Motilal Oswal Financial Services

India Strategy - Aug’20: The Eagle Eye



In our fifth version of the ‘Strategy Chartbook – The Eagle Eye’, we have highlighted several key aspects

pertaining to markets, earnings, valuations and various asset class returns.



Non-institutional cash volumes continued to surge in Jul’20, even as overall cash volumes declined

marginally MoM. After the sharp up-move during Apr-Jul’20, Indian markets are now a tad below their

pre-COVID levels. However, the Nifty has moved past its pre-COVID levels (barring BFSI, which is still down

28%). The rally was led by Reliance Industries (RIL). The RIL stock has more than doubled from its Mar’20

lows and now accounts for close to one-tenth of India’s listed market cap.

Considering the sharp outperformance of Healthcare stocks, we have highlighted the relative change in

market-cap hierarchy of the sector with an interesting exhibit. Moreover, polarization remains a persistent

theme with the ‘Big getting Bigger’. We have showcased this through segmental returns of the Nifty-50

stocks.

performances and many more interesting nuances.



IT (the top performer in Jul’20) and Healthcare were the two best performing sectors in CY20 YTD.



So far, 1QFY21 corporate earnings are in line. We have highlighted the top blockbuster earnings



On the flows front, FII remained buyers while DIIs were net sellers during the month. The net inflows in MFs

have plunged and are around the lows of the last four years. We expect large capital issuances and stake

sales to further drive the flow intensity in the coming months.

CHART BOOK | August 2020

June 2020

INDIA FLAT v/s EM IN JULY’20

1QFY21 EARNINGS SEASON SO FAR



Earnings season remains far more positive than

expected earlier



Highlighting key stocks, which have beaten

expectations



India flat (v/s EMs in July’20) – a laggard YTD



IT and Healthcare – major gainers in Jul’20



Non-institutional participation remains high, but

cash volumes dipped in Jul’20 (v/s Jun’20)

GOLD – BEST PERFORMER



Gold returns have beaten all asset classes as

Central Banks continue with major policy

stimulus



Due to the US’ real negative yield, investors are

allocating more money to gold as uncertainty

around global growth prevails

HEALTHCARE AND RURAL

CONTENT



Healthcare remains the flavor of the season with

mid-caps outperforming large-cap companies



Rural theme continues to play out due to (a)

monsoons remaining above LPA, leading to

above-average Kharif sowing season, and (b)

higher government spending

POLARIZATION LEADS RECOVERY



Nifty (excl. BFSI) is now above pre-COVID levels



Reliance has seen a secular rise in market-cap

since Mar’20, which has led the index recovery



Ultra large-caps continue to lead recovery for

Nifty-50 companies

MARKETS, DIVERGENCE,

POLARIZATION AND VALUATION



Mid-caps continue to outperform large-caps

based on last three months’ performance

ideas and long-term charts



Nifty – FII flows, performance, weights, top

CHART BOOK | August 2020

June 2020

India matches MSCI EM in Jul’20; Remains a laggard YTD

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

-1

World equity indices (CY20 YTD) – in USD (%)

-1

-2

-3

-6

-10

-13

-16

-22

-23

-31

CHART BOOK | August 2020

June 2020

Technology – Best performer in Jul’20; Financials lag again



Small-caps outperformed the Nifty in Jul’20. Defensive sectors like IT and Healthcare were the biggest gainers in Jul’20 while

Private Banks , Consumer and Real Estate underperformed.



CY20 YTD, Healthcare and IT are topping the charts. While Consumer remains flattish, Financials are languishing at the bottom.

Sectoral Performance MoM (%)

-1

Sectoral Performance CY20 YTD (%)

-9

-10

-3

-4

-12

-23

-26

-14

-33

-44

CHART BOOK | August 2020

June 2020

Nifty-50: Tech is the big gainer; Rural theme dominates again



38 out of Nifty-50 stocks gained in Jul’20. Infosys , Wipro and Tech Mahindra topped the charts at 31%, 28% and 27% MoM,

respectively. Zee and Bharti Infra were the key laggards, down 19% and 13% MoM, respectively.



