*
Consumer
Retail
Technology
Oil & Gas
Cement
Healthcare
Financials
Auto
Capital Goods
Utilities
Metals
Infra
Media
Telecom
* Sectors in order of premium /
discount to historical averages
BEST PERFORMERS MoM (%)
Dr
Reddy's
HUL
6
7
WORST PERFORMERS MoM (%)
-68
-50
-49
-48
-46
-45
-43
-39
-38
-38
Cipla
5
Nestle
3
IndusInd Bk
Bajaj Fin.
Bajaj Finserv
Zee Ent
Axis Bank
Tata Motors
Vedanta
Hindalco
JSW Steel
M&M
Highlights of Mar’20 edition
Nifty loses steam toward fiscal
year-end, collapses 26% in FY20
Metals, Autos, PSU Banks, Capital
Goods and Real Estate biggest losers
DII inflows healthy in FY20 at USD17.9b;
FII flows muted at USD1b in FY20.
Research & Quant Team (Deven@MotilalOswal.com); +91 22 6129 1575
April 2020
 Motilal Oswal Financial Services
Contents
Strategy:
Nifty wraps up worst year in a decade; Coronavirus takes toll
NOTES:
Prices as on 31
st
Mar’20
BULL icon:
Sectors trading
at a premium to
historical averages
Valuation deep-dive for the month:
Healthcare
Indian equities:
Nifty, sector performance and key valuation metrics
Global equities:
Performance and valuation snapshot
Valuations:
Nifty/Mid-cap companies
Sector highlights:
Overview and sector valuations
BEAR icon:
Sectors trading
at a discount to historical
averages
AUTO
BANKS / FINANCIALS
CAPITAL GOODS
CEMENT
CONSUMER
HEALTHCARE
INFRASTRUCTURE
MEDIA
METALS
OIL & GAS
RETAIL
TECHNOLOGY
TELECOM
UTILITIES
Valuations are on
12-month forward basis
unless otherwise
mentioned
Sector valuations are
based on MOSL coverage
companies
Global equities data
sourced from Bloomberg;
Nifty valuations based on
MOSL estimates
Investors are advised to refer to important disclosures made at the end of this report.
BULLS & BEARS | April 2020
2
 Motilal Oswal Financial Services
Strategy:
Markets – Nifty wraps up worst year in a decade; Coronavirus takes toll
Coronavirus pandemic takes a toll; Nifty ends FY20 with big losses:
The Nifty could not have had a worse finish to FY20. As the Coronavirus (COVID-19) pandemic
spread across the world, the Nifty nosedived 23% in Mar’20 to close at 8,598 (-26% YoY), the worst since Oct’08. While DII inflows at USD17.9b (v/s USD10.3b in
FY19) were robust in FY20, FII inflows were weak at USD1b. Notably, in Mar’20, DII inflows (at USD7.5b) and FIIs outflows (at USD8.2b) were at record high.
Further, in FY20, mid-caps were down 36% as against the Nifty’s decline of 26%. Notably, over the last 5 years, mid-caps have underperformed the benchmark by
11%. The intensity of the decline was severe with the Nifty correcting ~40% (at its panic bottom) in Mar’20..
Government announces three-week lockdown to fight COVID-19; Several relief measures announced:
The Prime Minister, Mr. Narendra Modi, has announced
an unprecedented three-week lockdown in the country (effective 25
th
Mar’20) in a bid to contain the spread of COVID-19. The Finance Minister has also
announced several measures to ease the regulatory/compliance burden for taxpayers. Further, the FM has promised an economic relief package, which will be
unveiled soon to alleviate the pain of lockdown in the economy. The Reserve Bank of India (RBI) has likewise joined the central government in providing relief to
the Indian economy battered by the Covid-19 pandemic. After earlier announcements by the FM on various welfare/relief measures, the RBI unleashed series of
steps to soften interest rates, improve liquidity and offer some immediate relief to borrowers. The RBI’s announcements include reducing the policy rate by 75bp,
providing liquidity in the system, allowing moratorium of term loans for three months to support the affected sections and increasing credit flow in the economy.
Moreover, steps have also been taken to iron out issues in the bond markets.
Broad-based correction in Mar’20:
All key global markets – Brazil (-30%), India-Nifty (-23%), Indonesia (-17%), MSCI EM (-16%), Taiwan (-14%), the UK (-14%), the
US (-13%), Korea (-12%), Japan (-11%), Russia (-9%) and China (-5%) – closed lower in local currency terms in Mar’20. Over the last 12 months, MSCI EM (-20%)
outperformed MSCI India (-26%). Notably, over the last 10 years, MSCI India has outperformed MSCI EM by 55%. MSCI India’s P/E is at a premium of 50% to MSCI
EM’s P/E, near its historical average premium of 52%.
Sectoral trends for FY20 – Metals, Autos, PSU Banks top laggards:
For FY20, Metals (-50%), Autos (-43%), PSU Banks (-42%), Capital Goods (-41%) and Real Estate
(-35%) were the biggest losers. In the Nifty, Nestle (+48%), Bharti Airtel (+44%), HUL (+35%), Dr Reddy’s (+12%) and Asian Paints (+12%) were the only positive
performers. IndusInd Bank (-80%), Zee Ent (-72%), Vedanta (-65%), Tata Motors (-59%) and M&M (-58%) were the top laggards. In this edition, we take a
deep-dive into the valuation metrics of the healthcare sector.
Valuations attractive but near-term earnings unpredictable:
Given the nature of the crisis and consequent containment measures, forecasting corporate earnings
for FY21E has become difficult with existing earnings estimates facing sharp downside risks. In this scenario, it is prudent to look at trailing valuation metrics. The
Nifty is trading at a trailing P/E of 16.2x, the lowest in 6 years while trailing P/B of 2.1x is at its lowest since the Global Financial Crisis (GFC). Market-cap to GDP is
at 54%, again at a level seen during the GFC. As and when the government lifts the existing lockdown, we expect the situation to gradually return to normalcy. The
second and third order impacts of the lockdown should keep rearing their heads and impact corporate earnings. Given the global nature of the crisis, institutional
flows assume greater importance for the near-term market direction. Relatively less damage to currency, high forex reserves and sharp correction in crude oil
prices provide a silver lining in an otherwise gloomy environment. In the past crisis, we note that combination of extreme fear and attractive valuations provided
good foundation for healthy long-term equity returns. We are recommending continued defensive approach to portfolio construction with preference for
Consumer, IT, Pharma and select large private banks. We expect Cyclicals, Infrastructure and Commodities to continue to underperform till we see more stability
in global and domestic economy.
Top Ideas: Large-caps:
HUL, Bharti Airtel, ICICI Bank, SBI, HDFC Life, Infosys, HCL Tech, RIL, Titan and Eicher Motors.
Mid-caps:
Jubilant Foodworks, Trent, Crompton Consumer, Tata Consumer, ABFRL, Alkem Labs and Indian Hotels.
BULLS & BEARS | April 2020
3
 Motilal Oswal Financial Services
Valuation deep-dive for the month: Healthcare
Outperformance of Healthcare P/E (v/s Nifty P/E) over past one month:
After a
gradual reduction in spreads between the Healthcare P/E and Nifty P/E over the
past five years, the lockdown due to the COVID-19 pandemic has led to widening of
spreads with the Healthcare P/E outperforming the Nifty P/E.
Stability in US generics biz on new launches/reduced price erosion:
For
companies under our coverage, US generics sales have remained steady or
witnessed marginal decline over the past 12 months, led by reduced intensity of
price erosion. The traction from new approvals has also supported better business
outlook.
Persistent compliance risks lead to higher uncertainty in US generics growth
story:
While business from approved products has been steady, delays in
learning/implementation of the evolving compliance norms has led to adverse
actions by the USFDA on plants that are primarily focused on the US market. This,
coupled with product-specific queries has delayed the timeline for approval of
complex products, which has not only impacted profitability but also forced
pharma companies to re-strategize their US generics business.
Lockdown across geographies to provide respite on regulatory front:
Due to
lockdowns and restrictions on travel, the classification at Indian facilities by the
USFDA is expected to remain status quo. This would be a boon to compliant sites as
it would expedite the ANDA approvals for respective companies.
Domestic formulation – the savior:
Considering the subdued return ratios of the
US generics business, there is renewed interest in domestic formulations (DF), a
business that is low capex intensive and has robust RoEs. However, given the
moderate (~9-10% CAGR over next 4-5 years) growth outlook for DF, it would be
difficult to ignore US generics in entirety.
Currency headwinds critical for outlook of other emerging market:
Many
companies, leveraging their existing portfolio, have increased their reach to other
emerging markets. Particularly, the Chinese market has become lucrative due to
easing of regulatory norms. Strategy related to branded generics is promising as it
provides stickiness for growth in revenue and profitability. However, the positive
outlook is also subject to currency movements (v/s the INR) and hedging policies
implemented by companies.
