*
Retail
Auto
Oil & Gas
Technology
Consumer
Metals
Healthcare
Cement
Infrastructure
Capital Goods
Financials
Media
Utilities
Telecom
WORST PERFORMERS MoM (%)
31
28
27
25
-19
-13
-9
-8
-6
-5
-4
-4
-3
-3
Zee Ent
Bharti Infratel
NTPC
Adani Ports
Shree Cement
GAIL
Nestle
ONGC
L&T
HDFC Bank
* Sectors in order of premium /
discount to historical averages
BEST PERFORMERS MoM (%)
Infosys
Wipro
HCL Tech
Tech Mah.
Reliance Ind.
M&M
JSW Steel
Bajaj Fin.
Dr Reddy's
HDFC Life
16
15
15
14
19
21
Highlights of Jul’20 edition
Nifty up 7.5% for the second straight
month.
Technology, Healthcare, Metals,
Autos and Cement top positive
performers.
Mid-caps underperform (v/s
large-caps) after three months of
outperformance.
August 2020
Research & Quant Team (Deven@MotilalOswal.com)
 Motilal Oswal Financial Services
Contents
Strategy:
Nifty continues strong momentum in Jul’20; IT leads benchmark
Valuation deep-dive for the month:
Technology
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
NOTES:
Prices as on 31
st
July’20
BULL icon:
Sectors trading
at a premium to
historical averages
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 | August 2020
2
 Motilal Oswal Financial Services
Strategy:
Nifty continues strong momentum in Jul’20; IT leads benchmark
Markets up 7.5% in Jul’20:
The Nifty ended 7.5% MoM higher at 11,073 in Jul’20. The index has maintained its upward momentum and closed higher
for the second consecutive month. Corporate commentaries on gradual demand recovery coupled with benign global backdrop aided the Nifty’s
north-bound journey. However, the Nifty is still down 9% in YTD’CY20. After the sharp up-move during Apr-Jul’20, the Nifty (excl. BFSI, which is still
down 28%) has moved past its pre-COVID levels. Jul’20 saw DII outflows of USD1.3b – the highest in the last 16 months. FII inflows remained healthy
at USD1.2b.The Nifty Mid-Cap100 P/E now trades on par with the Nifty at 20.8x (v/s 11.5x in Mar’20).
1QFY21 earnings - beats muted expectations so far; driven by cost-cuts:
So far, 1QFY21 earnings have been ahead of expectations, led by sharp cost
cuts across sectors. For the 33 Nifty companies that declared results, sales/EBITDA/PBT/PAT declined 27.7%/1.1%/22.2%/18% (v/s est. decline of
27.3%/5.9%/31.0%/26.1% YoY). On the PAT front, of the 33 Nifty companies, 17 have surpassed, 8 have missed and 8 have met our expectations. For
the MOFSL Universe, sales/EBITDA/PBT/PAT declined 27.5%/6.1%/27.2%/24.5% YoY (v/s est. decline of 27.1%/12%/35.5%/31.6% YoY). The earnings
upgrade/downgrade ratio for FY21 so far is skewed in favor of upgrades. 46 MOFSL Universe companies have seen upgrades > 3% (of this, 36
companies have seen upgrades >10%), while 22 have seen downgrades >3%.
Global markets close higher in Jul’20:
Barring the UK (-4%) and Japan (-3%), Jul’20 saw all key global markets like China (+11%), Taiwan (+9%), MSCI
EM (+8%), Brazil (+8%), India (+7%), Korea (+7%), the US (+6%), Indonesia (+5%) and Russia (+3%) close higher in local currency. Over the last 12
months, MSCI India and MSCI EM are up 4%. Notably, over the last 10 years, MSCI India has outperformed MSCI EM by 72%. P/E of MSCI India is at an
82% premium to that of MSCI EM, above its historical average premium of 53%. India’s share in the world market cap is at 2.3% – below its historical
average of 2.5%, given the muted performance of the last 5 years.
Breadth positive in Jul’20:
In Jul’20, Technology (+23%), Healthcare (+12%), Metals (+9%), Autos (+8%) and Cement (+6%) were the top performers.
Utilities (-2%), Private Banks (-1%) and Capital Goods (-1%) were the key laggards. Infosys (+31%), Wipro (+28%), HCL Tech (+27%), Tech Mahindra
(+25%) and Reliance Inds (+21%) were the top performers MoM. Zee Ent (-19%), Bharti Infratel (-13%), NTPC (-9%) and Shree Cement (-6%) were the
key laggards. In this edition, we take a deep-dive into the valuation metrics of the Technology sector.
Risk-reward relatively less attractive; raised weights in Defensives:
Although 1QFY21 earnings are better than expectations, it should be viewed in
the context of the extremely muted outlook. While commentaries suggest gradual demand recovery, the frequent localized lockdowns and rising
COVID cases can dent the revival. Meanwhile, markets have rallied sharply in line with global trends. The Nifty (excl. BFSI) is above its pre-COVID
levels. IT and Healthcare are the best performing indices YTD CY20 with relative earnings resilience and healthy earnings upgrades. After the rally
from Mar’20 lows, the Nifty at 21x P/E is now trading at a premium to its long-period average; however, it is not looking as attractive as it did in
Mar’20. Polarization remains the persistent theme – the top-15 stocks within the Nifty-50 are reflecting Nifty levels of ~15k while the next-35 stocks
are languishing near the 8,400 levels. In an era where growth is scary, we believe such polarization and divergence may persist till earnings see
broad-based recovery. Thus, we continue to believe that any further upside from here would now rest on the inter-play of the Health crisis and speed
of demand recovery. In line with our cautious view, we have recently raised the weight of Defensives (IT, Consumer and Telecom) in our latest Model
portfolio revisions.
Top Ideas: Large-caps:
HUL, Infosys, Bharti Airtel, ICICI Bank, Titan, M&M, Wipro, Dabur.
Mid-caps:
AU Finance, TCPL, Alkem, LT Infotech, Gujarat Gas, Teamlease, Motherson Sumi, ICICI Securities.
BULLS & BEARS | August 2020
3
 Motilal Oswal Financial Services
Valuation deep-dive for the month: Technology
Due to the COVID-19 pandemic, IT firms managed the transition to
remote operations with agility. This has been well received by their
global clientele.
Supply side issues reduced significantly and contributed 10-30% of the
COVID impact in 1QFY21. The sudden demand disruption (as clients
reprioritized IT spends toward business resiliency) and deferred
discretionary spends resulted in overall revenue decline of 2-7% QoQ CC,
which has been largely in line (barring Infosys, which beat estimates).
COVID impact on revenue largely in line for 1QFY21
Tier I IT Revenue Growth ( YoY CC %)
7.2%
9.0%
10.5%
11.2%
10.6%
10.1%
8.4%
5.5%
-2.7%
In 1QFY21, most IT firms showed sequential stability/expansion in EBIT
margin (beating consensus estimates), which has been a surprise. Wage
Trend in Technology P/E – 1-year forward
hike deferral, tight control on discretionary spend, reduced travel costs
Technology P/E (x)
5 Yr Avg (x)
and currency depreciation were the tailwinds for margins while impact of
34.0
revenue/utilization drop, etc., have been the offsetting factors. TCS and
24.0
NIIT Tech were the exceptions and missed estimates.
17.7
Deal wins have been largely healthy and deal pipeline remains robust
due to clients shifting spends toward cloud, security, collaboration,
digital, etc. With tight cost controls and focused collections, companies
have reported sharp increase in cash conversions.
17.1
14.0
4.0
10 Yr Avg (x)
15 Yr Avg (x)
21.1
17.4
Companies expect further improvement from Sep’20 and are confident
of defending margins. Energy, Manufacturing, Aerospace and Automotive
Technology sector premium/discount to Nifty
should take slightly longer to recover while BFSI, Telecom and CPG are
Technology Relative to Nifty PB (%)
expected to stabilize early. Technology, Healthcare and Life Sciences have
180.0
been largely resilient.
The sector is trading at valuations above its historical average and the
broader market index. This, along with the sector’s resilience during
1QFY21 and the optimistic outlook provides a strong reason for re-rating
of the sector.
120.0
60.0
0.0
75.9
15 Yr Avg (x)
105.4
BULLS & BEARS | August 2020
4
 Motilal Oswal Financial Services
Summary:
Market continue its positive momentum
Indian equities:
Nifty maintains positive momentum, up again 7.5% in Jul’20
The Nifty ended 7.5% higher MoM to 11,073 in Jul’20. The index has closed higher for the second straight
month now. The Nifty is down 9% in CY20 so far.