CY20 YTD, 17 Nifty stocks have delivered positive returns with Dr. Reddy’s and Cipla gaining 57% and 51%, respectively. IndusInd

Bank and Zee were the worst performers and declined 65% and 52% YTD, respectively.

Best and worst Nifty performers (MoM) in July’20 (%) – Technology outperformed post solid 1QFY21 performance

-3

-4

-5

-6

-8

-9

-13

-19

Best and worst Nifty performers (YoY) in CY20 YTD (%) – Healthcare and IT leading YTD rankings of performers

-9

-30

-34

-36

-39

-43

-52

-65

CHART BOOK | August 2020

June 2020

BSE-200: 14 stocks up >20% in Jul’20; 26 stocks up >30% YTD CY20



129 out of BSE-200 constituents gained in Jul’20 with 14 stocks posting >20% gains.



CY20 YTD, 69 out of BSE-200 constituents gave positive returns with 26 stocks returning >30% (14 of 26 stocks are from Pharma).

Big gainers of BSE-200 (MoM, %)*

Big gainers of BSE-200 (CY20 YTD, %)*

105 91

33 32 32 30 26 25

22 22 21 19 19 16

-8

*List excludes Nifty 50 companies

CHART BOOK | August 2020

June 2020

BSE-200: BFSI dominates laggards list CY20 YTD



35% of BSE-200 companies yielded negative returns in Jul’20. Vodafone Idea and ZEE were the major laggards.



CY20 YTD, 65% of BSE-200 constituents declined – Future Retail and Financials like Canara Bank, BoB, MMFS and RBL Bank were

the major laggards.

Big laggards of BSE-200 (MoM, %) *

-5

-6

-7

-8

-9

-9 -10

-10

-11 -12

-13 -14 -15

-15 -15

-19 -21

Big laggards of BSE-200 (CY20 YTD, %)

-8

-33 -34 -34 -34 -34 -35 -35 -37 -37

-39 -39 -39 -40 -40 -41 -41 -43

-46 -47 -47

-47

-48 -49 -50

-51 -51 -54 -54

-60

-68

*List excludes Nifty 50 companies

CHART BOOK | August 2020

June 2020

Market volumes in Jul’20; Non-institutional participation surges further



Average daily cash volumes were down 6% MoM in Jul’20. However, it was still well above CY20 average cash volumes.



Non-institutional participation continued to surge and accounted for 72% of cash volumes (67% in Jun’20) – the highest since Aug’09.

Monthly Avg. Cash Volume (INR b)

Non Institution % to Cash Volume (RHS)

750

600

450

300

150

21000

16000

11000

6000

1000

Monthly Avg F&O Volume (INR b)

Cash % to Total Volumes

5.9

4.4

3.2

2.9

1.4

-0.1

CHART BOOK | August 2020

June 2020

Gold rallies as G4 Central Banks’ B/S expansion leads to drop in yields

Gold v/s US’ 10-year real bond yield

Gold Spot Price USD/oz

2200

1700

1200

700

200

US 10 year Real Bond Yield (rhs, inverse)

-1.0

0.3

1.5

2.8

4.0

Expansion of G4 Central Banks’ Balance Sheets lead to higher prices of precious metals

G4 Central Bank B/S as % of GDP

Bloomberg Precious Metals Index / Bloomberg Commodity Index (rhs)

3.5

2.5

1.5

0.5

-0.5

Source: Bloomberg, MOFSL

CHART BOOK | August 2020

June 2020

Gold outperforms all asset classes in Jul’20

PERFORMANCE (%)

Time

CYTD

1Yr

3 YR

5 YR

Large Cap

-9.00

-0.40

3.19

5.35

Midcap

-9.54

-2.83

-5.81

2.42

Small Cap

-14.12

-9.25

-13.72

-2.62

Debt Long Term

9.36

12.18

8.68

9.47

Debt Short term

7.36

11.08

8.41

8.60

Crisil Gold Index

34.86

48.20

22.58

17.04

Liquid

2.98

5.54

6.72

6.96

Large-cap – Nifty-50, Mid-cap – CNX Midcap 100, Small-cap – CNX Smallcap 100, Debt Long Term – Crisil Composite Bond Fund

Index, Debt Short Term – Crisil Short Term Bond Index, Gold- Crisil Gold Index, Liquid – Crisil liquid fund index .

