408
1,274
463
1,618
380
449
1,390
508
Rank July Rank Change Current
2017
Vs low of 2016
26
22
33
11
13
9
8
9
6
7
38
7
43
7
28
7
31
6
11
5
5
5
46
-5
34
-6
9
-6
48
-6
18
-7
21
-7
44
-8
16
-9
47
-9
45
-11
19
-13
41
-17
Source: NSE, Capitaline, MOSL
26 July 2017
 Motilal Oswal Financial Services
India Strategy | Nifty@10,000
Valuations ~25% above long-period averages; 19% premium to Jan 2008
levels
n
n
n
n
The Nifty trades at a trailing P/E of 22.3x, at a 25% premium to its own long-
period average. Comparing the Nifty’s current valuations with those of January
2008 (earlier peak), we note that the index now trades at a 19% premium.
Nifty trailing P/B, at 3.1x, is at a 10% premium to LAP, but at a 22% discount to
January 2008 P/B of 3.9x.
Nifty RoE stands at 13.7%, a tad below its long-term average of 16.1%.
Market cap-to-GDP ratio of 78% (FY18E GDP) is at its long-term average.
Exhibit 15:
Trailing Nifty P/B (x): ~10% premium to LAP
5.5
22.3
4.5
Exhibit 14:
Trailing Nifty P/E (x): ~25% premium to LPA
26.0
22.0
18.0
14.0
10.0
Average: 18x
3.5
Average: 2.8x
2.5
1.5
3.1
Source: MOSL
Source: MOSL
Exhibit 16:
Trailing Nifty RoE (%)
22.0
Exhibit 17:
India’s market cap to GDP (%)
103
Average of 78%
for the period
71
81
64
66
69
80
78
20.0
83
95
88
18.0
16.0
14.0
12.0
Average: 16.1%
13.7
55
Source: MOSL
Source: MOSL
26 July 2017
7
 Motilal Oswal Financial Services
India Strategy | Nifty@10,000
NOTES
26 July 2017
8
 Motilal Oswal Financial Services
THEMATIC/STRATEGY RESEARCH GALLERY
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India Strategy | Nifty@10,000
Disclosure of Interest Statement
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Analyst ownership of the stock
Companies where there is interest
No
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appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
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as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to
determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative
products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of
the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the
views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time
without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities
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Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;
MSE(F&O): INF261041231; MSE(CD): INE261041231; CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset
Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth
26 July
solutions.
10
management
2017
*Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities
Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products