Valuations to improve gradually:
We expect the Healthcare multiple to improve
gradually, led by better earnings visibility in both developed/emerging markets,
and reduced lockdown led constraints on operations.
Trend in Healthcare one-year forward P/E (x)
Healthcare P/E (x)
50.0
10 Yr Avg (x)
5 Yr Avg (x)
15 Yr Avg (x)
35.0
20.0
5.0
27.9
24.4
22.2
17.3
Trend in Healthcare one-year forward P/B (x)
8.5
6.0
3.5
1.0
Healthcare P/B (x)
5 Yr Avg (x)
10 Yr Avg (x)
15 Yr Avg (x)
3.9
3.9
4.0
2.4
Valuation trend v/s Nifty P/E (x)
50.0
35.0
20.0
5.0
Healthcare P/E (x)
Nifty PE (x)
17.3
12.7
BULLS & BEARS | April 2020
4
 Motilal Oswal Financial Services
Key highlights
Indian equities:
Nifty loses steam toward fiscal year-end, down 26% in FY20
After rallying 4.7% (FY20 YTD) up to Dec’19, the Nifty lost its gains in 4QFY20 (down 29.3% in the quarter –
highest QoQ decline since Jun’92) to end FY20 at 8,598 (-26% YoY).
Indian equity markets have corrected significantly over the last one month (Nifty down 23% in Mar’20) in
tandem with global equity markets due to headwinds from the Covid-19 outbreak.
Sector-wise, Metals (-50%), Autos (-43%), PSU Banks (-42%), Capital Goods (-41%) and Real Estate (-35%)
were the biggest losers.
DIIs remained buyers in FY20 with inflows of USD17.9b (v/s USD10.3b in FY19). FII flows were muted at
USD1b in FY20.
Stock performance:
Breadth negative in FY20; only 5 Nifty stocks close higher
Nestle (+48%), Bharti Airtel (+44%), HUL (+35%), Dr Reddy’s (+12%) and Asian Paints (+12%) were the only
positive performers. IndusInd Bank (-80%), Zee Ent (-72%), Vedanta (-65%), Tata Motors (-59%) and M&M (-
58%) were the main laggards.
Global equities:
All major economies end lower
In Mar’20, all key global markets – Brazil (-30%), India-Nifty (-23%), Indonesia (-17%), MSCI EM (-16%),
Taiwan (-14%), the UK (-14%), the US (-13%), Korea (-12%), Japan (-11%), Russia (-9%) and China (-5%) –
closed lower in local currency terms.
Over the last 12 months, MSCI EM (-20%) outperformed MSCI India (-26%). Notably, over the last 10 years,
MSCI India has outperformed MSCI EM by 55%. MSCI India’s P/E is at a premium of 50% to MSCI EM’s P/E,
near its historical average premium of 52%.
Sector valuations:
Except Consumer all sectors trading at a discount
Consumer sector P/E of 35.4x in Mar’20 (37.3x in Feb’20) is at a premium of 3% to its 10-year average of
34.2x. On a P/B basis, the sector trades at 10.2x, a discount of 4% to its 10-year average multiple of
9.8x.From a demand standpoint, 4QFY20 is expected to be a soft quarter as the impact of Covid-19
lockdown has affected economic activity in India.
Private Banks are trading at P/B of 1.9x, below the historical average of 2.4x. Over the past few years,
corporate lending was muted resulting in systemic loan growth being largely driven by the retail segment.
However, the outbreak of Coronavirus (COVID-19) has led to weakening of credit demand in consumer
retail, MFI & SME/business banking segments.
About the product
As the tagline suggests,
BULLS & BEARS
is a
handbook on valuations in
India. Every month, it will
cover:
Valuations of Indian
markets vis-à-vis global
markets
Current valuation of
companies in various
sectors
Sectors that are
currently valued at
premium/discount to
their historical long-
period averages
BULLS & BEARS | April 2020
5
 Motilal Oswal Financial Services
Indian equities:
Nifty tanks 26% in FY20 on COVID-19 outbreak
After rallying 4.7% (FY20 YTD) up to Dec’19, the Nifty lost its
gains in 4QFY20 (down 29.3% in the quarter – the highest
QoQ fall since Jun’92) to end FY20 at 8,598 (-26% YoY).
Indian equity markets have corrected significantly over the
last one month (Nifty down 23% in Mar’20) in tandem with
global equity markets due to headwinds from the Covid-19
outbreak.
DIIs remained net buyers in FY20 with inflows of USD17.9b
(v/s USD10.3b in FY19).
FII flows were muted at USD1b in FY20, due to record high
outflows recorded in a month (Mar’20) at USD8.2b.
Nifty YoY change (%) — ends with 26% negative return in FY20
5 years of negative return in
1990s cycle
244
4 year of negative return in
2000s cycle
3 year of negative return in
2011 cycle
78
42
15
0 -2
-16
-48
-3
-25
-2
81
67
74
27
15
12
24
11
7
-9
18
19
10 15
-13
CAGR of 11.5%
-9
-26
-36
Institutional flows (USD b) — domestic flows remain strong
Net FII Flows (USD b)
Net DII Flows (USD b)
Nifty QoQ change (%) — highest QoQ fall since June 1992
QoQ Return
7
12
4
4
3
8
6
2
7
6
1
5.1
23.4
25.0
25.8
18.1
12.1
-1.5
4.5
8.3
17.7
10.3
17.9
1.0
0.2
3
-1
-5
0 -3
-1
-5
-4
13.7
-4.1
8.5
-0.9
-8.9
-3
-12.7
-3.7
3.2
-29
BULLS & BEARS | April 2020
6
 Motilal Oswal Financial Services
Indian equities:
All sectors close in red; Metals, Autos, PSU Banks worst performers
In FY20, the Nifty was down 26%; Metals (-50%), Autos (-43%), PSU Banks (-42%), Capital Goods (-41%) and Real Estate (-35%) were the top worst
performers in the year.
Consumer (-13%), Healthcare (-16%), Technology (-16%) and Private Banks (-23%) outperformed the benchmark (Nifty) in FY20.
Mid-caps underperformed the benchmark (Nifty) in FY20, delivering -36% return.
Private Banks gained in 7 out of the 12 months, while Consumer ended lower in 7 out of the 12 months.
Sectoral performance—absolute and relative to Nifty (%) — Metals, Autos, PSU Banks worst performers in FY20
MoM Abs. Performance (%)
Sector
Consumer
Apr May Jun
0
-2
-1
Jul
-3
0
6
4
-4
-3
2
-6
-6
FY20
Apr May Jun
-1
-4
0
Jul
3
-13
MoM Relative Perf. (%)
1
2
1
-6
-4
4
1
17
FY20
13
Aug Sep Oct Nov Dec Jan Feb Mar Chg (%)
Aug Sep Oct Nov Dec Jan Feb Mar Chg (%)
Healthcare
Technology
Banks-Pvt
NBFC
Cement
Utilities
Oil
0
6
1
-1
7
-3
1
-7
-3
6
8
3
2
2
-3
-1
1
1
-4
4
-6
-1
1
-6
-6
-6
-6
-11
1
3
-3
1
-6
-4
-1
-3
-3
10
-8
5
2
11
6
-2
1
8
1
3
7
3
-3
4
6
2
-3
-4
-1
4
2
4
-5
0
-3
4
3
-2
0
7
-1
-6
-3
-6
-4
-9
-6
-10
-9
-10
-14
-30
-27
-25
-20
-21
-16
-16
-23
-26
-28
-32
-34
-1
5
0
-2
5
-4
0
-9
-4
4
7
1
1
1
-2
0
2
2
-3
5
-5
4
6
0
-1
-1
0
-5
2
3
-2
2
-5
-3
0
-7
-7
6
-12
1
-2
7
2
-5
-2
5
-3
-1
4
1
-5
3
5
0
-5
-5
-2
3
1
3
-6
-1
-4
6
4
-1
1
9
0
-4
3
1
2
-3
0
-3
-3
13
9
-6
-4
-2
4
3
10
10
3
0
-2
-6
-8
Real Estate
Nifty Midcap100
Cap. Goods
Banks-PSU
Auto
Metal
Nifty-50
-3
-4
-2
-3
0
1
1
10
2
11
11
-2
-7
1
0
-2
0
2
-3
3
-1
-6
-10
-12
-11
-14
-13
-6
-1
-2
-3
-15
2
-12
-1
-3
2
10
-3
6
7
4
4
5
1
13
13
2
4
5
2
-8
12
-4
5
2
5
-1
-3
0
2
7
1
11
5
3
-5
-2
-9
-2
-16
-7
-12
-11
-14
-13
-6
-36
-30
-29
-33
-31
-31
-23
-35
-36
-41
-42
-43
-50
-26
-4
-5
-3
-4
-1
0
8
1
9
9
-4
-8
1
-1
1
3
-2
4
0
-4
-6
-5
-8
-7
0
-1
-3
-14
3
-11
-7
-2
6
-7
2
2
1
1
-3
9
10
-1
4
1
-9
11
-6
4
4
-2
-3
-1
1
6
12
7
5
-4
0
-7
-10
0
-5
-5
-8
-7
-13
-7
-5
-10
-8
-7
-9
-10
-15
-16
-17
-24
BULLS & BEARS | April 2020
7
 Motilal Oswal Financial Services
Indian equities:
Breadth negative in FY20; only 5 Nifty stocks close higher
Nifty – best and worst performers in FY20:
Nestle (+48%), Bharti Airtel (+44%), HUL (+35%), Dr Reddy’s (+12%) and Asian Paints (+12%) were the
only positive performers. IndusInd Bank (-80%), Zee Ent (-72%), Vedanta (-65%), Tata Motors (-59%) and M&M (-58%) were the worst performers.