Central Banks have been net purchasers of Gold post the GFC in 2008

501.9

-34

-365

-663

-235

-484

481

569

629

601

580

395

379

656

650

-479

-520

-547

-479

-620

-442.6

Source: Bloomberg, World Gold Council, MOFSL

CHART BOOK | August 2020

June 2020

Nifty (excl. BFSI) above pre-COVID levels; Healthcare and IT at 52-week high

Nifty (excl. BFSI) has crossed pre-COVID levels while Nifty BFSI is still 28% away

14,000

12,201

12,000

10,000

8,000

6,000

Nifty ex BFSI: +5%

Nifty: -9%

Nifty BFSI -28%

Nifty

Nifty BFSI

Nifty ex BFSI

12,799

11,073

8,820

Healthcare and Technology sectoral indices are at 52-week high; PSU and Financials languishing at bottom

% away from 12 month high

-10

-16

-21

-5

-7

-14

-26

-27

-28

-34

-39

-49

Source: Bloomberg, MOFSL.

CHART BOOK | August 2020

June 2020

Reliance Industries accounts for nearly one-tenth of India’s market-cap



The RIL stock has been flattish during Dec’09-16. However, since then, it has rallied 4x. The recent fund raise, deleveraging of

balance sheet and several initiatives on digital/consumer side of its businesses has aided sentiment for re-rating of the stock.



Consequently, RIL’s weight in the benchmark Nifty has expanded from 5.2% in Dec’14 to 14% currently.



Also, RIL now contributes 9% of India’s listed market-cap, a sensational jump of 3x (v/s a meager contribution of 3% in Dec’14).

9.2

Nifty

Weight

6.2

9.0

11.9

10.6

12.7

9.8

8.3

7.4

7.1

5.2

5.9

7.8

8.8

9.8

14.0

9.2

2500

Ril as % of Total India Listed Mcap

RIL (rhs)

2000

5.8

5.9

4.7

4.3

4.9

4.0

4.1

2.9

3.3

3.8

6.2

5.0

4.9

1500

1000

500

Source: Bloomberg, MOFSL.

CHART BOOK | August 2020

June 2020

Nifty: Performance and Valuation segmentation – ‘Big getting Bigger’

5,060

Average Mcap (INR b)

1,524

998

690

442

40-50

Top 10

10-20

20-30

30-40

Performance CYTD (%)

-16%

-26%

Top 10

10-20

20-30

30-40

-25%

40-50

Source: Bloomberg, MOFSL. Nifty Constituents are sorted according to their weights

CHART BOOK | August 2020

June 2020

Healthcare: Many worthy movements in market-cap hierarchy

Movement in market-cap hierarchy of MOSL Healthcare Universe

10 Years back

Sun Pharma

Cipla

Dr Reddy's Labs

GSK

Lupin

Cadila Health.

Divi's Lab.

Glenmark Pharma.

Biocon

Jubilant Life

5 Years Back

Sun Pharma

Lupin

Dr Reddy's Labs

Cipla

Aurobindo Pharma

Cadila Health.

GSK

Glenmark Pharma.

Divi's Lab.

Torrent

3 Years Back

Sun Pharma

Cadila Health.

Lupin

Cipla

Aurobindo Pharma

Dr Reddy's Labs

Biocon

Alkem Lab

Torrent

GSK

1 Year Back

Sun Pharma

Divi's Lab.

Dr Reddy's Labs

Cipla

Lupin

Aurobindo Pharma

Biocon

Torrent

Cadila Health.

Alkem Lab

Jan'20

Sun Pharma

Divi's Lab.