Among sectors, Technology (+23%), Healthcare (+12%), Metals (+9%), Autos (+8%) and Cement (+6%) were
the top positive performers in Jul’20. Utilities (-2%), Private Banks (-1%) and Capital Goods (-1%) were the
only negative performers.
For CY20 YTD, the Nifty is down 9%. Healthcare (+36%) and Technology (+18%) are the only positive
performers so far. PSU Banks (-42%), Real Estate (-31%), NBFCs (-27%), Private Banks (-25%) and Metals (-
25%) were the key laggards.
Stock performance:
Breadth positive in Jul’20; 37 Nifty stocks end higher
Infosys (+31%), Wipro (+28%), HCL Tech (+27%), Tech Mahindra (+25%) and Reliance Inds (+21%) were the
top positive performers on MoM basis. Zee Ent (-19%), Bharti Infratel (-13%), NTPC (-9%), Adani Ports (-8%)
and Shree Cement (-6%) were the key laggards.
Global equities:
All major economies end higher in Jul’20
Barring the UK (-4%) and Japan (-3%), which ended lower, Jul’20 saw all key global markets like China
(+11%), Taiwan (+9%), MSCI EM (+8%), Brazil (+8%), India (+7%), Korea (+7%), the US (+6%), Indonesia (+5%)
and Russia (+3%) close higher in local currency terms.
Over the last 12 months, MSCI India and MSCI EM are up 4%. Notably, over the last 10 years, MSCI India has
outperformed MSCI EM by 72%. P/E of MSCI India is at an 82% premium to MSCI EM, above its historical
average premium of 53%.
Sector valuations:
Technology and Healthcare outperform; Private Banks the laggards
Technology sector is trading at P/E of 21.1x, at 24% premium to its historical average of 17.1x. 1QFY21
revenue decline was largely in line due to the demand disruption (deal ramp-downs and price discounts) as
clients reprioritized IT spends and focused on cost optimization. Most companies delivered strong beat to
consensus margin estimates with tight cost control in the quarter, despite revenue volatility.
Healthcare sector
after 3-5 years of downtrend in valuations
has climbed back above its 10-year average
over the past 3 months. Interestingly, 7 out of 16 companies under our coverage are still trading at a
considerable discount to their 10-year averages. The recent results of Pharma companies indicates sales in
the branded formulation segment in India and emerging markets (EMs) have taken a knock (particularly, in
Acute therapies) due to the COVID-19 led slowdown.
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 | August 2020
5
 Motilal Oswal Financial Services
Indian equities:
Nifty maintains momentum, up again 7.5% in Jul’20
The Nifty ended 7.5% higher MoM at 11,073 in
Jul’20. The index has closed higher for the
second straight month now. The Nifty is down
9% in CY20 so far.
Among sectors, Technology (+23%), Healthcare
(+12%), Metals (+9%), Autos (+8%) and Cement
(+6%) were the top performers in Jul’20.
Utilities (-2%), Private Banks (-1%) and Capital
Goods (-1%) were the only negative performers.
Mid-caps underperformed large-caps by 2.3% in
Jul’20 after 3 months of outperformance.
For CY20 YTD, the Nifty is down 9%. Healthcare
(+36%) and Technology (+18%) are the only
positive performers so far.
PSU Banks (-42%), Real Estate (-31%), NBFCs
(-27%), Private Banks (-25%) and Metals (-25%)
were the key laggards.
Jul’20 saw DII outflows of USD1.3b – the highest
in 16 months. FII inflows remained healthy at
USD1.2b.
FIIs (USDb)
7.5
DIIs (USDb)
1.7
1.5
2.5
0.3
1.2
-1.3
May
June
July
Nifty MoM change (%) — second consecutive month of positive return
Nifty MoM Change (%)
4.6 3.7
3.3 3.4
1.4
5.8
5.6
4.7
3.0
6.2
6.0
2.9
4.7
7.7
1.11.5
4.13.5
1.5 0.9
1.1 0.9
5.7
1.7
6.4
23.2
14.7
7.5
7.5
1.3 1.1
1.0 1.6
4.9
3.6
0.0 0.2
6.45.0
0.10.3 0.4
2.8
Sectoral performance—absolute and relative to Nifty (%) — Technology, Healthcare, Metal and
Autos top performers
Sector
Technology
Healthcare
Metal
Auto
Cement
Nifty Midcap
Oil
Banks-PSU
NBFC
Consumer
Real Estate
Cap. Goods
Banks-Pvt
Utilities
Nifty-50
Jan
3
4
-9
-2
7
5
-6
-5
0
2
11
3
-2
-1
-2
MoM Abs. Performance (%)
Feb Mar Apr May Jun
-6 -14
11
-1
6
-3 -10
26
2
4
-13 -31
18
1
6
-14 -31
24
6
8
-6 -25
9
12 2
-7 -30
15
-2
11
-9 -21
20
-2
7
-11 -34
2
-16
17
-9 -27
16
-14
8
-6
-6
5
1
3
-16 -36
7
-3
12
-12 -29
11
1
4
-4 -30
14
-9
11
-10 -20
8
-1
6
-6 -23
15
-3
8
Jul
23
12
9
8
6
5
4
3
3
2
0
-1
-1
-2
7
CY20YTD
Chg (%)
18
36
-25
-11
0
-10
-11
-42
-27
0
-31
-25
-25
-20
-9
Jan
4
6
-7
0
9
7
-4
-4
1
4
12
5
-1
0
MoM Relative Perf. (%)
Feb Mar Apr May Jun
1
9
-4
2
-2
3
13
12
5
-4
-7
-7
3
4
-2
-8
-8
10
8
1
0
-2
-5
15
-6
0
-7
1
1
3
-3
3
6
1
-1
-4 -11 -13 -13
10
-3
-4
1
-11
1
1
17
-10
4
-4
-10 -13
-8
0
5
-5
-5
-4
4
-3
2
-6
-1 -6
3
-3
4
-7
2
-1
Jul
15
5
1
0
-1
-2
-3
-4
-5
-6
-8
-8
-8
-10
CY20YTD
Chg (%)
27
45
-16
-2
9
-1
-2
-33
-18
9
-22
-16
-16
-11
Institutional flows (USD b)
1.4
0.3
0.4
2.4
0.0
-0.1
Jan
Feb
-8.4
Mar
Apr
2020
BULLS & BEARS | August 2020
6
 Motilal Oswal Financial Services
Indian equities:
Breadth positive in Jul’20; 37 Nifty stocks end higher
Nifty – best and worst performers in Jul’20:
Infosys (+31%), Wipro (+28%), HCL Tech (+27%), Tech Mahindra (+25%) and Reliance Inds (+21%) were
the top performers MoM. Zee Ent (-19%), Bharti Infratel (-13%), NTPC (-9%), Adani Ports (-8%) and Shree Cement (-6%) were the key laggards.
Nifty – best and worst performers in CY20 YTD:
Dr Reddy’s (+57%), Cipla (+51%), Reliance Inds (+38%), Infosys (+32%) and Britannia (+26%) were the
top performers. IndusInd Bank (-65%), Zee Ent (-52%), Tata Motors (-43%), Axis Bank (-43%) and SBI (-43%) were the worst performers.
Best and worst Nifty performers (MoM) in Jul’20 (%) – breadth positive, 74% Nifty stocks traded higher
31 28
27 25
21 19
16 15 15 14 13 13 12
12 12 12 11 10 10 10
7
7 7 7 6 6 6 6 6 5 4
2 2 2 2 1 1
0 -1 -1 -2 -3 -3 -4 -4
-5 -6 -8 -9
-13
-19
Best and worst Nifty performers (YoY) in CY20 YTD (%) – 16 companies in Nifty trading higher
57 51
38 32
26 24 23 22
15 14 14 12 10 7
6 2 0
-4 -6 -6 -8
-9
-11 -12-14
-15 -15
-16 -18 -18 -18 -19 -19 -20 -22 -23 -24
-25 -26 -27 -30 -30
-34 -36 -39 -39 -43-43 -43
-52
-65
BULLS & BEARS | August 2020
7
 Motilal Oswal Financial Services
Indian equities:
Mid-caps underperform large-caps over last 12 months
Over the last 12 months, mid-caps were down 3% v/s a flat Nifty. Notably, over the last 5 years, mid-caps have underperformed by 17%.
The Nifty Mid-cap100 P/E ratio now trades near large-caps at 20.8x (v/s 11.5x in Mar’20), a 0% discount to large-caps.