Nifty – best and worst performers in Mar’20:
Dr Reddy’s (+7%), HUL (+6%), Cipla (+5%) and Nestle (+3%) were the only positive performers on an
MoM basis. Indusind Bank (-68%), Bajaj Finance (-50%), Bajaj Finserv (-49%), Zee Ent (-48%) and Axis Bank (-46%) were the main laggards.
Best and worst Nifty performers (YoY) in FY20 (%) – only five companies in Nifty close higher
48 44
35
12 12
-3
-6
-9
-13 -14 -17 -18 -18 -19 -19
-20
-20
-20
-20 -23
-26
-27 -27-27 -31
-26
-34 -35 -36
-36
-38 -38 -39 -41
-42 -42
-45 -48 -49
-49 -50
-50
-51
-53 -56 -57 -58-59 -65
-72 -80
Best and worst Nifty performers (MoM) in Mar’20 (%) – breadth negative, 92% of Nifty stocks traded lower
7 6 5 3
-6 -7 -9
-9
-11
-12 -12 -13 -16 -16
-17
-18 -20
-21 -21 -22 -22 -23 -23
-24 -25 -25 -26 -26 -26 -27
-27
-27 -29
-23
-30 -31 -32 -32 -35 -35
-37 -38
-38
-39
-43
-45 -46 -48-49 -50
-68
BULLS & BEARS | April 2020
8
 Motilal Oswal Financial Services
Indian equities:
Mid-caps underperform large-caps in FY20
In FY20, mid-caps were down 36% as against the Nifty’s decline of 26%. Notably, over the last 5 years, mid-caps have underperformed by 11%.
The Nifty Mid-cap100 P/E ratio now trades at 14.3x from 20.2x in Mar’19 while mid-caps are currently trading at 12% premium to large-caps.
Mid-caps underperformed large-caps in the last 12 months
Nifty Rebased
115
100
Nifty Midcap 100 Rebased
Mid-caps performance v/s large-caps in last five years
175
150
Nifty Rebased
Nifty Midcap 100 Rebased
5 Year CAGR |
Nifty: 0.3% |
Midcap: -2.1%
85
70
55
125
74
64
100
75
101
90
12-month forward P/E (x)
34
Midcap PE (x)
Nifty PE (x)
Mid-caps v/s large-cap P/E premium/discount (%)
Midcap Vs Nifty PE Prem/(Disc) (%)
45
Average: 3%
28
22
16
10
Nifty Avg: 20.1x
Midcap Avg: 20.7x
25
5
12
14.3
12.7
-15
-35
Source: MOFSL, Bloomberg for Midcap valuation.
BULLS & BEARS | April 2020
9
 Motilal Oswal Financial Services
Indian equities:
Valuations at deep discount to historic averages
Valuations of Indian equities are well below their long-period averages. The Nifty trades at 12-month forward P/E of 12.7x, at a 30% discount to its
long-period average of 18.1x. The Nifty’s P/B of 1.9x is also below its historical average of 2.6x (26% discount).
At the current trailing P/E of 16.2x and forward P/E of 12.7x, we see limited triggers for further re-rating, unless accompanied by a material surprise
in earnings.
12-month forward Nifty P/E (x)
24
21
18
15
12.7
12
10 Year Avg: 18.1x
12-month forward Nifty P/B (x)
3.1
2.7
10 Year Avg: 2.6x
2.3
1.9
1.5
1.9
Trailing Nifty P/E (x)
25
22
10 Year Avg: 19.5x
19
16
13
16.2
Trailing Nifty P/B (x)
3.6
3.2
10 Year Avg: 2.8x
2.8
2.4
2.1
2.0
BULLS & BEARS | April 2020
10
 Motilal Oswal Financial Services
Indian equities:
Market cap-to-GDP ratio corrects sharply, at its lowest since FY06
Market cap-to-GDP ratio has declined swiftly from 79% as on FY19 to 54% (FY20E GDP) – much below its long-term average of 75% and closer to
the levels last seen during FY05 and FY09.
The Nifty is trading at a 12-month forward RoE of 15%, above its long-term average of 14.5%.
Trend in India’s market cap-to-GDP (%) – trading below its long-period averages
103
82
83
Average of 75% for the period
95
88
71
64
52
55
66
81
79
83
79
69
54
12-month forward Nifty RoE (%)
18.0
Trend in Nifty RoE (%)
17.0
16.7
16.5
15.0
13.5
12.0
15.0
16.1
14.9
16.3 16.2
15.4
14.9
Average of 14.8%
13.6
13.2
15.0
13.0
10 Year Avg: 14.5%
12.8
12.9
12.5
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20EFY21E
BULLS & BEARS | April 2020
11
 Motilal Oswal Financial Services
Global equities:
All major economies end lower in Mar’20
In Mar’20, all key global markets – Brazil (-30%), India-Nifty (-23%), Indonesia (-17%), MSCI EM (-16%), Taiwan (-14%), the UK (-14%), the US (-13%),
Korea (-12%), Japan (-11%), Russia (-9%) and China (-5%) – closed lower in local currency terms.
Indian equities are trading at 16.2x FY20E earnings. Major key markets continue trading at a discount to India.
India (Nifty) v/s other markets
CY20 YTD Chg (%)
Index
Value
India
US
Korea
Japan
UK
Taiwan
Indonesia
Brazil
China
MSCI EM
Russia
8,598
2,585
1,755
18,917
5,672
9,708
4,539
73,020
2,750
849
4,391
Mkt Cap Local
In USD
(USD T) Currency
1.5
27.5
1.1
5.2
2.3
1.1
0.3
0.6
7.0
14.8
0.5
-29
-20
-20
-20
-25
-19
-28
-37
-10
-24
-18
-33
-20
-24
-19
-30
-20
-38
-51
-11
-24
-35
PE (x)
CY19 /
FY20
16.2
17.0
16.8
16.7
16.2
15.8
13.5
13.3
12.9
11.9
4.9
CY20 /
FY21
12.7
16.4
10.5
15.5
12.1
13.8
10.6
10.0
10.4
11.5
6.0
5
3
3
0
-3
-17
-18
-21
-27
-70
29
-18
22
-5
9
-16
-22
-19
-10
-52
Prem / Disc to India
PE (%)
CY19 /
FY20
CY20 /
FY21
PB (x)
CY19 /
FY20
2.1
2.8
0.7
1.4
1.4
1.5
1.5
1.5
1.3
1.3
0.7
CY20 /
FY21
1.9
2.7
0.7
1.4
1.3
1.5
1.4
1.2
1.2
1.2
0.6
RoE (%)
CY19 /
FY20
13.0
15.7
4.3
8.7
8.9
9.4
11.0
11.7
10.4
11.0
13.8
CY20 /
FY21
15.0
18.0
5.9
8.9
7.6
13.2
16.4
11.6
10.6
11.3
10.9
Source: Bloomberg/MOFSL
MoM Chg (%)
Brazil
India
Indonesia
MSCI EM
Taiwan
UK
US
Korea
Japan
Russia
-30
-23
-17
-16
-14
-14
-13
-12
-11
-9
China
-5
BULLS & BEARS | April 2020
12
 Motilal Oswal Financial Services
Global equities:
MSCI EM outperforms MSCI India in last 12 months
Over the last 12 months, MSCI EM (-20%) outperformed MSCI India (-26%). Notably, over the last 10 years, MSCI India has outperformed MSCI EM
by 55%.
MSCI India’s P/E is at a premium of 50% to MSCI EM’s P/E, near its historical average premium of 52%.
MSCI India outperformed MSCI EM by 55% over the last 10 years
MSCI India Rebased
MSCI EM Rebased
MSCI EM v/s MSCI India performance over 12 months
MSCI India Rebased
116
102
88
74
60
MSCI EM Rebased
210
170
130
10 Year CAGR:
MSCI India: 3.4%
MSCI EM: -1.7%
5 Year CAGR:
MSCI India: -1.3%
MSCI EM: -2.7%
139
84
80
74
90
50
MSCI India v/s MSCI EM trailing P/E (x)
33.0
26.0
MSCI India Avg: 20.3x
MSCI India v/s MSCI EM P/E premium (%)
MSCI EM PE (x)
140
105
MSCI India Vs EM PE Premium (%)
MSCI India PE (x)
19.0
12.0
5.0
MSCI EM Avg: 13.4x
17.9
11.9
70
35
0
50
Average of 52%
Source: Bloomberg
BULLS & BEARS | April 2020
13
 Motilal Oswal Financial Services
Global equities:
India’s share in world market cap below its historical average
India’s share in world market cap is at 2.2% – below its historical average of 2.5%.