Dr Reddy's Labs

Cipla

Biocon

Torrent

Lupin

Alkem Lab

Aurobindo Pharma

GSK

Apr'20

Sun Pharma

Dr Reddy's Labs

Divi's Lab.

Cipla

Biocon

Torrent

Lupin

Abbott India

Aurobindo Pharma

Cadila Health.

Jul'20

Sun Pharma

Dr Reddy's Labs

Divi's Lab.

Cipla

Biocon

Aurobindo Pharma

Torrent

Lupin

Cadila Health.

Abbott India

Trailing 12-month returns of BSE-500 Healthcare constituents

201

Perf. (1Yr) (%)

178

98 96 93 88

86 85 81 81 76 74

73 71 62

60 59 59 54 53 53 52

41 38 35 30

25 21 19 15 13

-6 -12

Source: MOFSL, BSE

CHART BOOK | August 2020

June 2020

1QFY21 Earnings: Beats muted expectations so far, driven by cost-cuts

Sector

Automobiles (7)

Capital Goods (5)

Cement (4)

Consumer (9)

Financials (19)

Banks-Private (9)

Banks-PSU (1)

Life Insurance (2)

NBFC (7)

Healthcare (9)

Metals (3)

Oil & Gas (4)

Oil Ex OMCs (3)

Retail (1)

Technology (13)

Telecom (3)

Utilities (1)

Others (13)

MOFSL Universe (91)

Nifty (33)

Sensex (24)

Sales

Growth (%)

Sales

(INR b)

June-20 est

actual Var. over

YoY

(actual) YoY

Exp. (%)

435 -63.2 -55.9

19.9

261

132

348

929

436

266

113

114

200

249

894

1,167

318

226

-31.9

-34.5

-19

5.8

14.1

6.2

-16.6

2.9

6.4

-29.2

-24.6

-29.2

4.9

9.2

-22.9

-22.5

-30.4

-34.2

-12.8

11.7

18.4

16.1

-11

5.6

4.7

-28.2

-47.9

-44.1

-33.2

4.7

11.3

-25.2

-30.3

-27.5

-27.7

-19.6

2.1

0.4

7.6

5.5

3.8

9.4

6.7

2.6

-1.5

1.4

-9.4

-25.9

-5.7

-0.3

1.9

-3

-10

-0.5

-0.6

-6.4

EBIDTA

PBT

PAT

Growth (%)

EBIDTA

Growth (%)

PBT

Growth (%)

PAT

(INR b)

June-20

actual Var. over June-20

actual Var. over

est YoY

(actual)

YoY

Exp. (%) (actual)

Exp. (%)

