India Strategy

Gautam Duggad

Gautam.Duggad@motilaloswal.com

Jayant Parasramka

Jayant.Parasramka@motilaloswal.com

The Eagle Eye

June 2021

June 2020

INDIA OUTPERFORMS EM IN

MAY’21



PSU Banks and PSU – biggest gainers in May’21



IOC, SBI, BPCL among Top 5 Nifty gainers MoM

COVID-19: ECONOMIC

IMPACT



Economic impact of second wave lower v/s first

wave



High-frequency indicators (exports, e-way bill

generation, railway freight) indicate lower

impact v/s first wave

MARKETS AND EARNINGS



Wide divergence in FY22 earnings revision



More earnings downgrades v/s upgrades in

4QFY21 earnings season



India’s market capitalization exceeds USD3t

COVID-19: SECOND WAVE

RECEDES

CONTENTS



Active cases decline 48% MoM



Positivity rate in India declines to below 5%



Vaccination pace picks up in May’21

ECONOMY



GDP contracts 7.3% in FY21



Industry sector – highest contributor to real GVA

VALUATIONS/FLOWS



Market capitalization-to-GDP ratio at 10-year-

highs



FII and DII inflows continue in May’21



Outstanding SIP accounts increase by 2.8x in

in 4QFY21 GDP growth

last 4 years

CHART BOOK | June 2021

2

June 2020

India outperforms in May’21 as 2

nd

COVID wave peaks

World equity indices (MoM) – in USD (%)

10

9

5

5

4

3

2

2

1

1

0

-2

-2

World equity indices (CY21YTD) – in USD (%)

18

16

13

12

12

12

10

8

7

7

5

1

-1

As of 31 May’21

CHART BOOK | June 2021

3

June 2020

Smallcap, PSU Banks outperform; Metals up 59% in CY21YTD

Sectoral performance MoM (%)

18

14

11

7

7

8

10

9

9

7

6

6

6

5

4

Sectoral performance in CY21YTD (%)

59

31

38

26

19

18

14

12

24

11

9

8

7

7

3

CHART BOOK | June 2021

4

June 2020

Nifty: 90% of Nifty 50 constituents post gains in May’21



90% of Nifty 50 companies posted gains in May’21. PSUs: IOC, SBI, and BPCL lead outperformance



In CY21YTD, Cyclicals continue to outperform, with JSW and Tata Steel being the Top 2 gainers.

Best and worst Nifty performers (MoM) in May’21 (%) – UPL and IOC lead gainers in May’21

34

20

20

17

12

11

11

10

10

9

7

3

3

2

0

0

0

-1

-1

-1

-1

Best and worst Nifty performers (YoY) in CY21YTD (%) – Cyclicals lead outperformance; Consumer Discretionary remains laggard

84

75

75

73

64

59

59

54

40

33

11

2

0

0

-2

-2

-3

-4

-4

-7

-9

CHART BOOK | June 2021

5

June 2020

May’21 rally broad-based; ~84% of BSE-200 constituents gain



184 of the BSE-200 constituents gained in May’21, with 32 stocks posting gains of over 15% MoM. PSU companies posted the

highest gains in May’21. BHEL rallied 47% MoM.



In CY21, 26 companies gained more than 50%, with the Top 3 gainers belonging to the Adani Group.

Biggest gainers in BSE-200 on MoM basis (%)*

47

40

30

27

25

24

24

24

22

21

21

19

19

18

17

17

17

17

17

17

16

16

16

16

15

15

15

15

15

14

7

Biggest gainers in BSE-200 in CY21YTD (%)*

259

237

174

101

98

86

74

71

71

70

63

61

59

59

58

57

57

53

45

44

43

42

42

41

41

40

40

39

38

38

14

*List excludes Nifty companies

CHART BOOK | June 2021

6

June 2020

Only 16% of BSE-200 constituents decline in May’21



16% of BSE-200 companies posted declines in May’21. Info Edge and Amara Raja were the major laggards.



In CY21YTD, 18% of companies have posted declines. Bandhan Bank, Amara Raja, Vodafone Idea, Whirlpool, and Biocon have

declined >15% YTD.

Biggest laggards among BSE-200 constituents on MoM basis (%)*

7

1

0

0

0

0

0

-1

-1

-1

-1

-1

-2

-2

-2

-2

-2

-2

-3

-3

-3

-4

-4

-4

-4

-4

-6

-7

-8

-9

-12

Biggest laggards among BSE-200 constituents in CY21YTD (%)

14

1

1

0

-2

-2

-2

-2

-2

-2

-2

-3

-3

-3

-4

-4

-5

-6

-6

-7

-7

-7

-7

-8

-9

-9

-17 -18 -19 -20

-24

*List excludes Nifty companies

CHART BOOK | June 2021

7

June 2020

Average daily cash volumes up 16% MoM – highest since Feb’21



Average daily cash volumes increased to INR840b in May’21, while participation from Non-Institutional rose to 67% of total

volumes.