Over the last 12 months, the world’s market cap has decreased 12.3% (USD9.6t), while India’s market cap is down 31%.
Trend in India's contribution to world market cap (%)
3.5
3.0
Average of 2.5%
Market cap change in last 12 months (%)
Mkt cap chg 12M (%)
China
Taiwan
-7
Curr Mcap (USD Tr)
-4
7.0
1.1
5.2
27.5
0.5
India's Contribution to World Mcap (%)
3.3
2.5
2.0
1.5
1.6
2.2
Japan
US
Russia
-22
-23
-9
-10
Global market-cap-to-GDP (%)
134
104
82
Current mkt cap to GDP (%)
Korea
1.1
UK
68
54
51
31
31
28
Brazil
-37
Indonesia
-38
India
-30
2.3
1.5
0.6
0.3
-31
* Based on GDP for Dec 2018
Source: Bloomberg
BULLS & BEARS | April 2020
14
 Motilal Oswal Financial Services
Nifty:
80% companies trading at discount to historical averages
Companies trading at a significant premium to their historical averages:
HUL (+55%), Nestle (+49%), Asian Paints (+26%) and Britannia (+20%).
Companies trading at a significant discount to their historical averages:
Zee (-76%), Tata Steel (-71%), JSW Steel (-62%), M&M (-61%), and Bharti
Infratel (-58%).
Snapshot: Nifty companies’ valuations
Name
Bajaj Auto
Eicher Motors
Hero MotoCorp
Mahindra & Mahindra
Maruti Suzuki
Tata Motors
Axis Bank
HDFC Bank
ICICI Bank
IndusInd Bank
Kotak Mahindra Bank
State Bank
Bajaj Finance
HDFC
Larsen & Toubro
Grasim Inds
Shree Cement
Ultratech Cement
Asian Paints
Britannia Inds.
Hind. Unilever
ITC
Nestle India
Sector
Auto
Auto
Auto
Auto
Auto
Auto
Banks - Private
Banks - Private
Banks - Private
Banks - Private
Banks - Private
Banks - PSU
Banks - NBFC
Banks - NBFC
Capital Goods
Cement
Cement
Cement
Consumer
Consumer
Consumer
Consumer
Consumer
Current
10.5
14.9
9.3
6.8
16.4
10.1
8.8
13.7
11.1
4.5
23.5
5.2
16.2
28.6
10.6
10.2
29.7
17.5
51.2
41.3
61.2
13.2
68.3
PE (x)
10 Yr Avg Prem/Disc (%)
16.4
-36
24.8
-40
17.6
-47
17.2
-61
21.8
-25
14.5
-30
31.5
-72
20.6
-33
19.3
-43
19.2
-77
23.9
-2
14.2
-64
17.4
-7
34.0
-16
22.6
-53
12.6
-19
31.3
-5
27.7
-37
40.4
26
34.4
20
39.6
55
26.0
-49
45.7
49
Relative to Nifty P/E (%)
Current
10 Yr Avg
-17
-9
17
37
-27
-3
-47
-5
29
21
-20
-20
-31
75
8
14
-13
7
-65
7
85
32
-59
-21
27
-4
125
88
-17
25
-20
-30
134
73
38
53
302
124
225
90
382
119
3
44
437
153
Current
2.2
2.8
2.1
0.8
2.4
0.4
1.1
2.4
1.6
0.6
3.2
0.7
3.3
3.0
1.5
0.7
4.2
2.1
13.4
13.8
65.1
3.2
72.0
PB (x)
10 Yr Avg Prem/Disc (%)
5.0
-57
6.4
-55
6.4
-67
2.9
-71
3.4
-29
1.8
-78
2.0
-46
3.5
-32
1.8
-8
2.8
-79
3.0
6
1.2
-45
3.2
1
4.4
-33
2.9
-49
1.7
-58
4.5
-6
2.8
-23
11.4
18
12.4
12
34.1
91
7.0
-54
27.6
161
Relative to Nifty P/B (%)
Current
10 Yr Avg
13
95
49
147
12
150
-56
12
27
32
-79
-29
-42
-22
24
34
-15
-31
-69
9
69
17
-66
-54
71
25
56
72
-22
13
-62
-34
120
74
12
8
605
341
626
379
3321
1222
68
172
3683
971
BULLS & BEARS | April 2020
15
 Motilal Oswal Financial Services
Nifty:
80% companies trading at discount to historical averages
PE (x)
Name
Cipla
Dr Reddy’ s Labs
Sun Pharma
Zee Ent.
Hindalco
JSW Steel
Tata Steel
Vedanta
BPCL
GAIL
IOCL
ONGC
Sector
Healthcare
Healthcare
Healthcare
Media
Metals
Metals
Metals
Metals
Oil & Gas
Oil & Gas
Oil & Gas
Oil & Gas
Current
17.3
21.6
16.6
6.4
4.3
4.9
4.6
5.0
8.3
6.1
5.3
4.8
10 Yr Avg Prem/Disc (%)
28.0
25.3
29.6
26.6
9.8
13.0
15.7
11.1
10.5
14.1
10.0
10.1
-38
-15
-44
-76
-56
-62
-71
-55
-21
-57
-47
-52
Relative to Nifty P/E (%)
Current
36
70
31
-50
-66
-61
-64
-61
-35
-52
-59
-62
10 Yr Avg
55
40
64
47
-46
-28
-13
-39
-42
-22
-44
-44
Current
1.8
2.9
1.7
1.0
0.5
0.8
0.4
0.4
1.3
0.7
0.6
0.4
PB (x)
10 Yr Avg
3.3
3.9
4.5
5.5
1.3
1.4
1.5
2.0
1.7
1.7
1.1
1.3
Prem/Disc (%)
-44
-23
-62
-81
-64
-42
-71
-82
-22
-60
-46
-73
Relative to Nifty P/B (%)
Current
-4
55
-9
-47
-76
-58
-78
-81
-30
-63
-68
-81
10 Yr Avg
27
49
76
112
-50
-47
-43
-24
-34
-32
-56
-48
Reliance Inds.
Titan Co
HCL Technologies
Infosys
TCS
Tech Mahindra
Wipro
Bharti Airtel
Bharti Infratel
Coal India
NTPC
Power Grid Corp.
UPL
Nifty
Oil & Gas
Retail
Technology
Technology
Technology
Technology
Technology
Telecom
Telecom
Utilities
Utilities
Utilities
Others
10.6
41.0
9.6
15.0
20.1
10.4
10.7
NA
9.4
5.6
5.7
7.0
7.8
12.7
12.2
39.2
13.2
17.2
19.4
12.6
15.0
35.0
22.6
13.4
13.3
11.8
13.0
18.1
-13
5
-27
-13
3
-18
-28
-
-58
-58
-57
-40
-40
-30
-17
223
-24
18
58
-18
-16
-
-26
-56
-55
-45
-38
-32
117
-27
-5
7
-30
-17
94
25
-26
-27
-35
-28
1.4
11.5
2.1
4.5
7.5
2.1
2.0
2.7
2.0
2.4
0.7
1.2
1.4
1.9
1.4
10.4
3.2
4.1
6.6
2.7
2.8
2.1
3.4
5.9
1.4
1.7
2.6
2.6
-3
11
-34
8
14
-20
-30
24
-41
-59
-54
-33
-47
-26
-28
503
10
134
295
12
4
40
6
27
-65
-38
-29
-45
302
23
60
155
3
10
-17
33
128
-44
-33
-1
BULLS & BEARS | April 2020
16
 Motilal Oswal Financial Services
Mid-caps underperform Nifty by 10% in FY20
The Nifty Mid-cap 100 was down 36% in FY20, as against the Nifty’s decline of 26%.
Best mid-cap performers in FY20: IPCA Labs (+41%), MCX (+40%) and Ajanta Pharma (+33%).
Company
Ipca Labs.
MCX
Ajanta Pharma
Alembic Pharma
India Cements
Persistent Sys
Phoenix Mills
Birla Corpn.
Brigade Enterpr.
Aegis Logistics
Strides Pharma
Blue Star
Trident
CESC
Jyothy Lab.
Engineers India
Team Lease Serv.
Indian Hotels
DCB Bank
Sun TV Network
LIC Housing Fin.
Federal Bank
Emami
M & M Financial
Mahindra CIE
Delta Corp
Sadbhav Engg.