-96.4

-61

Loss

-84

Loss

671

387

181

225

170

275

132

1,576

1,506

1,341

-52.8

-45.2

-27.1

16.2

20.8

20.9

-36.2

-2.2

1.9

-44.2

-19

-3.5

-74

13.2

-9.6

-56.4

-12

-5.9

3.4

-52.6

-28.3

-24.7

23.8

23.3

36.3

10.6

7.9

18.2

-38.1

-24.7

-21.5

-81.3

11.2

20.1

-7.9

-68

-6.1

-1.1

3.8

0.5

30.8

3.4

6.5

2.1

12.8

73.3

10.3

16.1

-7.1

-18.6

-27.9

4.9

6.1

1.9

-26.6

6.7

5.1

0.4

293

175

110

254

-9

776

704

676

-74.6

-58.8

-28.2

-12.6

-7.8

-15.1

-19.1

-25.4

-6.4

-90.4

-33.9

-8.3

-88.6

0.3

-16.9

-35.5

-31

-15

-72.9

-27.2

-23.8

-6.5

-12.6

36.8

5.3

-16.1

17.9

-67.3

-45.3

-43.2

-88.4

2.7

-0.9

-27.2

-22.2

-15.6

6.9

76.5

6.1

-5.2

61.1

30.3

12.4

240.9

-17.2

-38

2.1

2.4

90.8

19.2

Loss

12.8

12.7

-0.6

228

134

104

190

-15

551

497

515

-83.4

-57.6

-22.5

0.4

11.6

-21.8

-14.5

-7.8

-87

-28.8

-2.7

-86

-17.2

-31.6

-26.1

-7.6

-85.6

-25.8

-16.2

8.9

1.5

81.2

4.1

-5.1

13.2

-67.9

-25.7

-18.4

-87.6

1.2

-12.7

-24.5

-18

-5.7

-13.5

75.3

8.2

8.5

-3.3

62.3

33.1

22.8

146.5

4.4

-16.1

-11.3

1.2

-23

5.4

Loss

10.4

2.1

1,518 -42.5

5,841 -27.1

5,026 -27.3

3,565

-14

Source: MOFSL, Companies

CHART BOOK | August 2020

June 2020

1QFY21 Earnings: EBITDA/PAT above expectations



1QFY21 MOFSL Universe’s EBITDA/PAT growth so far are above expectations, led by broad-based cost cutting exercises. IT and

Healthcare earnings stood out.



EBITDA margins (Ex- Financials) expanded 270bp YoY to 18.4%.

Sales decline of 27% YoY is in line

14 15

9 11

23 25 23

12 9

EBITDA declined 6.1% YoY (v/s est. 12.0% YoY decline)

-3

16 15

-3 -4 -2

-27

-8

-6

PAT declined 24% (v/s est. -31.6%)

12 13

-6

-4

-15

EBITDA margin (ex-Financials) expanded 270bp YoY to 18.4%

-24

Source: MOFSL, Companies

CHART BOOK | August 2020

June 2020

1QFY21 Earnings: Highlighting top performances so far in MOFSL Universe



1QFY21 corporate earnings are in line so far with good breadth of beats and earnings upgrades.



We have highlighted 12 companies below, which have reported strong earnings beats.

Sales (INR M)

Company

Infosys

State Bank

Wipro

Britannia

Dr Reddy’ s

AU Small Fin.

JSPL

ICICI Securities

Ajanta Pharma

Laurus Labs

MCX

Essel Propack

June-20

actual

est YoY

YoY

(actual)

2,36,650

2,66,416

1,50,336

34,207

44,175

5,159

91,585

5,464

6,682

9,743

730

7,415

-14

-20

-8

EBITDA (INR M)

PBT (INR M)

Upgrades/

Downgrades (%)

FY21e

-3

123

FY22e

Var.

June-20

actual

June-20

actual

over

est YoY

YoY

(actual)

Exp. (%)

61,210

57,920

42,330

-1

-8

1,80,611

32,993

7,169

11,129

4,456

22,638

2,594

2,232

2,783

265

1,466

-3

-13

-10

-31

247

-4

101

55,598

30,951

7,370

8,789

1,873

2,809

2,594

2,067

2,215

714

776

-15

-11

-37

-10

356

-27

2,386

1,264

199

41,893

24,113

5,427

5,793

2,008

1,029

1,931

1,478

1,718

563

605

-10

-12

433

-23

105

988

1,338

114

170

Source: MOFSL, Companies

CHART BOOK | August 2020

June 2020

1QFY21 key earnings upgrades in MOFSL Universe



20 companies from the MOFSL Universe, which have seen big earning upgrades for FY21 (given below).

Company Name

HCL Tech.

Maruti Suzuki

Asian Paints

Wipro

Axis Bank

Ultratech CeM

Britannia

Tech Mahindra

Ambuja Cements

Havells India

ACC

SRF

JSPL

Alembic Pharma

Mindtree

ICICI Securities

Ajanta Pharma

Laurus Labs

Essel Propack

Persistent Systems

Sector

Technology

Automobiles

Consumer

Technology

Banks-Private

Cement

Consumer

Technology

Cement

Capital Goods

Cement

Others

Metals

Healthcare

Technology

NBFC

Healthcare

Others

Technology

MCap

(USDb)

25.4

21.8

21.2

16.1

15.7

12.2

8.3

5.8

4.8

3.5

2.9

2.5

2.4

1.9

1.3

0.9

EPS PREVIEW (INR)