Monthly institutional cash trading volumes are up 16% MoM to INR5.6t. However, they are still 14% below Nov’20 levels.

Monthly Avg. Cash Volume (INR b)

Non Institution % to Cash Volume (RHS)

78

67

66

54

42

30

Institutional Cash Volumes (INR b )

Institutional Cash volumes as % of India Mcap

7.5

6.0

4.5

2.7

3.0

1.5

0.0

CHART BOOK | June 2021

8

June 2020

Outstanding SIP accounts up 2.8x in last four years



SIP saw a sharp pickup in Mar’21 and Apr’21 reaching pre-COVID levels.



The total outstanding SIP accounts have increased ~2.8x in the last four years to 38m.

Total No. of outstanding SIP accounts (Million)

SIP contribution (INRb)

Equity Net Inflows (INRb)

CHART BOOK | June 2021

9

June 2020

Nifty at 15K: Seven companies up >20% since Feb’21 peak



Steel companies – JSW Steel and Tata Steel have been the highest gainers in the Nifty since the Feb’21 peak.



Auto, on the other hand, has been a laggard as Hero Moto and M&M have declined 13% and 11%, respectively.

76

67

52

35

23

23

Top 10 Gainers since Feb'21 peak (%)

21

20

16

16

JSW Steel

Tata Steel

UPL

Hindalco

Industries

Wipro

Adani Ports

And SEZ

Asian Paints

Grasim

Industries

NTPC

IOC

-4

-5

-5

-6

-7

-9

-10

Top 10 Laggards since Feb'21 peak (%)

Tata Motors

Larsen &

Toubro

Axis Bank

HDFC Bank

Maruti Suzuki

-11

HDFC

-11

Kotak Bank

Bharti Airtel

M&M

-13

Hero Motocorp

Source: Bloomberg, MOFSL. As on 31 May’21. Nifty 50 companies and segregated into 3 buckets based on 12M fwd P/E.

CHART BOOK | June 2021

10

June 2020

Market cap crosses USD3t; 8

th

largest in the world



India’s market cap reached the USD3t mark on 24th May’21, a momentous milestone in an exhilarating journey.



India market cap is now the eight largest in the world at USD3t

Number of calendar days to achieve USD500b market cap for BSE

159

1255

3545

151

623

642

250

Dec'2003

504

Sep'2005

2,010

2,514

3,003

1,001

May'2007

1,532

Oct'2007

Jul'2017

Dec'2020

May'2021

6,375 days to reach from USD250b to USD3t

48.2

MCap (USD t)

12.0

7.2

6.8

3.7

United Kingdom

3.4

France

3.2

Canada

3.0

India

United States

China

Hong Kong

Japan

Source: Bloomberg, MOFSL. As on 31 May 2021

CHART BOOK | June 2021

11

June 2020

Broad-based rally raises count of billion-dollar m-cap firms!



The recent rally in the markets has increased the count of companies with m-cap >USD1b to 357, the highest ever.



The number of companies with market cap >USD25b stands at 22, once again, the highest ever.

Number of billion-dollar companies peaked in 2007

>1 USDb

Billion dollar companies have increased to 357 which

is the highest ever in last 15 years

>25 USDb

16

16

12

6

7

7

11

13

17

22

15

14

10

6

2

4

10

Source: Bloomberg, MOFSL. As on 31 May 2021

CHART BOOK | June 2021

12

June 2020

Earnings broad-based : Cyclicals drive upgrades



We have divided BSE-200 into four quartiles based on the FY22 EPS revision.



There is a sharp divergence in earnings revision as the Top 25 companies have shown 26% revision in FY22 earnings, while the

bottom 25 percentile companies have seen downgrades of 8% on an aggregate basis.

FY22 EPS revision by (%)

Average Market Cap (INR b)

1,114

1,021

930

26

1

-1

Top 25

25-50

50-75

-8

Bottom 25

662

Top 25

25-50

50-75

Bottom 25

Change in Market Cap (%)

14%

6%

7%

6%

Top 25

25-50

50-75

Bottom 25

Source: Bloomberg, MOFSL. BSE 200 companies earnings revision between Mar’21 and May’21 are segregated in quartiles based on FY22 PAT revision.

CHART BOOK | June 2021

13

June 2020

4QFY21 earnings season – more downgrades than upgrades



Of the 167 companies in our Coverage Universe that have reported, we have downgraded our FY22 estimates for 64 companies by

>5%, while 37 companies have seen earnings upgrades of >5%.