PE (x)
Current 10 Yr Avg Prem/Disc (%)
22.0
25.5
-14
27.8
32.3
-14
22.5
17.1
32
15.7
17.1
-8
22.0
25.7
-14
11.5
13.8
-17
22.4
31.2
-28
5.8
15.6
-63
15.1
15.3
-1
12.0
23.9
-50
8.4
61.3
-86
14.0
29.3
-52
4.3
8.1
-47
4.2
10.7
-61
16.9
36.9
-54
7.1
19.3
-63
22.0
36.9
-41
17.1
50.2
-66
5.8
15.7
-63
7.1
19.6
-64
4.0
11.3
-65
3.7
12.1
-69
12.4
31.5
-61
5.0
17.6
-72
5.2
28.9
-82
7.0
34.0
-79
2.4
25.4
-90
Relative to Nifty P/E (%)
Current
10 Yr Avg
73
41
119
79
77
-5
23
-6
73
42
-10
-24
76
73
-54
-14
19
-15
-6
33
-34
239
10
62
-66
-55
-67
-41
33
104
-44
7
73
105
34
178
-54
-13
-44
9
-69
-38
-71
-33
-3
74
-61
-3
-59
60
-45
88
-81
40
PB (x)
Current 10 Yr Avg Prem/Disc (%)
4.0
3.2
24
3.9
3.7
5
4.0
4.5
-12
2.6
4.2
-39
0.6
0.7
-12
1.7
2.3
-27
2.1
2.3
-7
0.6
1.1
-45
1.1
1.2
-8
2.6
3.4
-23
0.9
3.2
-71
3.5
7.2
-52
0.6
0.9
-33
0.5
0.8
-37
2.5
4.5
-45
1.6
3.7
-56
3.5
6.1
-43
1.8
3.5
-49
0.8
1.5
-48
1.5
4.8
-68
0.6
1.9
-69
0.5
1.2
-59
3.3
10.3
-68
0.7
2.3
-69
0.5
2.6
-81
0.7
2.4
-69
0.1
2.5
-94
Relative to Nifty P/B (%)
Current
10 Yr Avg
111
25
107
45
108
74
35
62
-68
-73
-13
-12
12
-11
-69
-57
-43
-54
39
34
-52
24
82
178
-68
-65
-74
-69
32
76
-15
44
83
135
-8
35
-60
-43
-19
86
-70
-28
-74
-53
73
300
-63
-11
-73
3
-61
-5
-93
-4
Price Chg (%)
MoM
FY20
2
41
-12
40
-1
33
-15
1
10
-2
-21
-13
-33
-14
-40
-21
-43
-21
-38
-31
-31
-32
-42
-32
-24
-41
-37
-44
-24
-49
-14
-49
-34
-49
-44
-51
-41
-54
-31
-54
-27
-56
-52
-57
-34
-58
-57
-65
-48
-70
-51
-74
-60
-89
BULLS & BEARS | April 2020
17
 Motilal Oswal Financial Services
Sector valuations:
Except Consumer all sectors trading at a discount
Consumer sector P/E of 35.4x in Mar’20 (37.3x in Feb’20) is at a premium of 3% to its 10-year average of 34.2x. On a P/B basis, the sector trades at
10.2x, a discount of 4% to its 10-year average multiple of 9.8x. From a demand standpoint, 4QFY20 is expected to be a soft quarter as impact of the
COVID-19 lockdown has affected the economic activity in the country.
Private Banks trade at a P/B of 1.9x, below their historical average of 2.4x. Over the past few years, corporate lending was muted resulting in
systemic loan growth being largely driven by the retail segment. However, the outbreak of COVID-19 has led to weakening of credit demand in
consumer retail, MFI and the SME/business banking segments. We, thus, expect loan growth of private banks to moderate to ~14% (v/s ~18 earlier
projected) in FY21E.
Healthcare P/E discount to 10-year/3-year average increased sharply to 29% (v/s 23% in Feb’20), largely due to disruptions on account of the COVID-
19 outbreak. However, strong revival in Healthcare P/E relative to the Nifty is comforting. We expect companies with (a) higher exposure to the
domestic formulation segment, (b) small base in the US, (c) differentiated business model, and (d) healthy financial condition to have better
valuation than peers.
Snapshot: Sector valuations
Sector
Auto
Banks - Private
Banks - PSU
NBFC
Capital Goods
Cement
Consumer
Healthcare
Infrastructure
Media
Metals
Oil & Gas
Retail
Technology
Telecom
Utilities
Current
12.3
12.4
5.2
13.8
15.9
17.4
35.4
17.3
5.6
7.4
5.9
8.9
46.9
15.3
Loss
6.2
Relative to
Nifty P/E (%)
10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
18.5
-33.5
-3
0
19.0
-34.9
-3
4
9.7
-47.0
-59
-47
19.0
-27.4
8
5
28.3
-43.8
25
54
22.9
-24.2
37
25
34.2
3.4
178
91
24.4
-28.8
36
35
12.1
-53.9
-56
-33
22.4
-66.8
-42
25
12.1
-51.3
-54
-33
11.6
-23.3
-30
-34
47.3
-0.8
269
167
16.9
-9.3
21
-5
-
-
12.7
-51.1
-51
-28
PE (x)
Relative to
Nifty P/B (%)
10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
3.2
-51.2
-19
23
2.4
-21.6
1
-5
0.9
-45.0
-74
-66
3.0
-30.4
10
17
3.2
-44.6
-5
25
2.6
-35.0
-12
0
9.8
3.6
436
285
4.0
-39.6
28
57
1.6
-75.8
-79
-38
4.2
-69.3
-33
63
1.2
-54.4
-71
-53
1.5
-28.7
-44
-42
6.3
33.0
340
144
4.4
-4.5
119
69
2.2
26.0
46
-14
2.0
-50.7
-49
-23
PB (x)
Current
1.5
1.9
0.5
2.1
1.8
1.7
10.2
2.4
0.4
1.3
0.6
1.1
8.4
4.2
2.8
1.0
BULLS & BEARS | April 2020
18
 Motilal Oswal Financial Services
Autos:
Wholesales weak ahead of BS6 transition; Coronavirus – a new roadblock
Auto sector is trading at P/E of 12.3x, well below its
historical average of 18.5x.
Auto P/E (x)
38
31
24
17
10
3
12.3
18.5
10 Yr Avg (x)
70
40
Auto Relative to Nifty PE (%)
In Mar’20, volumes of 2Ws/PVs/CVs declined
~43%/58%/87% YoY and ~34%/49%/74% MoM due
to the twin impact of BS6 transition and the COVID-
19 pandemic.
With uncertainty in demand prevailing across
segments due to the effects of COVID-19 along with
an impact on the financial health of companies, stock
prices are factoring in the potential cut in earnings
estimates for FY21E.
Considering the discretionary nature of autos,
recovery of stocks would be a function of improving
visibility of demand revival from the impact of
BS6/COVID-19.
10
-20
-0.4
-3.2
-50
Auto P/B (x)
5
4
3.2
3
2
1
10 Yr Avg (x)
90
60
30
0
1.5
Auto Relative to Nifty PB (%)
22.5
-30
-18.7
Sector Performance
MoM: -31%
Company
Amara Raja Batt.
Ashok Leyland
Bajaj Auto
Bharat Forge
Bosch
CEAT
Eicher Motors
Escorts
Exide Inds.
Hero Motocorp
M&M
Mahindra CIE
Maruti Suzuki
Motherson Sumi
Tata Motors
TVS Motor Co.
Current
12.1
18.9
10.5
15.8
20.0
11.0
14.9
11.2
12.7
9.3
6.8
5.2
16.4
11.8
10.1
17.0
PE (x)
10 Yr Avg
19.6
23.7
16.4
25.6
34.2
12.5
24.8
9.6
22.4
17.6
17.2
28.9
21.8
26.9
14.5
22.9
Prem/Disc (%)
-38
-20
-36
-38
-42
-12
-40
16
-43
-47
-61
-82
-25
-56
-30
-26
Relative to Nifty P/E (%)
Current
10 Yr Avg
-5
9
49
31
-17
-9
24
42
57
89
-13
-31
17
37
-12
-47
0
24
-27
-3
-47
-5
-59
60
29
21
-7
49
-20
-20
34
27
Current
1.9
1.4
2.2
1.8
3.2
1.0
2.8
1.4
1.6
2.1
0.8
0.5
2.4
1.5
0.4
3.2
PB (x)
10 Yr Avg
3.9
2.9
5.0
4.3
5.7
1.3
6.4
1.1
3.2
6.4
2.9
2.6
3.4
4.9
1.8
4.7
Prem/Disc (%)
-51
-50
-57
-58
-43
-22
-55
24
-50
-67
-71
-81
-29
-71
-78
-31
Relative to Nifty P/B (%)
Current
10 Yr Avg
0
50
-25
11
13
95
-6
65
69
120
-47
-50
49
147
-26
-56
-17
22
12
150
-56
12
-73
3
27
32
-23
92
-79
-29
70
83
BULLS & BEARS | April 2020
19
 Motilal Oswal Financial Services
Private Banks:
Business environment remains challenging due to COVID-19 outbreak
Private Banks trade at a P/B of 1.9x, below their historical average
of 2.4x.