FY21E

38.8

135.1

18.1

15.4

19.4

111.5

70.2

36.3

6.4

7.7

55.6

127.9

4.8

43.1

20.5

56.3

29.3

7.7

44.4

FY22E

45.6

231.3

28.4

17.7

35.4

176.6

77.1

44.7

7.1

12.9

70.8

197.6

10.3

44.3

23.3

70.6

36.1

10.2

59.5

EPS REVIEW (INR)

FY21E

44.4

152.1

25.5

17.3

21.8

135.5

81.3

42.6

7.7

8.8

146.7

7.7

51.7

57.4

65.4

9.3

53.7

FY22E

242

31.2

18.7

195.5

79.7

52.4

7.4

13.3

72.3

208.6

14.9

53.1

26.4

71.7

70.9

11.5

69.3

% Upgrade / Downgrade

FY21E

14.4

12.6

12.4

21.5

15.7

17.3

20.1

14.7

59.6

20.1

12.5

17.2

13.8

122.9

20.6

FY22E

11.8

4.6

9.8

5.8

10.1

10.7

3.3

17.2

4.1

3.5

2.1

5.6

44.7

19.9

13.3

13.4

1.6

96.5

12.5

16.5

Source: MOFSL, Companies

CHART BOOK | August 2020

June 2020

Rural India: Driving recovery trends

Monsoon has started on a good note

(10)

(20)

(30)

-8

-20

-2

-11

-19

-11

(% deviation from normal)

July

SWM

(% deviation from normal)

2020

2019

2006

2008

2010

2012

2014

2016

2018

2020

North West

Central

South

East & North East

Kharif sowing, % of normal sowing

75.0

PM Kisan Disbursement (INR b)

165

147

172

174

69.7

65.5

65.1

64.7

64.8

Dec'18- Mar'19

Aug'19-Nov'19

Apr'19-Jul'20

CHART BOOK | August 2020

June 2020

Auto monthly sales – Jul’20 sales show an uptrend



Wholesales data for Jul’20 improved for most major OEMs. Supply constraints still remain an issue in some segments.

Wholesale sales (Units)

Company

Maruti

M&M

Hero

TVS

Escorts (Domestic)

Ashok Leyland

Eicher- RE

Bajaj Auto

Wholesale Sales (%, YoY)

-1

-26

-54

-100

-86

-92

-52

-88

-100

-89 -81

-1

-27

-56

-100

-83

-97

-81

Apr-20

632

5505

9640

613

37878

May-20

18539

33901

112682

58906

6454

1420

19113

127128

Jun-20

57428

55902

450744

198387

10623

2394

38065

278097

Jul-20

108064

51080

514509

252744

4953

4775

40334

255832

July Wholesale (% above/below estimates)

-3

-4

-8

-19

-4

Apr-20

May-20

-10

Jun-20

Jul-20

-15

-33

-35

-69

-100

-26

-91

-70

-31 -33

CHART BOOK | August 2020

June 2020

COVID-19: Confirmed cases up 190% in Jul’20; Fatality rate down to 2.2%



Total confirmed cases of COVID-19 were up 190% in Jul’20 (MoM). Active cases were up 157%. Recovery rate increased to 65%.



Case Fatality rate for India has dropped to 2.2% from 3% in Jun’20.

Total Confirmed Cases

16,95,988

Total Active Cases

5,65,103

5,85,492

1,397

Mar'20

35,365

Apr'20

1,90,535

May'20

Jun'20

Jul'20

1,239

Mar'20

25,148

Apr'20

93,322

2,20,114

May'20

Jun'20

Jul'20

Recovery rate

59%

48%

26%

Mar'20

Apr'20

May'20

Jun'20

65%

2.5%

Death Rate

3.3%

2.8%

3.0%

2.2%

Jul'20

Mar'20

Apr'20

May'20

Jun'20

Jul'20

Source: Ministry of Health and Family Welfare, MOFSL

CHART BOOK | August 2020

June 2020

COVID-19: 69% of total active cases from five states



Maharashtra, Andhra Pradesh, Karnataka ,Tamil Nadu and Uttar Pradesh account for 69% of the total active COVID-19 cases in India

as on 31

Jul’20. None of the other states’ contribution is >5% of total active cases.