Mid-caps performance v/s large-caps over last five years
Nifty Rebased
175
Nifty Midcap 100 Rebased
5 Year CAGR |
Nifty: 5.4% |
Midcap: 2.4%
Mid-caps underperformed large-caps over last 12 months
130
115
100
85
70
55
Nifty Rebased
Nifty Midcap 100 Rebased
100
97
150
125
100
75
130
113
12-month forward P/E (x)
27
23
19
15
11
Midcap PE (x)
Nifty Avg: 21.4x
Midcap Avg: 17.9x
Nifty PE (x)
Mid-caps v/s large-cap P/E premium/discount (%)
15
Midcap Vs Nifty PE Prem/(Disc) (%)
20.8
20.7
0
-15
-30
-45
Average: -16%
0
Source: MOFSL, Bloomberg for Midcap valuation.
BULLS & BEARS | August 2020
8
 Motilal Oswal Financial Services
Indian equities:
Nifty forward P/E above LPA, while P/B near historic averages
The Nifty trades at 12-month forward P/E of 20.7x, 10% premium to its long-period average. The Nifty’s P/B of 2.5x is near its historical average of
2.6x (2% discount).
The Nifty’s 12-month trailing P/E of 23.7x is trading at 20% premium to its long-period average of 19.7x. At 2.7x, the Nifty’s 12-month trailing P/B is
near its historical average of 2.8x.
12-month forward Nifty P/E (x)
28
24
20
16
12
10 Year Avg: 18.9x
20.7
12-month forward Nifty P/B (x)
3.1
2.8
2.5
2.2
1.9
10 Year Avg: 2.6x
2.5
Trailing Nifty P/E (x)
27
24
20
17
13
10 Year Avg: 19.7x
23.7
Trailing Nifty P/B (x)
3.6
3.2
2.8
2.4
2.0
10 Year Avg: 2.8x
2.7
BULLS & BEARS | August 2020
9
 Motilal Oswal Financial Services
Indian equities:
Market cap-to-GDP ratio rebounds; Currently at its LPA
Market cap-to-GDP ratio has been volatile as it moved from 79% in FY19 to 56% (FY20 GDP) in Mar’20 to 75% now (FY21E GDP) – at its long-term
average of 75%.
The Nifty is trading at 12-month forward RoE of 12.2%, below its long-term average of 13.9%.
103
82
95
83
88
71
52
55
64
66
Average of 75% for the period
81
79
83
79
56
75
Trend in India’s market cap-to-GDP (%) – trading at its long-period averages
69
12-month forward Nifty RoE (%)
17.3
15.6
10 Year Avg: 13.9%
13.9
12.2
10.5
12.2
16.8
Trend in Nifty RoE (%)
17.0
16.1
14.9
16.3 16.2
15.4
14.9
Average of 14.8%
13.2
13.6
12.9
12.6
11.5
11.1
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E
BULLS & BEARS | August 2020
10
 Motilal Oswal Financial Services
Global equities:
All major economies end higher in Jul’20
Barring the UK (-4%) and Japan (-3%), which ended lower, Jul’20 saw all key global markets like China (+11%), Taiwan (+9%), MSCI EM (+8%), Brazil
(+8%), India (+7%), Korea (+7%), the US (+6%), Indonesia (+5%) and Russia (+3%) close higher in local currency terms.
Indian equities are trading at 23.5x FY21E earnings. Brazil and the US are trading at a premium, while other key markets continued to trade at a
discount to India.
India (Nifty) v/s other markets
CY20 YTD Chg (%)
Index
Value
India
Brazil
US
Japan
Taiwan
UK
Indonesia
MSCI EM
Korea
China
Russia
11,073
102,912
3,271
21,710
12,665
5,898
5,150
1,079
2,249
3,310
4,998
Mkt Cap Local
In USD
(USD T) Currency
1.9
0.8
35.0
5.6
1.5
2.8
0.4
18.7
1.5
9.4
0.6
-9
-11
1
-8
6
-22
-18
-3
2
9
-6
-13
-31
1
-6
7
-23
-23
-3
-1
8
-22
PE (x)
CY19 /
FY20
23.8
18.7
21.5
19.2
20.6
16.8
15.9
15.2
22.3
15.6
6.0
CY20 /
FY21
23.5
52.5
25.4
21.7
19.4
18.4
18.1
17.7
16.3
14.0
10.9
-22
-10
-19
-13
-29
-33
-36
-6
-35
-75
124
8
-8
-18
-22
-23
-25
-31
-40
-54
Prem / Disc to India
PE (%)
CY19 /
FY20
CY20 /
FY21
PB (x)
CY19 /
FY20
2.7
2.1
3.6
1.6
1.9
1.4
1.7
1.6
0.9
1.6
0.8
CY20 /
FY21
2.6
1.7
3.5
1.6
2.1
1.3
1.8
1.6
0.9
1.4
0.7
RoE (%)
CY19 /
FY20
11.5
11.7
15.7
8.7
9.2
9.0
10.4
10.9
4.3
10.3
12.1
CY20 /
FY21
11.1
3.4
14.9
7.9
13.5
3.2
12.0
9.8
5.2
10.0
7.6
Source: Bloomberg/MOFSL
MoM Chg (%)
China
Taiwan
MSCI EM
Brazil
India
Korea
US
Indonesia
Russia
Japan
UK
-3
-4
3
9
8
8
7
7
6
5
11
BULLS & BEARS | August 2020
11
 Motilal Oswal Financial Services
Global equities:
MSCI India performs in line with EM over last 12 months
Over the last 12 months, the MSCI India and MSCI EM are up 4%. Notably, over the last 10 years, MSCI India has outperformed MSCI EM by 72%.
P/E of MSCI India is at an 82% premium to MSCI EM, above its historical average premium of 53%. MSCI India’s P/E is at a premium of 82% to MSCI
EM’s P/E, above its historical average premium of 53%.
MSCI India outperformed MSCI EM by 72% over the last 10 years
210
MSCI India Rebased
10 Year CAGR:
MSCI India: 6.1%
MSCI EM: 0.8%
5 Year CAGR:
MSCI India: 4.3%
MSCI EM: 3.7%
MSCI EM Rebased
MSCI EM v/s MSCI India performance over 12 months
120
105
90
75
60
MSCI India Rebased
MSCI EM Rebased
104
104
170
130
90
50
181
109
MSCI India v/s MSCI EM trailing P/E (x)
40.0
33.0
26.0
19.0
12.0
5.0
MSCI EM Avg: 13.5x
MSCI India Avg: 20.6x
MSCI India v/s MSCI EM P/E premium (%)
MSCI EM PE (x)
115
MSCI India Vs EM PE Premium (%)
MSCI India PE (x)
33.4
18.4
90
65
40
15
Average of 53%
82
Source: Bloomberg
BULLS & BEARS | August 2020
12
 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 2.3% – below its historical average of 2.5%.
Over the last 12 months, world market cap has increased 7.7% (USD6.2t) while India’s market-cap is down 3%.
Trend in India's contribution to world market-cap (%)
3.5
3.0
2.5
2.0
1.5
1.6
Average of 2.5%
India's Contribution to World Mcap (%)
3.3
2.3
Market-cap change over last 12 months (%)
9.4
40
1.5
25
1.5
35.0
5.6
1.9
2.8
0.6
0.4
0.8
Mkt cap chg 12M (%)
16
8
-2
Curr Mcap (USD Tr)
-3
India
-15
UK
-17
Russia
China
Source: Bloomberg
Taiwan
Korea
US
Japan
-22
Indonesia
-23
Brazil
BULLS & BEARS | August 2020
13
 Motilal Oswal Financial Services
Nifty:
~
50% companies trading at discount to historical averages
Companies trading at significant premium to historical averages:
Reliance Industries (+86%), HCL Tech (+80%), Titan (+68%), Infosys (+64%) and
Nestle (+50%).
Companies trading at significant discount to historical averages:
NTPC (-53%), Coal India (-52%), Bharti Infratel (-49%), ONGC (-48%) and GAIL (-
47%).