Private Banks P/E (x)
33
26
19
12
5
10 Yr Avg (x)
Private Banks Relative to Nifty PE (%)
40
20
3.7
-2.7
Over the past few years, corporate lending was muted resulting in
systemic loan growth being largely driven by the retail segment.
However, the outbreak of COVID-19 has led to weakening of credit
demand in consumer retail, MFI and SME/business banking
segments. We, thus, expect loan growth of private banks to
moderate to ~14% (v/s ~18 earlier projected) in FY21E.
Moderation in business growth and the recent reduction of 75bp in
the repo rate will have a bearing on margins as floating retail/SME
loans linked to the external benchmark get re-priced immediately
while deposits re-price with a lag effect. Further, elevated slippages
trend over FY21E should lead to higher interest reversal. Thus, NIMs
of private banks should moderate by ~20bp over FY21E.
The impact of COVID-19 will have a severe impact across multiple
segments due to contagion effect. We expect potential increase in
delinquencies in the MSME/SME segment, unsecured retail and MFI
business due to disruptions in the weekly collection model.
19.0
12.4
0
-20
-40
Private Banks P/B (x)
4
10 Yr Avg (x)
30
10
Private Banks Relative to Nifty PB (%)
3
2
1
2.4
1.9
-5.5
0.6
-10
-30
-50
Among Banks, IIB and RBL will be the most vulnerable to
asset quality challenges, and thus, credit cost should rise
significantly.
Sector Performance
MoM: -30%
Relative to Nifty P/E (%)
Current
10 Yr Avg
-31
75
-54
-13
-71
-33
8
14
-13
7
-65
7
85
32
-82
-53
Current
1.1
0.8
0.5
2.4
1.6
0.6
3.2
0.2
PB (x)
10 Yr Avg
2.0
1.5
1.2
3.5
1.8
2.8
3.0
0.8
Prem/Disc (%)
-46
-48
-59
-32
-8
-79
6
-78
Relative to Nifty P/B (%)
Current
10 Yr Avg
-42
-22
-60
-43
-74
-53
24
34
-15
-31
-69
9
69
17
-90
-68
Company
Axis Bank
DCB Bank
Federal Bank
HDFC Bank
ICICI Bank
IndusInd Bank
Kotak Mah. Bank
South Ind.Bank
Current
8.8
5.8
3.7
13.7
11.1
4.5
23.5
2.3
PE (x)
10 Yr Avg
31.5
15.7
12.1
20.6
19.3
19.2
23.9
8.5
Prem/Disc (%)
-72
-63
-69
-33
-43
-77
-2
-73
BULLS & BEARS | April 2020
20
 Motilal Oswal Financial Services
PSU Banks: Asset quality to remain under pressure in near term
PSU Banks trade at a P/B of 0.5x, below their historical
average of 0.9x.
We see the consolidation of PSBs as a positive move from a
long-term perspective, which will improve their
competitiveness. However, this will come with its own set
of challenges in the near term related to credit growth,
higher credit cost, integration issues, etc.
The outbreak of COVID-19 has further weakened credit
growth of PSBs. SBIN loan growth, is thus, likely to
moderate to ~8% while for BoB, it is likely to moderate to
~7% over FY21E.
PSBs have relatively higher share of exposure in the SME
segment, and thus, asset quality should remain under
pressure in the near term.
On the other hand, the liability franchise remains stable
with surplus liquidity being available with banks.
Recently, PSBs were a big beneficiary of the state
government’s deposit outflows from mid-size/smaller
banks post the YES Bank episode.
We do not believe PSBs to be value calls, apart from SBI,
which has a relatively strong balance sheet.
PE (x)
10 Yr Avg
7.8
7.8
10.6
9.6
7.6
14.2
8.3
Relative to Nifty P/E (%)
Current
10 Yr Avg
-69
-57
-57
-75
-41
-89
-47
-58
-59
-21
-54
PB (x)
10 Yr Avg
1.0
0.7
0.7
0.7
1.0
1.2
0.8
Relative to Nifty P/B (%)
Current
10 Yr Avg
-82
-62
-89
-72
-88
-72
-94
-73
-81
-63
-66
-54
-86
-71
PSU Banks P/B (x)
2
1
0.9
1
0
0.5
10 Yr Avg (x)
-40
-50
-60
-70
-80
-74.2
-65.5
PSU Banks Relative to Nifty PB (%)
Sector Performance
MoM: -33%
Company
Bank of Baroda
Bank of India
Canara Bank
Indian Bank
Punjab Natl.Bank
St Bk of India
Union Bank (I)
Current
3.9
NA
3.2
1.4
NA
5.2
NA
Prem/Disc (%)
-50
-
-70
-86
-
-64
-
Current
0.3
0.2
0.2
0.1
0.4
0.7
0.3
Prem/Disc (%)
-65
-71
-69
-82
-63
-45
-64
BULLS & BEARS | April 2020
21
 Motilal Oswal Financial Services
NBFCs:
Corporate bond markets tighten; No pre-buying ahead of BS6
NBFCs trade at a P/B of 2.1x, below their historical
average of 3.0x (30% discount).
Post the issues regarding AT1 bonds at a private sector
bank, corporate bond markets have tightened. Our
interaction suggests 30-40bp increase in incremental cost
of NCDs in Mar’20.
Auto volumes have been sluggish with pre-buying
largely non-existent. Meanwhile, focus has been on
collections. We expect vehicle financiers to report muted
disbursements.
Disbursement growth remained divergent across HFCs.
We expect HDFC and LICHF to report stable retail loan
growth, while corporate lending has taken a backseat.
However, PNBHF continues to curtail disbursements as
leverage remains high.
Given the recent nation-wide lockdown, MFIs have been
unable to conduct center meetings. While the RBI has
allowed lending institutions to grant moratorium, we
believe there is a possibility of damage to credit culture.
NBFC P/E (x)
29
23
17
11
5
13.8
19.0
10 Yr Avg (x)
NBFC Relative to Nifty PE (%)
40
20
0
-20
-40
5.2
8.4
NBFC P/B (x)
5
4
3
2
3.0
10 Yr Avg (x)
45
30
15
NBFC Relative to Nifty PB (%)
16.6
2.1
0
-15
9.8
Sector Performance
MoM: -27%
Company
Bajaj Finance
Chola. Invst. & Fin.
HDFC
IndoStar Capital
L&T Fin.Holdings
LIC Housing Fin.
M & M Financial
Muthoot Finance
PNB Housing
Shri.City Union.
Shriram Trans.
Current
16.2
7.1
28.6
9.9
3.7
4.0
5.0
7.6
2.2
4.0
4.7
PE (x)
10 Yr Avg
17.4
14.3
34.0
17.1
15.1
11.3
17.6
8.0
15.9
13.7
12.3
Prem/Disc (%)
-7
-50
-16
-42
-76
-65
-72
-6
-86
-71
-62
Relative to Nifty P/E (%)
Current
10 Yr Avg
27
-4
-44
-21
125
88
-22
-6
-71
-16
-69
-38
-61
-3
-40
-56
-83
-12
-69
-24
-63
-32
Current
3.3
1.3
3.0
0.7
0.6
0.6
0.7
1.8
0.3
0.6
0.7
PB (x)
10 Yr Avg
3.2
2.3
4.4
1.0
1.9
1.9
2.3
1.6
2.3
2.0
1.9
Prem/Disc (%)
1
-45
-33
-31
-68
-69
-69
10
-87
-71
-63
Relative to Nifty P/B (%)
Current
10 Yr Avg
71
25
-34
-11
56
72
-65
-62
-69
-28
-70
-28
-63
-11
-5
-36
-85
-12
-70
-23
-63
-24
BULLS & BEARS | April 2020
22
 Motilal Oswal Financial Services
Capital Goods:
Working capital expected to be under stress in FY21
Capital Goods sector trades at one-year forward P/E
multiple of 15.9x, at 44% discount to its 10-year average of
28x.
Even on a P/B basis, the sector trades at 44% discount to its
10-year average multiple of 3.2x.
Valuation premium relative to the Nifty on a P/B basis has
narrowed – it now trades at 5% discount v/s its 10-year
average premium of 25%. On a P/E multiple basis, the
premium has narrowed to 25% from its 10-year average
premium of 54%.
Valuations for companies have been impacted by (a) total
shutdown of businesses due to the COVID -19 issue,
(b)overall slowdown in business activity with 1H being a
lean season, and (c) pressure on the operational
performance due to the prevailing competitive intensity
and cost headwinds (rise in input cost).