Gujarat and Maharashtra have the highest fatality rate of 4% each, while the average for India stands at 2.2%.

% of Total Active Cases

Fatality Rate

Source: Ministry of Health and Family Welfare, MOFSL

CHART BOOK | August 2020

June 2020

Third consecutive month of FII inflows in Jul’20; DIIs net sellers



FII inflows stood at USD1.3b (lower in Jul’20 v/s USD2.5b in Jun’20).



DIIs were net sellers in Jul’20 and outflows stood at USD1.3b.

-5

-10

FII (USDb)

3.1

1.3

-8.4

-4

Net DII (USDb)

7.5

-1.3

*As on 30 July’20

CHART BOOK | August 2020

June 2020

Nifty Polarization: Top-15 60pp outperformance v/s Next-35



Polarization remains a persistent theme in Indian equities. The top-15 in the Nifty-50 are representing the benchmark at almost

~15k while the Next-35 are still languishing at ~8,400 levels.



The Nifty Midcap-100 has outperformed the Nifty-50 over the past 3 months. Polarization, however, continues as the top-15

stocks within the Nifty Midcap-100 are up 28%, while the Next-85 stocks are up 16%.

Perf. (-3M)(%)

Nifty-50

Top-15

Next-35

Nifty Midcap-100

Next-35 Stock (Re-based)

Top-15

Next-85

16,000

13,500

11,000

8,500

6,000

Nifty-50

Top-15 Stock (Re-based)

Gap between Top-15 and Next-35 is widening

Top 15 stocks delivered return of 42%

14950

11073

8411

Index delivered

5% return

10,531

Next 35 stocks delivered negative return of 20%

As on close of 31 Jul’20

CHART BOOK | August 2020

June 2020

Nifty M-Cap nearing peak levels; Nifty Mid-cap M-Cap still ~30% away from peak



The Nifty-50’s market-cap is now only 3% away from Dec’19 levels. The muted 8% CAGR since Dec’14 is symptomatic of the tepid

corporate earnings cycle.



However, the Nifty Mid-cap-100’s market cap is down 29% from its peak and 7% below Dec’14 levels.

Nifty-50 M-cap (INR t) – Above Dec’17 levels

Nifty-50 (INR t)

Nifty’s m-cap almost halved during

GFC and then recouped in a year

42.7

55.5

54.5

57.1

3% correction

from peak

76.0

38.4

38.7

78.9

90.0

87.1

13.7

20.3

28.8

14.7

27.6

31.3

Nifty Midcap 100 M-Cap (INR t) – At 5-year low; down 29% from peak

Nifty Midcap-100 (INR t)

29% correction

from peak – M-cap now

21.9

16.7

8.2

9.0

11.0

17.0

16.7

15.9

16.1

15.5

2.8

3.6

6.5

2.8

6.7

6.9

CHART BOOK | August 2020

June 2020

Nifty-50 composition: Telcos big gainer; Autos, BFSI huge laggards



Nifty weightages – Auto’s weight at 5.6% is the lowest in a decade. Metals weight has halved since Dec’17 to 1.6% now. BFSI’s

(Public, Private , NBFCs and Insurance) weightage is down 880bp from end-Dec’19 and now stands at 33.2%.



Telecom has emerged as the biggest gainer and more than doubled its weight to 3.2% since its bottom in Dec’18. However, the

Healthcare sector has gained – from 2.1% to 3.2% currently – however, it is still down from 7.3% seen in Dec’18.