Metals and diversified Financials have seen the highest upgrades, while contact-intensive sectors such as Hotels, Retail, and

Restaurants have suffered downgrades.

Top FY22 EPS Upgrades (%)

147

60

57

50

38

28

25

SBI Life

Insurance

21

Mahindra CIE

19

Hindalco

17

UPL

Tata Steel

M&M

Financial

JSPL

JSW Steel

Vedanta

Bharti Airtel

FY22 EPS downgrades (%)

-21

-25

-25

-28

-35

PL

Avenue

Tata Chemicals Quess Corp

Supermarts

ICICI Pru Life

United Spirits

PVR

PL

Aditya Birla

Fashion

PL

Trent

PL

PL

Westlife

Indian Hotels

Development

Source: MOFSL coverage companies which have seen the highest upgrades and downgrades during the earnings season based on FY22 basis and market

cap above USD 1b

CHART BOOK | June 2021

14

June 2020

Ownership analysis – FII holdings back at pre-COVID levels



FII ownership in the Nifty-50 and Nifty-500 declined marginally by 20bps QoQ in Mar’21.



DII ownership saw a 10bps increase QoQ in Mar’21. The FII to DII ratio remains at 1.6x.

Nifty-50 holding pattern (%)

Value

USDB 779

16.2

13.1

26.1

Promoter

943

16.3

13.6

26.4

1,134

15.4

14.3

26.4

FIIs

1,199

15.7

DIIs

Public

934

14.1

16.2

1,481

1,580

13.8

15.9

27.4

Nifty-500 holding pattern (%)

Value

USDB 1,263

15.6

12.2

22.1

Promoter

1,626

15.8

12.5

22.0

2,011

15.3

13.0

21.4

FIIs

2,000

15.3

DIIs

Public

1,501

13.9

14.7

20.7

2,430

13.9

14.3

22.5

2,658

14.0

14.2

22.3

13.7

15.9

27.6

15.3

26.6

13.9

21.9

25.3

44.6

43.7

Mar-17

43.9

Mar-18

42.4

Mar-19

44.5

42.8

Dec-20

42.9

Mar-21

50.0

49.7

50.3

49.0

50.6

49.3

49.4

Mar-16

Mar-20

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Dec-20

Mar-21

1.8

1.8

1.8

1.8

1.8

1.8

1.8

1.6

1.6

1.6

FII-DII ratio

1.6

1.5

1.6

1.6

1.5

1.5

1.4

1.4

1.4

1.6

1.6

CHART BOOK | June 2021

15

June 2020

FIIs reduce allocation in Private Banks and NBFCs



On a QoQ basis, FIIs have reduced allocation in Private Banks (-90bps), NBFCs (-60bps), and Consumer (-60bps). However, Cement

(+40bps), Metals (+40bps), and Utilities (+30bps) have seen an increase in allocation.

FIIs’ sectoral allocation comparison QoQ (%)

Chg

bps

10

-

-

30

40

40

-

-

20

10

10

20

10

Mar-21

Dec-20

FIIs’ sectoral allocation comparison YoY (%)

Chg

bps

20

60

10

80

30

30

90

20

-

30

10

10

Mar-21

Mar-20

CHART BOOK | June 2021

16

June 2020

DIIs overweight in Metals, PSU Banks, and Capital Goods



In 4QFY21, DIIs were significantly overweight in Metals, PSU Banks, Capital Goods, Consumer, and Utilities and Underweight in

NBFCs, Private Banks, and Technology. Metals (+60bps), PSU Banks (+60bps), and Cement (+50bps) saw a QoQ increase, but

Private Banks (-70bps), Consumer (-50bps), and Healthcare (-50bps) posted QoQ declines.

DIIs’ sectoral allocation comparison QoQ (%)

Chg

bps

20

10

60

20

60

-

50

10

-

-

Mar-21

Dec-20

DIIs’ sectoral allocation comparison YoY (%)

Chg

bps

160

80

90

120

-

30

40

10

20

10

Mar-21

Mar-20

CHART BOOK | June 2021

17

June 2020

Macro: GDP growth comes in at 1.6% YoY in 4QFY21; contracts 7.3% in FY21



Real GDP growth came in at 1.6% YoY in 4QFY21, leading to full-year contraction of 7.3% YoY in FY21.



4QFY21 real GVA growth came in at 3.7% YoY, with the Industry sector being the highest contributor to growth at 2.4%.