Snapshot: Nifty companies’ valuations
PE (x)
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
17.3
35.5
17.8
16.8
34.4
NA
15.7
17.7
18.4
7.5
30.6
7.2
36.3
31.4
15.6
12.1
45.6
26.5
62.7
47.4
58.8
17.2
71.0
10 Yr Avg Prem/Disc (%)
16.6
26.7
17.7
18.9
23.4
12.9
37.4
20.7
21.2
19.3
25.0
14.5
20.0
34.5
22.8
11.9
33.0
28.3
42.7
34.3
41.4
26.2
47.5
4
33
1
-11
47
NA
-58
-14
-13
-61
22
-50
82
-9
-32
2
38
-6
47
38
42
-34
50
Relative to Nifty P/E (%)
Current
-16
71
-14
-19
66
NA
-24
-15
-11
-64
47
-65
75
51
-25
-41
120
28
202
128
184
-17
242
10 Yr Avg
-12
41
-6
0
24
-32
98
9
12
2
32
-23
6
83
21
-37
75
50
126
82
120
39
151
Current
3.8
4.9
3.6
1.9
3.7
0.7
1.3
2.8
1.7
0.9
3.5
0.6
5.1
3.0
1.7
1.1
5.3
2.6
13.5
21.7
10.5
3.5
64.4
PB (x)
10 Yr Avg Prem/Disc (%)
5.0
6.5
6.1
2.8
3.4
1.8
2.0
3.4
1.8
2.8
3.1
1.2
3.4
4.4
2.9
1.7
4.6
2.8
11.6
12.8
30.0
6.9
28.6
-24
-25
-42
-33
8
-59
-35
-20
-1
-67
13
-44
50
-32
-39
-37
15
-8
16
70
-65
-50
125
Relative to Nifty P/B (%)
Current
52
95
42
-24
48
-71
-48
9
-31
-64
38
-74
101
18
-31
-57
109
2
434
760
318
38
2457
10 Yr Avg
96
154
138
10
34
-31
-23
33
-32
8
19
-55
31
69
11
-33
78
8
350
396
1065
167
1011
BULLS & BEARS | August 2020
14
 Motilal Oswal Financial Services
Nifty:
~50% companies trading at discount to historical averages
Name
Cipla
Dr Reddy’ s Labs
Sun Pharma
Zee Ent.
Hindalco
JSW Steel
Tata Steel
BPCL
GAIL
IOCL
ONGC
Reliance Inds.
Titan Co
HCL Technologies
Infosys
TCS
Tech Mahindra
Wipro
Bharti Airtel
Bharti Infratel
Coal India
NTPC
Power Grid Corp.
UPL
Nifty
Sector
Healthcare
Healthcare
Healthcare
Media
Metals
Metals
Metals
Oil & Gas
Oil & Gas
Oil & Gas
Oil & Gas
Oil & Gas
Retail
Technology
Technology
Technology
Technology
Technology
Telecom
Telecom
Utilities
Utilities
Utilities
Others
Current
28.2
26.7
26.0
19.0
11.8
16.8
NA
11.5
7.0
5.2
5.2
25.2
73.8
15.1
22.0
25.7
14.9
15.8
NA
11.3
6.4
6.0
8.2
12.1
20.7
PE (x)
10 Yr Avg Prem/Disc (%)
28.1
0
25.2
30.0
31.9
10.3
15.6
18.2
10.5
13.3
9.6
10.2
13.6
43.9
8.4
13.4
19.7
12.8
12.7
35.9
22.3
13.3
12.9
11.5
12.8
18.9
6
-13
-40
15
8
NA
10
-47
-45
-48
86
68
80
64
30
16
25
-
-49
-52
-53
-28
-5
10
Relative to Nifty P/E (%)
Current
10 Yr Avg
36
49
29
26
-8
-43
-19
NA
-44
-66
-75
-75
21
256
-27
6
24
-28
-24
-
-46
-69
-71
-60
-41
34
59
69
-46
-17
-4
-44
-30
-49
-46
-28
133
-55
-29
4
-32
-33
90
18
-29
-32
-39
-32
Current
3.0
4.0
2.7
1.4
1.0
1.3
0.6
1.9
0.8
0.8
0.4
2.6
13.4
2.9
5.6
10.0
2.4
2.4
4.4
2.6
2.1
0.7
1.3
1.6
2.5
PB (x)
10 Yr Avg Prem/Disc (%)
3.2
-6
3.8
4.5
5.4
1.3
1.4
1.4
1.8
1.7
1.1
1.3
1.5
10.4
2.1
3.2
6.7
2.8
2.3
2.3
3.5
5.8
1.4
1.7
2.5
2.6
4
-39
-75
-24
-4
-55
9
-51
-32
-65
73
29
40
72
50
-13
1
93
-24
-64
-51
-22
-37
-2
Relative to Nifty P/B (%)
Current
10 Yr Avg
21
26
58
8
-46
-62
-47
-75
-24
-67
-69
-82
1
434
14
121
298
-5
-6
76
5
-18
-73
-47
-37
48
74
111
-51
-46
-45
-31
-35
-56
-50
-43
305
-20
26
159
7
-9
-11
35
123
-46
-34
-2
BULLS & BEARS | August 2020
15
 Motilal Oswal Financial Services
Mid-caps underperform large-caps in Jul’20
The Nifty Mid-cap100 was up 5.2% in Jul’20 (v/s the Nifty’s rise of 7.5%).
Best mid-cap performers in Jul’20: Laurus Labs (+80%), Persistent Sys (+45%), MCX (+32%), M&M Financials (+27%) and Jubilant Life (+21%).
PE (x)
Company
Laurus Labs
Persistent Sys
MCX
M & M Financial
Jubilant Life
Ajanta Pharma
Team Lease Serv.
Emami
Aegis Logistics
Alembic Pharma
Strides Pharma
Federal Bank
Phoenix Mills
Jyothy Lab.
Brigade Enterpr.
Birla Corpn.
Torrent Power
DCB Bank
LIC Housing Fin.
Blue Star
Sun TV Network
Trident
Mahindra CIE
CESC
Engineers India
Current 10 Yr Avg Prem/Disc (%)
13.9
15.6
32.2
16.5
13.3
24.5
28.6
20.3
22.0
18.9
13.5
7.5
43.1
27.2
23.9
9.4
12.7
8.9
5.9
45.7
12.0
12.7
24.4
5.9
8.9
24.3
13.6
31.5
12.4
12.7
17.7
38.5
31.6
26.6
16.6
61.3
12.5
34.0
37.5
17.1
15.5
16.0
15.6
11.4
37.3
19.6
8.7
32.0
10.4
19.0
-43
14
2
33
5
39
-26
-36
-17
13
-78
-40
27
-27
40
-40
-21
-43
-48
23
-39
46
-24
-44
-53
Relative to Nifty P/E (%)
Current
-33
-25
56
-20
-36
18
38
-2
6
-9
-35
-64
108
31
15
-55
-39
-57
-71
121
-42
-39
18
-72
-57
10 Yr Avg
29
-28
67
-34
-33
-6
104
68
41
-12
224
-34
80
98
-10
-18
-15
-17
-40
98
4
-54
69
-45
1
3.7
2.4
5.6
1.0
1.8
4.5
4.4
4.9
3.3
4.4
1.5
0.7
2.4
3.8
1.2
0.9
1.5
0.7
0.7
5.6
2.6
1.0
0.9
0.7
1.8
PB (x)
Current 10 Yr Avg Prem/Disc (%)
2.8
2.3
3.8
1.4
1.6
4.6
6.2
10.4
3.4
4.2
3.2
1.2
2.3
4.6
1.2
1.1
1.4
1.5
1.8
6.5
4.7
0.9
2.5
0.8
3.5
34
5
50
-28
17
-2
-28
-53
-4
5
-53
-45
5
-18
3
-20
9
-54
-64
-14
-44
12
-66
-15
-49
Relative to Nifty P/B (%)
Current
47
-4
123
-59
-27
78
75
96
30
74
-40
-74
-3
51
-53
-66
-40
-74
-74
124
5
-60
-66
-73
-29
10 Yr Avg
7
-11
46
-45
-39
79
140
305
32
62
25
-53
-10
80
-55
-58
-46
-43
-30
154
84
-65
-2
-69
36
Price Chg (%)
MoM
80
45
32
27
21
15
10
9
8
8
7
6
6
5
3
3
2
2
-1
-3
-4
-4
-8
-12
-15
CY20YTD
160
37
45
-34
48
68
-26
-23
-2
72
20
-39
-26
-16
-36
-2
15
-55
-40
-42
-12
-1
-34
-26
-35
BULLS & BEARS | August 2020
16
 Motilal Oswal Financial Services
Sector valuations:
Technology and Healthcare outperform; Private Banks drag
Technology sector is trading at P/E of 21.1x, at 24% premium to its historical average of 17.1x. 1QFY21 revenue decline was largely in line due to the
demand disruption (deal ramp-downs and price discounts) as clients reprioritized IT spends and focused on cost optimization. Most companies
delivered strong beat to consensus margin estimates with tight cost control in the quarter, despite revenue volatility.