Capital Goods P/E (x)
67
47
27
7
28.3
15.9
10 Yr Avg (x)
Capital Goods Relative to Nifty PE (%)
190
140
90
40
25.0
-10
54.1
Capital Goods P/B (x)
7
5
3
1
10 Yr Avg (x)
170
115
Capital Goods Relative to Nifty PB (%)
3.2
60
5
25.0
-5.5
1.8
-50
Sector Performance
MoM: -29%
PE (x)
10 Yr Avg
72.2
24.4
29.3
26.9
19.3
29.5
15.3
22.6
49.8
33.0
25.1
Relative to Nifty P/E (%)
Current
10 Yr Avg
213
299
-39
35
10
62
-4
49
-44
7
150
63
-49
-15
-17
25
128
176
100
83
101
39
PB (x)
10 Yr Avg
6.4
1.8
7.2
5.7
3.7
6.4
2.1
2.9
6.0
4.0
3.4
Relative to Nifty P/B (%)
Current
10 Yr Avg
166
146
-88
-31
82
178
1
121
-15
44
193
147
-31
-18
-22
13
106
135
28
56
71
31
Company
ABB
BHEL
Blue Star
Cummins India
Engineers India
Havells India
K E C Intl.
Larsen & Toubro
Siemens
Thermax
Voltas
Current
39.8
7.8
14.0
12.2
7.1
31.8
6.5
10.6
29.0
25.4
25.5
Prem/Disc (%)
-45
-68
-52
-55
-63
8
-58
-53
-42
-23
2
Current
5.1
0.2
3.5
1.9
1.6
5.6
1.3
1.5
3.9
2.4
3.3
Prem/Disc (%)
-20
-87
-52
-66
-56
-12
-38
-49
-35
-40
-4
BULLS & BEARS | April 2020
23
 Motilal Oswal Financial Services
Cement:
Volumes impacted by shutdown, but pricing remains strong
Cement sector trades at an EV/EBITDA of 10.2x, which
is a significant discount to its historical average.
Cement P/E (x)
43
33
23
13
3
22.9
17.4
10 Yr Avg (x)
Cement Relative to Nifty PE (%)
145
90
35
-20
-75
24.8
36.8
Prices were strong in 4QFY20 with all-India cement
prices up ~4% QoQ (and 6% YoY).
Regionally, on a QoQ basis, prices were up ~6% in the
East, 5% in the North, 4% in Central-India, 3% in the
West and 1% in the South.
Moreover, after declining in 3QFY20, costs declined
further in 4QFY20 led by lower energy costs, which
should further support margin improvement.
Volumes, however, will be impacted due to COVID-
19 lockdowns causing stoppage of all construction
work as well as cement plant shutdowns.
Cement P/B (x)
4
3
2
1
10 Yr Avg (x)
30
10
Cement Relative to Nifty PB (%)
2.6
-10
-30
0.5
-12.1
1.7
-50
Sector Performance
MoM: -25%
Cement EV/EBDITA (x)
10 Yr Avg (x)
22
EV/EBIDTA (x)
Current
4.7
10.5
PE (x)
Company
ACC
Ambuja Cem.
Relative to
Nifty P/E (%)
PB (x)
Relative to
Nifty P/B (%)
17
12
7
14.6
10.2
10 Yr
Current
Avg
12.8
26.2
22.4
29.9
Prem/
Disc (%)
-51
-25
Current
1
76
10 Yr
Avg
45
66
10 Yr
Current
Avg
1.4
2.9
1.3
2.6
Prem/
Disc (%)
-50
-49
Current
-25
-30
10 Yr
Avg
11
1
10 Yr
Avg
12.4
16.2
Prem/
Disc (%)
-62
-35
2
Birla Corpn.
Grasim Inds
India Cem.
Shree Cem.
UltraTech
5.8
10.2
22.0
29.7
17.5
15.6
12.6
25.7
31.3
27.7
-63
-19
-14
-5
-37
-54
-20
73
134
38
-14
-30
42
73
53
0.6
0.7
0.6
4.2
2.1
1.1
1.7
0.7
4.5
2.8
-45
-58
-12
-6
-23
-69
-62
-68
120
12
-57
-34
-73
74
8
4.4
16.0
8.0
13.4
9.2
7.7
22.9
8.1
15.9
13.8
-43
-30
-1
-16
-33
BULLS & BEARS | April 2020
24
 Motilal Oswal Financial Services
Consumer:
Recent market corrections drive valuations below long-term average
Consumer sector P/E of 35.4x in Mar’20 (37.3x in Feb’20) is
at a premium of 3% to its 10-year average of 34.2x. On a P/B
basis, the sector trades at 10.2x, a discount of 4% to its 10-
year average multiple of 9.8x.
From a demand standpoint, 4QFY20 is expected to be a soft
quarter as the impact of Covid-19 lockdown has affected
economic activity in the country. However, some consumer
staples’ companies may report good earnings growth amid a
surge in demand for essential goods during the lockdown.
It is likely that consumers would have upstocked products
due to the lockdown, leading to subdued secondary off-take
in the Jun’20 quarter. However, impact on earnings of
consumer companies could see a lag of one quarter as they
now replenish the depleted channel inventory.
Consumer discretionary categories could see a higher impact
on earnings as consumers may delay their discretionary
spends due to weak consumer sentiment post the lockdown.
Consumer P/E (x)
55
45
35
25
15
34.2
35.4
10 Yr Avg (x)
190
140
90
40
-10
Consumer Relative to Nifty PE (%)
178.5
90.6
Consumer P/B (x)
15
13
10
8
5
9.8
10 Yr Avg (x)
480
380
Consumer Relative to Nifty PB (%)
435.5
284.8
10.2
280
180
80
Sector Performance
Company
Asian Paints
Britannia Inds.
Colgate-Palm.
Dabur India
Emami
GlaxoSmith C H L
Godrej Consumer
Hind. Unilever
ITC
Jyothy Lab.
Marico
Nestle India
P & G Hygiene
Page Industries
Pidilite Inds.
United Breweries
United Spirits
Current
51.2
41.3
37.9
43.6
12.4
31.9
30.8
61.2
13.2
16.9
35.2
68.3
58.0
40.1
48.9
35.4
31.1
MoM: -6%
PE (x)
10 Yr Avg
40.4
34.4
37.0
34.5
31.5
29.9
35.7
39.6
26.0
36.9
35.3
45.7
48.9
45.0
34.7
71.3
94.6
Prem/Disc (%)
26
20
3
26
-61
7
-14
55
-49
-54
0
49
19
-11
41
-50
-67
Relative to Nifty P/E (%)
Current
10 Yr Avg
302
124
225
90
198
105
243
91
-3
74
151
66
142
98
382
119
3
44
33
104
177
95
437
153
356
171
215
149
284
92
179
295
145
424
Current
13.4
13.8
26.6
11.5
3.3
8.0
6.9
65.1
3.2
2.5
8.5
72.0
27.6
19.5
11.4
5.8
7.1
PB (x)
10 Yr Avg
11.4
12.4
24.9
10.3
10.3
7.9
7.6
34.1
7.0
4.5
10.6
27.6
19.5
20.8
8.7
9.4
12.1
Prem/Disc (%)
18
12
7
11
-68
1
-9
91
-54
-45
-20
161
41
-6
32
-38
-41
Relative to Nifty P/B (%)
Current
10 Yr Avg
605
341
626
379
1299
866
503
300
73
300
318
207
261
193
3321
1222
68
172
32
76
344
310
3683
971
1349
658
925
707
500
237
204
264
274
371
BULLS & BEARS | April 2020
25
 Motilal Oswal Financial Services
Healthcare:
Coronavirus outbreak improves performance relative to Nifty
Healthcare P/E discount to its 10-year/3-year average increased
sharply to 29% v/s 23% in Feb’20. This is largely due to
disruptions on account of COVID-19 outbreak.
However, the strong revival in healthcare P/E relative to the
Nifty is comforting.
Medicines being essentials, the government has allowed
operations to continue for pharma companies despite the
lockdown.
There have been transportation constraints as well as
unwillingness on the part of workers to travel to manufacturing
units. We expect these factors to ease out in the near term, and
thus, drive outperformance of the Healthcare index compared
to the Nifty.
Resumption of RM supply from China support lower prices,
thereby improving gross margins.
We expect companies with (a) higher exposure to the domestic
formulation segment, (b) small base in the US, (c) differentiated
business model, and (d) healthy financial condition to have
better valuation than peers.
Companies like Ajanta, Torrent, Biocon and Divis trade at a
premium to their 10-year average P/E and support our thesis.
Sector Performance
Company
Aurobindo Pharma
Ajanta Pharma
Biocon
Cadila Health.
Cipla
Divi's Lab.
Dr Reddy's Labs
Glaxosmit Pharma
Glenmark Pharma.
Granules India
Ipca Labs.
Jubilant Life
Laurus Labs
Lupin
Sun Pharma.Inds.
Strides Shasun
Torrent Pharma.