11.0

1.0

-9.0

-19.0

Real GDP growth (% YoY)

0.5

-7.4

-24.4

1.6

5.5

6.4

7.4

Real GDP growth (% YoY)

8.0

8.3

6.8

6.5

4.0

-7.3

-29.0

20

10

0

(10)

(20)

(30)

Real GVA growth (% YoY)

Agriculture

Industry

Services

0.8

0.5

2.4

1.0

3.7

3.3

1.0

-0.7

0.5

-10.7

-12.1

1QFY21

-7.3

-22.4

(pp)

0.4

-0.9

-6.8

0.8

-0.6

4QFY20

2QFY21

3QFY21

4QFY21

CHART BOOK | June 2021

18

June 2020

Economic impact of second wave seems lower v/s first wave



The economic impact of the second COVID wave (Apr–May’21) seems lower v/s the economic impact seen over Apr–May’20.



High-frequency data points – exports, railway freight, e-way bill generation, and manufacturing PMI – are showing more resilience

than in the first wave.

Export (USD b)

30.0

26.1

19.1

30.6

32.2

Indian Railway Freight (mn tn)

111.53

101.1

104.8

114.8

82.6

10.4

65.4

Apr'19

May'19

Apr'20

May'20

Apr'21

May'21

Apr-19

May-19

Apr-20

May-20

Apr-21

May-21

Daily e-way bill generation (mn)

2.0

1.8

1.8

51.8

52.7

Manufacturing PMI

55.5

50.8

1.3

0.8

0.3

27.4

30.8

Apr-19

May-19

Apr-20

May-20

Apr-21

May-21

Apr-19

May-19

Apr-20

May-20

Apr-21

May-21

Source: Google Mobility Reports, RBI, MOFSL

CHART BOOK | June 2021

19

June 2020

COVID-19: 2

nd

wave recedes; net active cases down >60% from the peak



The number of active cases declined 48% in May’21, after hitting the peak in the second week of May’21. Active cases in several

states/territories – such as UP, Delhi, Haryana, MP, Gujarat, Rajasthan, and Bihar – are down 80–90% from their respective peaks.



182m people had received their first vaccine dose and ~45m people had been fully vaccinated as of 5

th

June’21.

Monthly New Cases (th)

Total Active Cases (th)

Mar'20 May'20

Jul'20

Sep'20

Nov'20

Jan'21

Mar'21 May'21

Mar'20 May'20

Jul'20

Sep'20

Nov'20

Jan'21

Mar'21 May'21

Recovery rate

Vaccinations (in mn)

First Vaccine

Fully vaccinated

Source: Ministry of Health and Family Welfare, ourworldindata.org. MOFSL

CHART BOOK | June 2021

20

June 2020

COVID-19: 2

nd

wave recedes; net active cases down >60% from the peak



The number of daily new cases fell to 130K cases per day from the above 400K per day mark in the second week of May’21, as the

positivity rate declined to 6% from 20%+ in early May’21.



Daily testing increased to above 2m in May’21. The daily fatality count also declined to below 3k from above 4k at the peak.

Daily New Cases

500000

400000

300000

200000

100000

0

positive_rate

Daily new cases down

>75% from the peak

25.0%

20.0%

First wave took 102 days to go from 10k to the

peak of 97k new cases

15.0%

10.0%

5.0%

0.0%

2.5

2

1.5

1

0.5

0

Daily Testing mn)

7 day moving average (mn)

5000

4000

3000

Daily Fatalities

CFR (%, rhs)

4.0

3.0

2.0

2000

1000

0

1.0

-

Source: Ministry of Health and Family Welfare, ourworldindata.org. MOFSL. As on 06 May’21

CHART BOOK | June 2021

21

June 2020

COVID-19: Active cases more widespread; vaccination pace picks up



Tamil Nadu, Karnataka, Kerala, and Andhra Pradesh saw the highest increase in active cases in May’21.



The pace of vaccinations picked up once again in the second half of May’21 to 2.7m per day (from an average of 1.8m per day).

Active cases (% of total) April end

Others

25%

Maharashtra

20%

Active cases (% of total) June 1st week

Others

23%

West Bengal

5%

Chhattisgarh

2%

Maharashtra

13%

Karnataka

16%

West Bengal

3%

Chhattisgarh

4%

Gujarat

Tamil Nadu

4%

4%

Andhra

Pradesh

4%

Karnataka

12%

Rajasthan

5%

Kerala

Uttar Pradesh 9%

10%

Rajasthan

2%

Gujarat

Tamil Nadu

Kerala

Andhra

2%

16%

11%

Pradesh Uttar Pradesh

2%

8%

Vaccinations (7 day mov. Avg. , mn)

3.6

2.0 2.3 2.1

0.8

1.2

3.1

2.6 2.4

2.7

550

305

239 222

Vaccination MOM (%)

1.8

1.9

1.8

2.2

96 67

49 32 24 16

7

0

-9 -29 -33

Source: Ministry of Health and Family Welfare, ourworldindata.org. MOFSL

CHART BOOK | June 2021

22

June 2020

Nifty composition – SBI continues to gain weight in May’21



Nifty weights – SBI’s weight continued to increase in May’21 at 2.4%, the highest since Dec’19.