Healthcare sector
after 3-5 years of downtrend in valuations
has climbed back above its 10-year average over the past 3 months. Interestingly, 7
out of 16 companies under our coverage are still trading at a considerable discount to their 10-year averages. The recent results of Pharma
companies indicate that sales in the branded formulation segment in India and emerging markets (EMs) have taken a knock (particularly, in Acute
therapies) due to the COVID-19 led slowdown.
Private Banks are trading at P/B of 2.2x, below their historical average of 2.5x (11% discount). Over the past few years, muted corporate lending has
resulted in systemic loan growth being largely driven by the retail segment. However, due to the COVID-19 outbreak, systemic retail growth slowed
to ~10.5% YoY in Jun’20 (2.5% QoQ decline) v/s ~17% pre-COVID, affected by the lockdowns, weak consumer demand and banks’ cautious stance on
lending. Moratorium 2.0 declined across banks with higher decline in the corporate segment compared to the retail/SME segments. Some banks
have indicated higher moratorium availed in commercial real estate and the CV portfolio (v/s other segments).
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
38.1
17.9
12.0
21.7
25.1
24.4
44.2
27.1
13.3
20.6
15.0
15.8
119.6
21.1
Loss
7.1
Relative to Nifty
P/E (%)
10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
84
19
24.0
58.5
-14
4
20.0
-10.4
-42
47
30.3
-60.5
5
6
20.0
8.4
21
56
29.8
-15.6
18
22
23.2
5.4
113
94
36.3
21.6
31
33
25.0
8.5
-36
-25
14.0
-5.5
-1
60
29.6
-30.5
-27
-30
13.3
12.8
-24
-36
11.8
33.7
477
210
60.7
97.0
2
-8
17.1
24.0
-
-
-66
-30
12.6
-43.4
PE (x)
Current
2.6
2.2
1.0
2.6
2.2
2.2
9.0
3.7
0.8
2.2
0.9
1.8
12.1
5.2
8.8
1.0
Relative to Nifty
P/B (%)
10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
3.2
-17.5
4
23
2.5
-10.7
-12
-4
1.6
-37.8
-61
-39
3.0
-14.9
2
18
3.2
-31.8
-14
22
2.6
-14.6
-12
1
10.0
-9.8
258
291
4.0
-9.4
45
58
1.9
-57.1
-68
-28
5.9
-62.8
-13
129
1.2
-25.7
-65
-55
1.5
21.1
-29
-42
8.1
50.1
380
211
4.3
19.2
105
69
2.6
242.7
250
1
1.9
-48.5
-61
-24
PB (x)
BULLS & BEARS | August 2020
17
 Motilal Oswal Financial Services
Autos: 2W/PV
demand recovery sustains; Tractors grow on low base
Auto sector is trading at P/E of 38.1x (58% premium
to its LPA) on weak FY21E earnings due to the
impact of COVID-19.
In Jul’20, tractor volumes grew 23.6% YoY due to
strong rural demand and low base. 2Ws/PVs
declined just 11.7%/7% due to increasing preference
for personal vehicles. Retails were much stronger
than wholesales, impacted by supply side issues.
Valuations on P/E basis appear at a premium to 10-
year LPA due to the expected earnings washout in
1HFY21. On P/B basis, valuations are near -1SD
below mean.
Demand recovery has sustained in Jul’20, but supply
chain normalization is a key monitorable. We expect
stability only from Sep’21 for 2Ws/PVs, while CV
demand recovery should be even more back-ended.
Sector Performance
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
20.6
na
17.3
55.0
36.5
12.9
35.5
17.3
15.7
17.8
16.8
24.4
34.4
36.1
na
30.5
99
75
51
27
3
Auto P/E (x)
10 Yr Avg (x)
270
190
Auto Relative to Nifty PE (%)
24.0
110
38.1
30
-50
19.3
83.7
5
4
3
2
1
Auto P/B (x)
10 Yr Avg (x)
90
60
2.6
Auto Relative to Nifty PB (%)
3.2
30
0
-30
22.7
3.9
MoM: 8%
PE (x)
10 Yr Avg
20.1
20.5
16.6
33.0
35.4
12.4
26.7
9.8
22.5
17.7
18.9
32.0
23.4
30.6
12.9
24.5
Prem/Disc (%)
2
na
4
67
3
4
33
77
-30
1
-11
-24
47
18
na
25
Relative to Nifty P/E (%)
Current
10 Yr Avg
-1
7
na
8
-16
-12
165
75
76
87
-38
-34
71
41
-16
-48
-24
19
-14
-6
-19
0
18
69
66
24
74
62
na
-32
47
30
Current
2.9
2.0
3.8
3.2
3.7
1.1
4.9
2.3
1.9
3.6
1.9
0.9
3.7
2.5
0.7
4.5
PB (x)
10 Yr Avg
3.9
2.9
5.0
4.3
5.5
1.3
6.5
1.2
3.1
6.1
2.8
2.5
3.4
5.0
1.8
4.8
Prem/Disc (%)
-26
-32
-24
-25
-32
-15
-25
96
-39
-42
-33
-66
8
-50
-59
-7
Relative to Nifty P/B (%)
Current
10 Yr Avg
15
52
-22
12
52
96
27
67
114
49
-56
-49
95
154
-8
-54
-25
21
42
138
-24
10
-66
-2
48
34
0
94
-71
-31
78
88
BULLS & BEARS | August 2020
18
 Motilal Oswal Financial Services
Private Banks:
Moratorium book plunges; Business environment remains weak
Private Banks are trading at a P/B of 2.2x, below
their historical average of 2.5x (11% discount).
Over the past few years, muted corporate lending
has resulted in systemic loan growth being largely
driven by the retail segment. However, due to the
COVID-19 outbreak, systemic retail growth has
slowed to ~10.5% YoY in Jun’20 (2.5% QoQ decline)
v/s ~17% pre-COVID, affected by the lockdown,
weak consumer demand and banks’ cautious
stance on lending. However, demand for Gold
loans, 2Ws and tractors has picked up while that
for other retail segments remain tepid. We, thus,
expect loan growth of Private Banks to moderate
sharply in FY21E.
Moratorium 2.0 declined across banks with higher
decline in the corporate segment (v/s retail/SME
segments). Some banks have indicated higher
moratorium availed in the commercial real estate
and CV portfolio (v/s other segments).
Overall, we expect increase in delinquencies in
short duration loans, unsecured retail and MFI
loans, and thus, credit costs should remain
elevated.
PE (x)
10 Yr Avg
37.4
15.6
12.5
20.7
21.2
19.3
25.0
33
26
19
12
5
Private Banks P/E (x)
10 Yr Avg (x)
40
20
Private Banks Relative to Nifty PE (%)
4.3
20.0
17.9
0
-20
-40
-13.6
Private Banks P/B (x)
4
3
2
1
2.5
10 Yr Avg (x)
30
10
Private Banks Relative to Nifty PB (%)
-4.1
-12.1
2.2
-10
-30
-50
Sector Performance
Relative to Nifty P/E (%)
Current
10 Yr Avg
-24
98
-57
-17
-64
-34
-15
9
-11
12
-64
2
47
32
MoM: -1%
PB (x)
10 Yr Avg
2.0
1.5
1.2
3.4
1.8
2.8
3.1
Relative to Nifty P/B (%)
Current
10 Yr Avg
-48
-23
-74
-43
-74
-53
9
33
-31
-32
-64
8
38
19
Company
Axis Bank
DCB Bank
Federal Bank
HDFC Bank
ICICI Bank
IndusInd Bank
Kotak Mah. Bank
Current
15.7
8.9
7.5
17.7
18.4
7.5
30.6
Prem/Disc (%)
-58
-43
-40
-14
-13
-61
22
Current
1.3
0.7
0.7
2.8
1.7
0.9
3.5
Prem/Disc (%)
-35
-54
-45
-20
-1
-67
13
BULLS & BEARS | August 2020
19
 Motilal Oswal Financial Services
PSU Banks:
Treasury gains to rev operating profits; Merger related challenges in near term
PSU Banks trade at a P/B of 1.0x, below their historical
average of 1.6x (38% discount).
PSBs are in midst of mergers, and thus, should face
challenges in the near term related to integration, cultural
issues and balance sheet cleansing of weak PSBs.
The COVID-19 outbreak has further resulted in subdued
loan growth in the sector due to Private Banks taking a
cautious approach to lending. Thus, we expect PSBs to
reflect some market share gains in the near term.