Current
6.5
22.5
27.2
15.3
17.3
30.2
21.6
36.4
7.3
8.9
22.0
3.7
12.4
16.6
16.6
8.4
26.7
Healthcare P/E (x)
36
30
24
18
12
24.4
10 Yr Avg (x)
90
60
30
Healthcare Relative to Nifty PE (%)
34.5
36.4
17.3
0
-30
Healthcare P/B (x)
7
10 Yr Avg (x)
140
100
Healthcare Relative to Nifty PB (%)
5
4
2
4.0
60
20
57.2
27.6
2.4
-20
MoM: -10%
PE (x)
10 Yr Avg
14.1
17.1
27.0
22.0
28.0
22.7
25.3
50.5
23.5
10.8
25.5
13.0
29.0
27.0
29.6
61.3
21.4
Prem/Disc (%)
-54
32
1
-30
-38
33
-15
-28
-69
-18
-14
-71
-57
-39
-44
-86
25
Relative to Nifty P/E (%)
Current
10 Yr Avg
-49
-22
77
-5
114
49
20
22
36
55
138
26
70
40
186
180
-43
30
-30
-40
73
41
-71
-28
-2
60
30
50
31
64
-34
239
110
18
Current
1.2
4.0
4.3
2.2
1.8
5.6
2.9
10.4
0.8
1.8
4.0
0.6
1.7
2.4
1.7
0.9
5.4
PB (x)
10 Yr Avg
2.8
4.5
3.3
4.8
3.3
4.8
3.9
11.1
4.0
1.7
3.2
1.6
2.9
4.6
4.5
3.2
4.7
Prem/Disc (%)
-57
-12
30
-54
-44
16
-23
-6
-79
3
24
-63
-42
-49
-62
-71
16
Relative to Nifty P/B (%)
Current
10 Yr Avg
-36
10
108
74
125
28
15
86
-4
27
193
86
55
49
448
329
-56
55
-8
-33
111
25
-69
-38
-12
12
24
78
-9
76
-52
24
184
81
BULLS & BEARS | April 2020
26
 Motilal Oswal Financial Services
Infrastructure:
Ordering activity takes backseat as toll collection stops
Infrastructure sector trades at a P/B of 0.4x, at a 76%
discount to the historical average.
Post muted ordering activity in FY19 (-67% YoY),
business momentum has further weakened with
suspension in toll collection due to the COVID-19 issue.
This has come at a time when the NHAI ordering activity
usually picks up.
While the government has drawn out massive
infrastructure development plans with expected
investment of INR100t by 2024, FY21 currently looks
like a washout.
We expect strong business opportunities for all players
in the sector, which should boost their balance sheets.
This should gradually lead to an improvement in the
operational performance.
Infrastructure P/E (x)
32
24
16
8
0
5.6
12.1
10 Yr Avg (x)
60
20
-20
-60
-100
Infrastructure Relative to Nifty PE (%)
-32.7
-56.0
Infrastructure P/B (x)
4
10 Yr Avg (x)
0
-25
Infrastructure Relative to Nifty PB (%)
2
1
0
1.6
0.4
-50
-75
-100
-37.8
-79.5
Company
Ashoka Buildcon
IRB Infra.Devl.
KNR Construct.
Sadbhav Engg.
Current
3.3
7.5
9.8
2.4
PE (x)
10 Yr Avg
13.2
10.6
8.8
25.4
Prem/Disc (%)
-
-30
11
-90
Relative to Nifty P/E (%)
Current
10 Yr Avg
-
-27
-41
-41
-23
-51
-81
40
Current
0.4
0.3
1.4
0.1
PB (x)
10 Yr Avg
1.6
1.5
1.5
2.5
Prem/Disc (%)
-74
-83
-3
-94
Relative to Nifty P/B (%)
Current
10 Yr Avg
-78
-38
-86
-42
-25
-43
-93
-4
BULLS & BEARS | April 2020
27
 Motilal Oswal Financial Services
Media:
Ad revenues to further weaken
Media sector P/E of 7.4x is at ~67% discount to its 10-
year historical average of 22.4x.
The lockdown has led to an increase in viewership of all
broadcasters as well as OTT consumption in content.
However, movie
exhibitors will be adversely hit due to
high rental costs along with shutdown of cinemas.
Print ,radio industry and ad revenue of broadcasters
might see a further decline due to decreasing economic
activity and weak consumer spends in the days to come.
Media P/E (x)
40
10 Yr Avg (x)
100
50
Media Relative to Nifty PE (%)
28
16
4
24.5
22.4
7.4
0
-50
-41.6
Media P/B (x)
6
4
4.2
10 Yr Avg (x)
120
80
40
0
Media Relative to Nifty PB (%)
62.7
3
2
1
1.3
-40
-32.7
Company
Ent.Network
Jagran Prakashan
PVR
Sun TV Network
Zee Entertainmen
Current
5.0
4.0
18.2
7.1
6.4
PE (x)
10 Yr Avg
38.7
14.5
36.3
19.6
26.6
Prem/Disc (%)
-87
-72
-50
-64
-76
Relative to Nifty P/E (%)
Current
10 Yr Avg
-61
114
-69
-20
43
101
-44
9
-50
47
Current
0.5
0.6
2.9
1.5
1.0
PB (x)
10 Yr Avg
2.9
2.9
3.7
4.8
5.5
Prem/Disc (%)
-82
-80
-22
-68
-81
Relative to Nifty P/B (%)
Current
10 Yr Avg
-73
14
-69
14
51
42
-19
86
-47
112
BULLS & BEARS | April 2020
28
 Motilal Oswal Financial Services
Metals:
Base metal prices tumble on COVID-19
Metals sector trades at a P/B of 0.6x, the lowest in the
last 10 years.
Metals P/E (x)
25
20
15
10 Yr Avg (x)
15
-5
Metals Relative to Nifty PE (%)
While average domestic flat steel prices in the traders’
market declined by INR1,000/t MoM to ~INR38,250
during Mar’20, primary producers hiked prices by
INR500/t. Primary rebar prices (long steel) averaged
INR700/t higher at INR40,500/t (INR40,100 at month-
end).
Base metal prices tumbled due to consumption fears
amid the COVID-19 outbreak. Both zinc and aluminum
prices have corrected by 8% MoM to USD1,523/t and
USD1,853/t levels by end-Mar’20.
Volumes are likely to be impacted due to COVID-19
shutdowns by various metal-consuming industries like
autos, white goods, etc.
12.1
10
5
0
5.9
-25
-45
-65
-33.1
-53.8
Metals P/B (x)
3
2
1.2
1
10 Yr Avg (x)
20
-5
-30
Metals Relative to Nifty PB (%)
0.6
0
-55
-80
-53.3
-70.9
Sector Performance
MoM: -31%
PE (x)
Company
Hind.Zinc
Hindalco
Jindal Steel
JSW Steel
NALCO
NMDC
SAIL
Tata Steel
Vedanta
Relative to
Nifty P/E (%)
10 Yr
Current
Avg
-27
-42
-66
-46
-9
-61
-28
-15
-11
-64
-45
-13
-64
-13
-61
-39
PB (x)
Relative to
Nifty P/B (%)
10 Yr
Current
Avg
-18
-13
-76
-50
-87
-51
-58
-47
-72
-55
-59
-18
-88
-67
-78
-43
-81
-24
EV/
EBIDTA (x)
10 Yr
Prem/
Current
Avg
Disc (%)
3.7
6.2
-40
4.4
7.3
-41
4.5
10.3
-57
5.5
7.7
-29
2.7
7.8
-65
2.4
6.4
-63
8.8
14.3
-38
5.4
7.6
-29
4
5
-20
10 Yr Prem/Dis
Current
Avg
c (%)
9.3
10.4
-11
4.3
9.8
-56
NA
16.5
4.9
13.0
-62
10.8
16.1
-33
4.6
10.0
-54
NA
15.7
4.6
15.7
-71
5.0
11.1
-55
10 Yr
Current
Avg
1.6
2.3
0.5
1.3
0.2
1.3
0.8
1.4
0.5
1.2
0.8
2.1
0.2
0.8
0.4
1.5
0.4
2.0
Prem/
Disc (%)
-30
-64
-81
-42
-54
-63
-72
-71
-82
Metals EV/EBDITA (x)
10
8
7.3
10 Yr Avg (x)
5
3
4.9
BULLS & BEARS | April 2020
29
 Motilal Oswal Financial Services
Oil & Gas:
OPEC+ fails to continue production cuts, SG GRM at all-time low
Oil & Gas sector trades at a P/B of 1.1x (~29% discount to
its historical average of 1.5x) and P/E of 8.9x (at ~23%
discount to the long-term average of 11.6x).
Brent prices for the month declined to an average of
~USD33/bbl (v/s ~USD55/bbl in Feb’20) as OPEC+ failed
to continue production cuts, further elevated by demand
concerns led by the global spread of Coronavirus.
Refining margins declined to an average of USD0.5/bbl
(v/s USD3.0/bbl in Feb’20), primarily due to the steep
decline in product cracks. Gasoline and ATF saw the
largest fall, while Gasoil declined to ~USD8/bbl.