Metals’ weight remains at 3.2%, the highest since Dec’18.



The Consumer sector’s weight has dropped to 10%, the lowest since Dec’18.

Weightage in Nifty (%)

Sector

Automobiles

Dec’04

6.7

Dec’08

2.5

Dec’12

8.8

Dec’19

5.7

Dec’20

5.4

May’21

5.3

Banks - Private

Banks - Public

NBFC + Insurance

Capital Goods

Cement

4.7

5.8

2.1

4.0

2.8

5.0

5.4

2.3

7.7

1.7

16.9

4.7

7.9

5.9

4.2

27.8

2.6

11.6

3.2

1.5

24.7

1.8

12.3

2.6

2.2

24.2

2.4

11.5

2.6

2.5

Metals’ weight at

3.2% – the highest

since Dec’18

Consumer

Healthcare

Metals

Oil and Gas

Reliance

Telecom

Technology

Utilities

Miscellaneous

Nifty

7.8

6.3

8.2

27.1

8.3

6.3

14.5

1.9

2.0

100

6.5

2.6

4.8

24.5

10.6

11.6

9.0

13.3

3.3

100

12.3

5.0

3.8

12.3

7.4

2.0

11.4

4.5

0.5

100

10.2

2.1

2.4

12.5

9.8

2.2

12.8

2.8

2.6

100

10.4

3.6

2.0

12.5

10.7

2.0

16.3

2.1

2.1

100

10.0

3.5

3.2

12.0

10.4

1.9

16.2

2.1

2.5

100

SBI sees 60bps

increase in weight to

2.4% in CY21

Consumer sector

weight at 10%, the

lowest level since

Dec’18

CHART BOOK | June 2021

23

June 2020

FII

& DII

–

net inflows in May’21



FII net inflows stood at USD0.7b in May’21.



DII net inflows were USD0.5b, marking the third consecutive month of inflows.

12

8

4

0

FII (USDb)

9.6

0.7

-1.5

-8.4

-4

-8

-12

9

6

3

0

-3

-6

-9

Net DII (USDb)

7.5

1.5

0.5

-2.2

CHART BOOK | June 2021

24

June 2020

Key reports from MOFSL’s research desk

CHART BOOK | June 2021

25

June 2020

India Strategy: Return of commodity inflation (Report

Link)



The global commodity upcycle has been in full swing of late, with multiple factors at play, as always. Nonetheless, the rise in global

commodity prices in CY21 has brought the focus back on inflation. In this note, we analyze the impact of commodity inflation on

various sectors and Nifty constituents in detail.



Sectors that are likely to be most impacted include Auto, Consumer Staples, and Consumer Durables. On the other hand, Metals

and O&G (upstream companies) would be the clear beneficiaries of the surge in commodity prices.

Base metal prices have surged in CY21

200

100

0

-100

Base metals

(% YoY)

Global food prices also surge in CY21

1200

111.5

Steel prices (USD/t)

78.9

65.7

800

400

0

CRY Index and Nifty 12M forward EPS have shown a close correlation over the years

40

20

-

(20)

12M fwd Nifty EPS Y/Y

CRY Index y/y (rhs)

80

40

-

(40)

(40)

(80)

Source: MOFSL. Refer to note ‘India Strategy: Return of Commodity Inflation’

CHART BOOK | June 2021

26

June 2020

SOLARA ACTIVE PHARMA SCIENCES : ‘Partner of Choice’ in API/CRAMS space (Report

Link)



Solara Active Pharma Sciences (SOLARA) has a differentiated business model, formed by demerging the API business of Strides

Pharma and integrating it with the Human API business of Sequent.



SOLARA has developed a multi-pronged strategy through a) capacity expansion in core products, b) enhanced offerings, c) expansion

into newer geographies, and d) acquiring new customers – to benefit from formulators’ inclination to reduce their dependency on

select regions to procure APIs.

41 DMF filings in last five years in US market

DMF Filings

SOLARA has maximum filings with USFDA (FY20)

Filings by Geography

82

8

6

6

9

8

4

22

14

14

11

8

6

5

FY16

FY17

FY18

FY19

FY20

FY21

USFDA EDQM Health MFDS, S. WHO

Canada Korea

PMDA Australia EMA

DoH

SOLARA’s services span the development chain

Chemistry

• Hit to lead

• Lead optimization

Pre-clinical

• Synthesis and

purification

• Reference standard

and impurities

Phase 1 to Phase 3

• Process

optimization

• cGMP production

Commercial

• Process validation

• Capacities

• Cost advantage

Source: MOFSL, Refer to the note – SOLARA ACTIVE PHARMA SCIENCES | ‘Partner of Choice’ in API/CRAMS space

CHART BOOK | June 2021

27

June 2020

Financials: (Introducing the MOSL BFSI MOdel Portfolio)(Report

Link)



The Financial sector is the largest constituent of all the benchmarks, with weights of 38–43% in the Nifty 50 and BSE 30 indices.