On the other hand, PSBs have relatively higher share of
exposure in the SME segment, and thus, asset quality
should remain under pressure in the near term. We
expect credit cost trends to remain elevated.
Most PSBs are sitting on a huge investment book, and
therefore, we expect treasury gains to drive operating
profits. However, we believe that treasury gains will be
prudently utilized toward building COVID provisions.
We do not believe PSBs to be value calls, apart from SBI,
which has a strong balance sheet and has gained market
share across segments.
Company
Bank of Baroda
St Bk of India
Current
7.6
7.2
PE (x)
10 Yr Avg
9.2
14.5
Prem/Disc (%)
-17
-50
Relative to Nifty P/E (%)
Current
10 Yr Avg
-63
-51
-65
-23
Current
0.3
0.6
PB (x)
10 Yr Avg
0.9
1.2
Prem/Disc (%)
-68
-44
Relative to Nifty P/B (%)
Current
10 Yr Avg
-88
-64
-74
-55
4
3
2
1
0
1.6
1.0
PSU Banks P/B (x)
10 Yr Avg (x)
-20
-40
-60
-80
-61.5
PSU Banks Relative to Nifty PB (%)
-39.5
Sector Performance
MoM: 3%
BULLS & BEARS | August 2020
20
 Motilal Oswal Financial Services
NBFCs:
Provisioning rising, to impact near-term profitability
NBFCs trade at a P/B of 2.6x, below their historical
average of 3.0x (15% discount).
Elevated provisioning led by COVID-19 provisions has
been witnessed across NBFCs in 1QFY21.
NBFCs have taken COVID-19 provisions equivalent to 0.6-
1.0% of loans in 1QFY21.
As moratorium 2.0 extends until Aug’20, rise in NPA is
likely to rise in 3Q-4QFY21 only.
Collection efficiency should begin in Sep’20 and would
help determine bad loan ratios.
Capital raise should dilute near-term RoE, but may also
improve funding access and costs for lenders like MMFS
and SHTF.
New margin norms for traders is likely to impact trading
volumes for brokers. However, the quantum of the
impact is uncertain.
NBFC P/E (x)
33
26
19
12
5
20.0
21.7
10 Yr Avg (x)
40
20
0
-20
-40
NBFC Relative to Nifty PE (%)
6.1
4.7
5
4
3
2
NBFC P/B (x)
10 Yr Avg (x)
45
30
NBFC Relative to Nifty PB (%)
3.0
2.6
15
0
-15
17.5
2.2
Sector Performance
MoM: 3%
PE (x)
10 Yr Avg
20.0
15.2
34.5
15.7
11.4
12.4
8.0
17.7
14.0
12.5
Relative to Nifty P/E (%)
Current
10 Yr Avg
75
6
-27
-20
51
83
-55
-17
-71
-40
-20
-34
-35
-57
-80
-6
-72
-26
-60
-34
PB (x)
10 Yr Avg
3.4
2.3
4.4
1.8
1.8
1.4
1.7
2.1
1.9
1.9
Relative to Nifty P/B (%)
Current
10 Yr Avg
101
31
-29
-11
18
69
-70
-29
-74
-30
-59
-45
31
-35
-84
-18
-79
-25
-68
-28
Company
Bajaj Finance
Chola. Invst. & Fin.
HDFC
L&T Fin.Holdings
LIC Housing Fin.
M & M Financial
Muthoot Finance
PNB Housing
Shri.City Union.
Shriram Trans.
Current
36.3
15.2
31.4
9.3
5.9
16.5
13.6
4.2
5.9
8.3
Prem/Disc (%)
82
0
-9
-41
-48
33
68
-76
-58
-33
Current
5.1
1.8
3.0
0.8
0.7
1.0
3.3
0.4
0.5
0.8
Prem/Disc (%)
50
-22
-32
-58
-64
-28
98
-81
-72
-57
BULLS & BEARS | August 2020
21
 Motilal Oswal Financial Services
Capital Goods:
Working capital to be under stress in FY21
Capital Goods sector trades at 1-year forward P/E multiple
of 25.1x, at 16% discount to its 10-year average of 29.8x.
Even on P/B basis, the sector trades at 32% 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 14% discount (v/s its 10-year
average premium of 22%). On a P/E multiple basis, the
premium has narrowed to 21% from its 10-year average
premium of 56%.
Company valuations have been impacted by (a) total
shutdown of businesses due to the COVID -19 issue, (b)
overall slowdown in business activity with 1HFY21 being a
lean season, and (c) pressure on the operational
performance due to the prevailing competitive intensity
and cost headwinds (rise in input cost).
67
47
27
7
Capital Goods P/E (x)
10 Yr Avg (x)
190
140
Capital Goods Relative to Nifty PE (%)
29.8
25.1
90
40
-10
55.6
21.1
7
5
3
1
Capital Goods P/B (x)
10 Yr Avg (x)
170
115
60
Capital Goods Relative to Nifty PB (%)
3.2
2.2
5
-50
22.4
-14.1
Sector Performance
MoM: -1%
PE (x)
10 Yr Avg
78.1
25.0
37.3
27.9
19.0
34.3
15.6
22.8
52.1
35.3
26.7
Relative to Nifty P/E (%)
Current
10 Yr Avg
262
314
33
33
121
98
10
48
-57
1
173
82
-39
-17
-25
21
137
176
41
87
110
42
PB (x)
10 Yr Avg
6.3
1.6
6.5
5.6
3.5
6.1
2.1
2.9
6.0
3.9
3.4
Relative to Nifty P/B (%)
Current
10 Yr Avg
98
146
-83
-37
124
154
0
118
-29
36
200
135
-18
-18
-31
11
67
132
2
53
68
32
Company
ABB
BHEL
Blue Star
Cummins India
Engineers India
Havells India
K E C Intl.
Larsen & Toubro
Siemens
Thermax
Voltas
Current
75.1
27.5
45.7
22.7
8.9
56.6
12.6
15.6
49.1
29.3
43.5
Prem/Disc (%)
-4
10
23
-18
-53
65
-19
-32
-6
-17
63
Current
5.0
0.4
5.6
2.5
1.8
7.5
2.1
1.7
4.2
2.6
4.2
Prem/Disc (%)
-21
-74
-14
-55
-49
25
-3
-39
-29
-35
24
BULLS & BEARS | August 2020
22
 Motilal Oswal Financial Services
Cement:
Seasonal weakness to soften prices
Cement sector trades at 1-year forward EV/EBITDA of
15.2x, near historical average of 15.0x.
While cement prices remained strong in FY21, prices
declined 2-3% MoM in Jul’20 due to seasonal
weakness.
Demand has normalized and remained firm during
Jul’20. A large part of the recovery was led by rural
growth compensating for the weakness in urban
areas. Activity in urban areas should remain weak in
the near term due to the onset of monsoons and
lower availability of laborers.
Normalizing demand and cost control should help the
company overcome the impact of COVID-19.
Sector Performance
MoM: 6%
43
33
23
13
3
23.2
24.4
Cement P/E (x)
10 Yr Avg (x)
145
90
35
-20
-75
Cement Relative to Nifty PE (%)
21.9
17.8
4
3
2
1
Cement P/B (x)
10 Yr Avg (x)
30
10
Cement Relative to Nifty PB (%)
2.6
2.2
-10
-30
-50
1.1
-12.3
PE (x)
Company
ACC
Ambuja Cem.
Birla Corpn.
Grasim Inds
India Cem.
Shree Cem.
UltraTech
10 Yr Prem/Dis
Current
Avg
c (%)
21.3
26.5
-19
28.9
9.4
12.1
na
45.6
26.5
30.1
15.5
11.9
29.3
33.0
28.3
-4
-40
2
na
38
-6
Relative to
Nifty P/E (%)
10 Yr
Current
Avg
3
40
39
-55
-41
na
120
28
60
-18
-37
55
75
50
PB (x)
10 Yr Prem/Disc
Current
Avg
(%)
2.1
2.9
-26
1.8
0.9
1.1
0.6
5.3
2.6
2.6
1.1
1.7
0.7
4.6
2.8
-29
-20
-37
-8
15
-8
Relative to
Nifty P/B (%)
10 Yr
Current
Avg
-17
11
-27
-66
-57
-75
109
2
0
-58
-33
-74
78
8
EV/EBIDTA (x)
Current
8.9
14.5
5.9
28.5
9.5
21.1
12.5
10 Yr
Avg
12.5
16.3
7.8
24.2
8.3
16.8
14.3
Prem/Di
sc (%)
-28
-11
-25
18
14
26
-13
Cement EV/EBDITA (x)
22
17
12
7
2
10 Yr Avg (x)
15.0
15.2
BULLS & BEARS | August 2020
23
 Motilal Oswal Financial Services
Consumer:
Valuations off highs but still superior than long-term average
Consumer sector P/E of 44.2x in Jul’20 is at a premium of
~22% to its 10-year average of 36.3x. On a P/B basis, the
sector trades at 9.0x, a discount of 9.8% to its 10-year
average multiple of 10x.
The COVID-19 outbreak and lockdowns continue to affect
consumer needs and sentiment leading to down-trading.
From a demand standpoint, staples and essential products
outperformed consumer discretionary items.
There has been significant recovery in supply chains since
Unlock 1.0. Manufacturing facilities of most consumer
companies are now operating at pre-COVID levels.
Rural demand is outperforming urban demand and
should continue doing so due to (a) positive monsoon
outlook, (b) increasing rural incomes (c) low COVID
impact, and (d) lesser disruptions due to the lockdown.
However, rise in COVID cases in some rural pockets and
subsequent lockdowns are a concern.
55
45
35
25
15
36.3
Consumer P/E (x)
10 Yr Avg (x)
190
44.2
140
90
40
-10
94.2
Consumer Relative to Nifty PE (%)
113.0
15
13
10
8
5
Consumer P/B (x)
10 Yr Avg (x)
480
380
280
Consumer Relative to Nifty PB (%)
291.2
258.0
10.0
9.0
180
80
Sector Performance
Company
Asian Paints
Britannia Inds.
Colgate-Palm.
Dabur India
Emami
Godrej Consumer
Hind. Unilever
ITC
Jyothy Lab.
Marico
Nestle India
P & G Hygiene
Page Industries
Pidilite Inds.
United Breweries
United Spirits
Current
62.7
47.4
43.1
53.8
20.3
44.8
58.8
17.2
27.2
41.5
71.0
60.8
69.1
79.0
124.4
72.5
MoM: 2%
PE (x)
10 Yr Avg
42.7
34.3
37.6
36.0
31.6
37.0
41.4
26.2
37.5
35.5
47.5
50.4
49.8
40.0
83.5
99.2
Prem/Disc (%)
47
38
15
50
-36
21
42
-34
-27
17
50
21
39
98
49
-27
Relative to Nifty P/E (%)
Current
10 Yr Avg
202
126
128
82
108
99
160
90
-2
68
116
96
184
120
-17
39
31
98
100
88
242
151
193
167
233
164
281
112
500
343
250
426
Current
13.5
21.7
28.1
12.5
4.9
9.6
10.5
3.5
3.8
11.8
64.4
26.6
23.7
14.0
6.8
9.5
PB (x)
10 Yr Avg
11.6
12.8
24.4
10.3
10.4
7.6
30.0
6.9
4.6
11.0
28.6
20.2
21.7
9.4
9.6
12.4
Prem/Disc (%)
16
70
15
21
-53
26
-65
-50
-18
7
125
32
9
49
-29
-24
Relative to Nifty P/B (%)
Current
10 Yr Avg
434
350
760
396
1014
849
396
299
305
96
281
196
318
1065
38
167
51
80
369
328
2457
1011
955
683
841
741
454
264
169
272
276
383
BULLS & BEARS | August 2020
24
 Motilal Oswal Financial Services
Healthcare:
Re-rating momentum gets more levers
After 3-5 years of downtrend in P/E, Healthcare is back to its 10-
year average over the past 3 months. Interestingly, 7 out of 16
companies under our coverage are still trading at considerable
discount to their 10-year average.
Considering the recent results of Pharma companies, sales in the
branded formulation segment in India and EMs have taken a
knock (particularly in Acute therapies) due to the COVID led
slowdown. At the same time, opex has reduced at a higher rate
than sales decline, driving better margins in those segments.
Export oriented companies witnessed increased demand for their
products (API/formulation) across developed as well as ROW
markets. Favorable currency boosted margins further.
The ANDA approvals have been better than previous quarters,
implying smooth functioning of the USFDA.
Overall, we expect continued re-rating for companies with
increased US generics sales ((like Cipla and Aurobindo), tilt toward
chronic portfolio in DF (like Torrent), controlled opex,
differentiated business model (like Divis) and lower financial
leverage.
36
30
24
18
12
Healthcare P/E (x)
10 Yr Avg (x)
27.1
90
60
30
0
-30
Healthcare Relative to Nifty PE (%)
25.0
33.4
30.6
Healthcare P/B (x)
7
5
4
2
4.0
10 Yr Avg (x)
140
100
60
Healthcare Relative to Nifty PB (%)
57.9
45.0
3.7
20
-20
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
16.2
24.5
42.1
20.8
28.2
39.9
26.7
49.1
16.7
15.4
27.2
13.3
13.9
27.5
26.0
13.5
32.9
MoM: 12%
PE (x)
10 Yr Avg
14.2
17.7
28.7
21.9
28.1
23.6
25.2
51.9
23.4
11.0
25.8
12.7
24.3
30.2
30.0
61.3
21.9
Prem/Disc (%)
14
39
47
-5
0
69
6
-5
-29
40
5
5
-43
-9
-13
-78
50
Relative to Nifty P/E (%)
Current
10 Yr Avg
-22
-25
18
-6
103
52
0
16
36
49
93
25
29
34
137
175
-20
24
-26
-42
31
37
-33
-36
-33
29
33
60
26
59
-35
224
58
16
Current
2.5
4.5
6.3
3.0
3.0
7.2
4.0
12.3
1.8
3.1
5.2
1.8
3.7
3.0
2.7
1.5
7.2
PB (x)
10 Yr Avg
2.8
4.6
3.4
4.7
3.2
4.9
3.8
11.2
3.9
1.8
3.3
1.6
2.8
4.4
4.5
3.2
4.8
Prem/Disc (%)
-13
-2
86
-36
-6
46
4
10
-53
74
57
17
34
-32
-39
-53
50
Relative to Nifty P/B (%)
Current
10 Yr Avg
-2
10
78
79
151
32
21
83
21
26
186
91
58
48
388
336
-27
53
21
-32
105
28
-27
-39
47
7
20
73
8
74
-40
25
186
87
BULLS & BEARS | August 2020
25
 Motilal Oswal Financial Services
Infrastructure:
Projects and Toll collection resumes, albeit with lower intensity
Infrastructure sector trades at a P/B of 0.8x, at 57%
discount to its historical average.
Post the muted ordering activity in FY19 and FY20,
business momentum has further weakened with
suspension in toll collection for ~30 days due to the
COVID-19 issue. This has come at a time when the
NHAI ordering activity usually picks up. Post
resumption of toll collection activity, vehicular traffic
is gradually inching toward its pre-COVID level.
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 their operational performance.
PE (x)
Company
Ashoka Buildcon
IRB Infra.Devl.
KNR Construct.
Current
5.7
16.9
14.3
10 Yr Avg
13.0
10.4
9.7
Prem/Disc (%)
-
62
47
32
24
16
8
0
Infrastructure P/E (x)
14.0
13.3
10 Yr Avg (x)
60
20
-20
-60
-100
-24.6
-36.0
Infrastructure Relative to Nifty PE (%)
Infrastructure P/B (x)
4
2
1
0
1.9
10 Yr Avg (x)
0
-25
-50
Infrastructure Relative to Nifty PB (%)
-27.9
0.8
-75
-100
-68.2
Relative to Nifty P/E (%)
Current
-
-18
-31
10 Yr Avg
-31
-45
-49
Current
0.5
0.6
1.6
PB (x)
10 Yr Avg
1.5
1.4
1.5
Prem/Disc (%)
-68
-56
6
Relative to Nifty P/B (%)
Current
-80
-76
-37
10 Yr Avg
-40
-46
-42
BULLS & BEARS | August 2020
26
 Motilal Oswal Financial Services
Media:
Advertisement activity picks up
Media sector P/E of 20.6x is at ~30% discount to its
10-year historical average of 29.8x.
Gradual lifting of the lockdown has led to improving
advertisement for players; however, rates remain
lower.
Many production houses have resumed shootings
of daily soaps and films and the new content has
begun airing on TV channels, which has attracted
advertisers.
Cinema halls would open in the third phase of the
‘Unlock’ and the dates are yet to be decided.
OTT is likely to keep up its strong momentum with
MNC giants grabbing a large chunk of the pie.