However, the divergent stock performance of Indian financials vis-a-vis the Nifty Financial Services index highlights the need for an

active stock selection strategy.



In our first edition of the MOFSL BFSI MOdel Portfolio, we are overweight on ICICIBC, SBIN, and AXSB among the lending large-cap

financials. We are Underweight on NBFCs in general due to the looming uncertainty surrounding the second wave and rising

inflation levels.

Performance of banking and insurance stocks over CY21YTD

CT21YTD Stock performance

Performance of NBFC and other diversified stocks over CY21YTD

CT21YTD Stock performance

MOSFL BFSI MOdel Portfolio – Overweight on banks and non-lending financials

0.6%

10.3%

17.5%

2.0% 5.7%

4.1%

4.0%

9.0%

15.0%

2.0%

5.0%

6.5%

Others

Other NBFC

HFCs

Vehicle Financiers

Insurance

PSU Banks

Private Banks

59.8%

58.5%

Nifty FIN

MOFS BFSI

Source: MOFSL Refer to the note – Financials (Introducing the MOSL BFSI MOdel Portfolio). As on 29 May’21

CHART BOOK | June 2021

28

June 2020

Valuations: Key observations

CHART BOOK | June 2021

29

June 2020

Sharp rebound in market capitalization-to-GDP ratio



The market capitalization-to-GDP ratio has been volatile. It declined to 56% (FY20 GDP) in Mar’20, from 79% in FY19, and has

rebounded to 98% currently (FY22E GDP) – above the long-term average of 76%.



The decline to 42% seen in FY04 was the lowest ratio recorded in the last two decades. The ratio hit the peak of 149% in Dec’07

during the CY03–08 bull-run.

Market capitalization-to-GDP ratio (%)

GFC: Peak of 149% in Dec’07

103

95

88

82

83

71

64

52

42

55

Average of 76% for the period

83

81

69

66

79

80

Nominal GDP FY21/FY22E -3%/15%

Lowest

since

the GFC

104

98

56

CHART BOOK | June 2021

30

June 2020

Indian bond yields, steady at 6%, support higher equity valuations



Bond yields have come off at around 6%. Any pickup in inflation may likely lead to a spike in bond yields.



The EY/BY ratio is below its long-term average on a trailing basis, while it is above LTA on a forward basis.

1.8

Earnings yield (12-month forward)/G-Sec yield

1.5

1.3

EY/BY spiked sharply

during the GFC

1.0

0.8

It remained below 1x for last six

years, except for a brief period

during demonetization

10 Year Avg: 0.8

0.82

0.5

2.0

Earnings Yield (12 month trailing)/G-Sec Yield

1.6

1.2

0.8

0.4

10 Year Avg: 0.71%

0.61

CHART BOOK | June 2021

31

June 2020

Spreads stable v/s US 10-year bond; FX reserves at USD598b



The US 10-year yield is trading below 1.6%, and the Indian 10-year yield is trading at 6%. The spread (v/s the US 10-year yield) is at

the lowest level at 440bps since Jul’19.



On the currency front, the INR appreciated 2% in May’21(MoM). FX reserves increased by USD14b to USD598b.

India 10-year yield

16

6.8

12

8

4

0

0.6

3.1

3.9

4.4

4.4

US 10-year yield

Fed cuts rates to zero

post GFC

Fed raises rates

Fed easing,

US-Sino trade

war, and

COVID-19

GFC

India fiscal tightening,

strong economic growth (led by global

book), and Fed raising rates

6.9

6.0

Forex Reserves (USD b) (RHS)

90

75

60

45

30

USD:INR

Pre GFC peak

The INR had its best time during the

in FX reserves

2003-07 global bull-run, when the GDP

and corporate earnings growth were

high and twin deficits – CAD, FD – were

among the lowest in two decades.

The Eurozone crisis, Taper Tantrum, Yuan

devaluation – the Taper Tantrum in 2013

drove the INR down sharply from 55 to 68

in just four months. This was a period of

high inflation and INR depreciation.

Low inflation characterized the

period post 2015. The INR has

been relatively less volatile

despite several global

headwinds. FX reverses are

surging.

750

600

450

300

150

0

CHART BOOK | June 2021

32

June 2020

Valuations: Nifty forward P/E and P/B at premium to long-term mean



Nifty 12M forward P/E of 20.3x is at a premium of 13% v/s its long-term average of 17.9x.



At 3x, Nifty 12M forward P/B is at a 15% premium to its historical average of 2.6x.

12-month forward Nifty P/E (x)

30

25

20

15

10

12 month forward Nifty P/E (x)

25.3

20.3

LT Avg: 17.9x

12-month forward Nifty P/B (x)

4.4

3.6

2.8

2.0

1.2

LT Avg: 2.6x

2.5

3.0

CHART BOOK | June 2021

33

June 2020

Valuations: Nifty trailing P/E at 27x; P/B above LTA



Nifty 12M trailing P/E of ~27x is 40% higher v/s LTA.



At 3.4x, Nifty 12M trailing P/B is 14% above the historical average of 3x.

12-month trailing Nifty P/E (x)

30

25

12 month trailing Nifty P/E (x)

27.1

LT Avg: 19.2x

20

15

10

12-month trailing Nifty P/B (x)

5.5

4.5

3.5

2.5

1.5

12 month trailing Nifty P/B (x)

3.4

LT Avg: 3x

CHART BOOK | June 2021

34

June 2020

Sectoral valuations: IT at 15-year high; Private Banks above +1SD

Private Banks’ valuations at 3% premium to +1SD

3.5

2.8

2.0

1.3

0.5

P/B (x)

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

3.3

2.9

2.8

2.3

1.8

0.9

Technology trading at peak 15-year valuations

28.0

22.0

16.0

10.0

4.0

P/E (x)

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

25.5

20.9

17.4

14.0

7.9

25.5

CHART BOOK | June 2021

35

June 2020

Sectoral valuations: Metals and Oil & Gas at LTA

Metals: Valuations at 15-year LTA

P/B (x)

3.7

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

3.0

2.9

2.1

1.3

0.5

1.9

1.6

1.3

0.9

1.6

Oil & Gas: Valuations at 15-year LTA

P/B (x)

3.7

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

3.0

2.9

2.1

1.3

0.5

1.9

1.6

1.3

0.9

1.6

CHART BOOK | June 2021

36

June 2020

Sectoral valuations: Consumer above +1SD; Auto above LTA

Auto valuations at 8% premium to LTA

P/B (x)

5.0

4.0

3.0

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

4.4

3.7

3.1

2.5

1.4

Auto at its LTA

3.3

2.0

1.0

0.0

Consumer valuations at 8% premium to +1SD

P/E (x)

52.0

42.0

32.0

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

46.8

39.9

32.2

24.4

Consumer valuations at a

8% premium to +1SD

43.3

22.0

12.0

17.2

CHART BOOK | June 2021

37

June 2020

Top ideas

Company

M-cap (USD b)

EPS (INR)

FY21E

FY22E

FY23E

EPS CAGR

FY21-22, %

FY22E

P/E (x)

FY23E

FY22E

P/B (x)

FY23E

FY22E

RoE (%)

FY23E

PREFERRED LARGE-CAP STOCKS

Infosys

87.3

75.5

61.6

53.0

35.4

45.6

34.8

24.2

25.1

43.8

53.2

39.5

30.9

41.4

50.3

63.5

48.4

38.8

52.0

59.7

18.1

18.0

26.6

43.9

16.7

26.1

59.2

21.0

10.4

18.9

21.9

48.3

16.7

8.3

15.9

7.1

11.6

2.7

1.3

3.8

6.4

11.5

2.4

1.1

3.6

28.3

19.6

13.9

13.9

21.2

30.9

23.9

15.2

15.0

23.3

Hind. Unilever

ICICI Bank

St Bk of India

HCL Technologies

UltraTech Cem.

Titan Company

27.1

20.6

15.4

13.5

13.3

12.1

190.4

11.0

75.6

10.5

33.8

24.6

219.7

20.2

101.7

18.6

37.7

42.8

274.4

29.7

132.1

26.9

48.9

44.6

20.0

64.2

32.2

60.2

20.3

34.7

31.2

83.3

41.6

56.0

21.3

9.2

25.0

56.7

32.0

38.8

16.4

8.9

3.8

17.8

10.0

12.5

2.5

1.7

3.5

15.8

8.2

9.6

2.3

1.5

13.5

22.6

26.4

24.7

12.0

20.1

15.0

29.6

28.2

28.0

13.8

17.7

Divi's Lab.

SBI Cards

M&M

Hindalco Inds.