Media P/E (x)
40
28
16
4
29.6
20.6
10 Yr Avg (x)
90
40
-10
-60
59.6
-0.7
Media Relative to Nifty PE (%)
Media P/B (x)
7
6
4
2
1
5.9
10 Yr Avg (x)
260
200
140
80
20
-40
Media Relative to Nifty PB (%)
129.4
2.2
-13.3
PE (x)
Company
PVR
Sun TV Network
Zee Entertainmen
Current
na
12.0
19.0
10 Yr Avg
37.7
19.6
31.9
Prem/Disc (%)
na
-39
-40
Relative to Nifty P/E (%)
Current
na
-42
-8
10 Yr Avg
100
4
69
Current
4.9
2.6
1.4
PB (x)
10 Yr Avg
3.9
4.7
5.4
Prem/Disc (%)
24
-44
-75
Relative to Nifty P/B (%)
Current
93
5
-46
10 Yr Avg
52
84
111
BULLS & BEARS | August 2020
27
 Motilal Oswal Financial Services
Metals:
Improving demand leads to higher prices
Metals sector trades at an EV/EBITDA of 7.6x (near 10-
year historical average).
Capacity utilizations have normalized during the month,
supported by rising domestic demand and buoyant
export orders.
Domestic HRC steel prices improved by ~INR1,200/t in
Jul’20 to INR37,000/t. Lower iron ore and coking coal is
likely to help spread expansion, led by improving steel
prices. India HRC FoB export prices rose ~USD30/t MoM
to USD475/t in line with regional prices, which bodes
well for regional players.
LME Aluminum prices increased 5% MoM to USD1,655/t
whereas LME zinc prices increased 6% MoM to
USD2,214/t.
Expect steel mills to hike prices in Aug’20 due to
improving domestic demand and rising import prices.
Expect domestic demand to normalize from 3QFY21.
35
28
21
14
7
0
13.3
15.0
Metals P/E (x)
10 Yr Avg (x)
35
Metals Relative to Nifty PE (%)
-15
-29.8
-27.5
-65
3
2
2
1
1
0
Metals P/B (x)
10 Yr Avg (x)
20
-5
Metals Relative to Nifty PB (%)
1.2
0.9
-30
-55
-80
-54.8
-65.5
Sector Performance
PE (x)
Company
Hind.Zinc
Hindalco
Jindal Steel
JSW Steel
Nalco
NMDC
SAIL
Tata Steel
Vedanta
Current
12.8
11.8
NA
16.8
24.2
8.1
NA
NA
12.0
10 Yr
Avg
10.6
10.3
16.5
15.6
15.7
10.0
15.4
18.2
12.2
Prem/
Disc (%)
21
15
8
54
-19
NA
-2
MoM: 9%
Relative to
Nifty P/E (%)
10 Yr
Current
Avg
-38
-44
-43
-46
-13
-19
-17
17
-17
-61
-47
-18
NA
-4
-42
-35
PB (x)
Current
2.2
1.0
0.6
1.3
0.7
0.9
0.3
0.6
0.8
10 Yr
Avg
2.2
1.3
1.1
1.4
1.1
2.0
0.8
1.4
1.9
Prem/
Disc (%)
0
-24
-51
-4
-40
-56
-55
-55
-57
Relative to
Nifty P/B (%)
10 Yr
Current
Avg
-11
-13
-62
-51
-78
-56
-47
-46
-74
-57
-65
-24
-86
-70
-75
-45
-67
-26
EV/EBIDTA (x)
Current
6.9
6.4
5.3
8.8
5.8
5.7
14.4
8.9
5
10 Yr
Avg
6.3
7.3
10.1
8.2
7.7
6.5
16.0
8.1
5
Prem/
Disc (%)
10
-13
-48
8
-25
-12
-10
11
10
10
8
5
3
Metals EV/EBDITA (x)
7.5
7.6
10 Yr Avg (x)
BULLS & BEARS | August 2020
28
 Motilal Oswal Financial Services
Oil & Gas:
Crude prices stabilize over ~USD40/bbl as economic activities ramp up
Oil & Gas sector trades at a P/B of 1.8x (~21% premium
to its historical average of 1.5x) and P/E of 15.8x (~34%
premium to its historical average of 11.8x).
Brent prices in Jul’20 increased to an average of
~USD43.2/bbl (v/s USD40.2 in Jun’20), as various
economies around the globe ramped up activities post
lifting of the lockdowns.
On similar lines, refining margins improved marginally to
–USD0.2/bbl (from –USD0.5/bbl in Jun’20), primarily due
to improvement in Gasoil and Naphtha cracks. Gasoline
cracks remained flat MoM as demand from summer
driving season in the West remained weak. Nevertheless,
ATF demand remains the biggest laggard.
OMCs made an average gross marketing margins of
~INR3.6-4.6/liter (in line with its long-term average), with
regular price hikes taken during the first half of the
month.
As per the guidance of CGDs, revival is expected in CNG
volumes toward end-FY21 only, while industrial volumes
should lead the recovery.
22
18
14
10
6
11.8
Oil & Gas P/E (x)
10 Yr Avg (x)
-8
15.8
-23
-38
-53
-68
-35.8
Oil & Gas Relative to Nifty PE (%)
-23.8
3
2
2
1
1
Oil & Gas P/B (x)
10 Yr Avg (x)
1.8
0
-25
-50
-75
Oil & Gas Relative to Nifty PB (%)
-29.0
1.5
-42.5
Sector Performance
Company
Aegis Logistics
BPCL
GAIL (India)
Guj.St.Petronet
HPCL
IOCL
Indraprastha Gas
MRPL
ONGC
Petronet LNG
Reliance Inds.
Current
22.0
11.5
7.0
11.5
4.3
5.2
31.2
8.5
5.2
12.5
25.2
MoM: 4%
PE (x)
10 Yr Avg
26.6
10.5
13.3
11.8
17.4
9.6
17.8
11.8
10.2
12.9
13.6
Prem/Disc (%)
-17
10
-47
-2
-75
-45
76
-28
-48
-3
86
Relative to Nifty P/E (%)
Current
10 Yr Avg
6
41
-44
-44
-66
-30
-44
-38
-79
-8
-75
-49
51
-6
-59
-38
-75
-46
-40
-32
21
-28
Current
3.3
1.9
0.8
1.5
1.0
0.8
4.7
0.8
0.4
3.1
2.6
PB (x)
10 Yr Avg
3.4
1.8
1.7
1.7
1.2
1.1
3.5
1.5
1.3
2.7
1.5
Prem/Disc (%)
-4
9
-51
-12
-22
-32
36
-50
-65
13
73
Relative to Nifty P/B (%)
Current
10 Yr Avg
30
32
-24
-31
-67
-35
-42
-35
-62
-52
-69
-56
88
35
-70
-41
-82
-50
22
5
1
-43
BULLS & BEARS | August 2020
29
 Motilal Oswal Financial Services
Retail:
Stores reopen, but lockdown fears still persist
Retail sector trades at a P/E of 119.6x, at ~97%
premium to its 10-year historical average.
Gradual lifting of the lockdown has led to opening up of
malls and stores in Jun’20 in some areas. However, some
states have seen more stringent lockdowns in Jul’20.
This has led to closure of many apparel and grocery stores
along with reduced working hours and drop in footfalls.
Regional value retailers are expected to perform better as
those areas are less impacted by the pandemic.
Most retailers have availed rental waivers during the
lockdown along with restructuring of rental agreement
until Mar’21.
18
14
10
6
2
8.1
12.1
254
204
154
104
54
4
60.7
119.6
Retail P/E (x)
10 Yr Avg (x)
1150
850
550
250
-50
209.9
477.0
Retail Relative to Nifty PE (%)
Retail P/B (x)
10 Yr Avg (x)
600
450
300
150
0
Retail Relative to Nifty PB (%)
210.6
379.8
Company
Aditya Birla Fashion
Avenue Supermarts
Jubilant
Shoppers Stop
Titan
Trent
V-Mart Retail
Current
na
90.6
87.8
na
73.8
176.8
na
PE (x)
10 Yr Avg
203.9
85.3
68.0
49.6
43.9
100.4
31.7
Prem/Disc (%)
na
6
29
na
68
76
na
Relative to Nifty P/E (%)
Current
10 Yr Avg
na
980
337
352
323
260
na
163
256
133
753
432
na
68
Current
18.7
9.9
19.4
0.0
13.4
7.4
7.8
PB (x)
10 Yr Avg
13.6
11.0
13.2
5.6
10.4
4.2
5.5
Prem/Disc (%)
38
-10
46
-100
29
76
42
Relative to Nifty P/B (%)
Current
10 Yr Avg
644
429
294
328
669
414
-100
117
434
305
193
63
210
113