PREFERRED MID-CAP STOCKS

SAIL

Gland Pharma

Cholaman.Inv.&Fn

Gujarat Gas

Max Financial

Varun Beverages

L&T Technology

Emami

Aditya Birla Fashion

Orient Electric

7.0

7.0

6.5

5.7

4.7

4.5

4.0

3.3

2.2

0.9

13.8

60.9

18.5

18.5

15.9

11.3

62.8

16.3

-7.1

5.6

18.5

76.4

23.4

23.0

21.7

23.1

84.4

16.8

-4.8

6.5

16.8

96.4

30.4

25.6

27.5

37.0

104.3

18.8

-0.5

8.2

10.5

25.8

28.4

17.6

31.3

81.2

28.8

7.4

-73.7

20.2

6.6

40.8

24.8

26.4

45.4

48.6

32.9

31.9

NM

47.1

7.3

32.4

19.1

23.7

35.9

30.4

26.6

28.5

NM

37.5

1.0

7.1

4.2

7.1

3.0

7.9

7.2

11.3

10.1

11.7

0.9

5.8

3.5

5.6

2.5

6.4

6.1

11.2

10.3

9.6

15.8

19.2

18.4

30.5

18.8

17.5

23.7

38.5

-22.2

24.9

13.0

19.9

20.0

26.3

19.2

23.2

25.0

39.4

-2.4

25.7

CHART BOOK | June 2021

38

June 2020

Quant Research & India Strategy Gallery

CHART BOOK | June 2021

39

June 2020

Explanation of Investment Rating

Investment Rating

BUY

SELL

NEUTRAL

UNDER REVIEW

NOT RATED

Expected return (over 12-month)

>=15%

< - 10%

> - 10 % to 15%

Rating may undergo a change

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days,the Research Analyst shall within following 30 days take appropriate

measures to make the recommendation consistent with the investment rating legend.

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of

providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOFSL is a subsidiary company of Passionate Investment Management Pvt. Ltd..

(PIMPL). MOFSL is a listed public company, the details in respect of which are available on

www.motilaloswal.com.

MOFSL (erstwhile Motilal Oswal Securities Limited - MOSL) is registered with the Securities & Exchange

Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India Limited (MCX) and National

Commodity & Derivatives Exchange Limited (NCDEX) for its stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) National Securities Depository Limited (NSDL),NERL,

COMRIS and CCRL and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products and Insurance Regulatory & Development Authority of India (IRDA) as Corporate Agent for insurance

products. Details of associate entities of Motilal Oswal Financial Services Limited are available on the website at

http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf

Details of pending Enquiry Proceedings of Motilal Oswal Financial Services Limited are available on the website at

https://galaxy.motilaloswal.com/ResearchAnalyst/PublishViewLitigation.aspx

MOFSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOFSL and/or its associates and/or Research Analyst may have actual/beneficial ownership of 1% or more

securities in the past 12 months. MOFSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell

the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial

instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related

information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the

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subject company in the past 12 months. MOFSL and/or its associates may have received any compensation from the subject company in the past 12 months.

In the past 12 months, MOFSL or any of its associates may have:

a) managed or co-managed public offering of securities from subject company of this research report,

b) received compensation for investment banking or merchant banking or brokerage services from subject company of this research report,

c) received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company of this research report.

d) Subject Company may have been a client of MOFSL or its associates in the past 12 months.

MOFSL and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. To enhance transparency, MOFSL has incorporated a

Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. MOFSL and / or its affiliates do and seek to do business including investment

banking with companies covered in its research reports. As a result, the recipients of this report should be aware that MOFSL may have a potential conflict of interest that may affect the objectivity of this report.

Compensation of Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. Above disclosures include beneficial holdings lying in demat account of MOFSL

which are opened for proprietary investments only. While calculating beneficial holdings, It does not consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals,

error trades etc.). MOFSL also earns DP income from clients which are not considered in above disclosures.

June 2020

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This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted

to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOFSL. The report is based on the facts, figures and information that are

considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information

has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without

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disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as customers by virtue of their receiving this report.

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The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly

or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

Disclosure of Interest Statement

Companies where there is interest



Analyst ownership of the stock

No

A graph of daily closing prices of securities is available at

www.nseindia.com, www.bseindia.com.

Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research.

Proprietary trading desk of MOFSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOFSL research activity and therefore it can have an independent view

with regards to subject company for which Research Team have expressed their views.

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therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

June 2020

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use would be contrary to law, regulation or which would subject MOFSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all

jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees,

agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the

information. The person accessing this information specifically agrees to exempt MOFSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOFSL

or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered

by the person accessing this information due to any errors and delays.

Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website

www.motilaloswal.com.

CIN No.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.

Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI: ARN - 146822; Investment

Adviser: INA000007100; Insurance Corporate Agent: CA0579 ;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered

through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal

Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd.

which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL. Research & Advisory services is backed by proper

research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to market

risk, read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.

* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law Tribunal, Mumbai Bench.

June 2020