Weight in Nifty-50 (%)

Sector

Automobiles

Banks - Private

Banks - Public

NBFC+ Insurance

Capital Goods

Cement

Consumer

Healthcare

Metals

Oil & Gas

Telecom

Technology

Utilities

Miscellaneous

Nifty-50

Dec-04

6.7

4.7

5.8

2.1

4.0

2.8

7.8

6.3

8.2

27.1

6.3

14.5

1.9

2.0

100

Dec-08

2.5

5.0

5.4

2.3

7.7

1.7

6.5

2.6

4.8

24.5

11.6

9.0

13.3

3.3

100

Dec-12

8.8

16.9

4.7

7.9

5.9

4.2

12.3

5.0

3.8

12.3

2.0

11.4

4.5

0.5

100

Dec-16

11.8

21.5

3.1

6.6

4.0

3.0

10.1

6.3

1.5

9.4

2.3

14.4

4.4

1.6

100

Dec-19

5.7

27.8

2.6

11.6

3.2

1.5

10.2

2.1

2.4

12.5

2.2

12.8

2.8

2.6

100

Jul-20

5.6

21.4

1.6

10.2

2.4

2.2

11.7

3.2

1.6

16.2

3.2

16.1

2.5

2.3

100

Auto’s weight at its

lowest in a decade at

5.5%.

Oil and Gas captures

the value attributable

to RJio in RIL.

Consumer’s weight

in the Nifty stable

despite severe

underperformance

by ITC over the last

six years due to

inclusion of more

Consumer

companies in the

Nifty.

CHART BOOK | August 2020

June 2020

Valuations: Key Observations

CHART BOOK | August 2020

June 2020

Market cap-to-GDP ratio – Marginally above LPA



Market cap-to-GDP ratio has been volatile. It has moved from 79% in FY19 to 56% (FY20 GDP) in Mar’20 to 75% now (FY21E GDP)

– above the long-term average of 73%.



The lowest in the last two decades was 42% in FY04. However, the number of listed and traded companies back then were much

lower vis-à-vis today. The ratio hit a peak of 149% in Dec’07 during the 2003-08 bull run.

Market cap- to- GDP ratio (%)

No. of traded

companies

stood at just

2,640 in 2004

v/s 3,861 in

Mar’20

GFC: Peak of 149% in Dec’07

103

Average of 73% for the period

Lowest

since the

GFC

CHART BOOK | August 2020

June 2020

Yields: Earnings v/s bond; Near LT averages post equities’ rally in Jul’20



EY/BY ratio is near 10-year average both on forward and trailing basis, post the rally of the last two months.

1.8

1.5

1.3

1.0

0.8

0.5

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

EY/BY spiked sharply

during the GFC

It remained below 1x for the last

six years, except for a brief period

during demonetization

Highest since

Jun’13

LT Avg: 0.80%

0.82

2.0

1.6

1.2

0.8

0.4

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

10 Year Avg: 0.74%

0.72

CHART BOOK | August 2020

June 2020

Bonds: Spread v/s US’ 10-year expands ~90bp in a year; Currency stable, FX reserves at

all-time high



The US’ 10-year yields have collapsed to an all-time low of 0.5% and Indian 10-year yields are just a shade below 6%. Central Banks

globally (the US, the UK and Australia) have cut rates and pumped in more liquidity to provide stimulus due to the worldwide crisis.



On the currency front, the INR has displayed remarkable stability given the underlying all-time high FX reserves (USD505b).

However, the INR has depreciated by ~6% in CY20.

Fed cuts rates to zero post GFC

Fed increasing rates

Fed easing,

US- Sino trade

war, Covid-19

India 10 Year yield

6.8

US 10 year yield

India fiscal tightening,

Strong eco growth led by global book,

Fed raising rates

GFC

6.9

6.0

0.6

3.1

3.9

4.4

5.3

USDINR

Pre GFC peak

INR had its best time during 2003-07

in FX reserves

global bull run when GDP and Corporate

earnings growth was high and twin

deficits– CAD and FD – were amongst

the lowest in two decades.

Forex Reserves (USD b) (rhs)

Eurozone crisis, Taper tantrum, Yuan

devaluation. Taper tantrum episode in

2013 drove INR down sharply from 55 to 68

in just four months. This was a period of

high inflation and INR depreciation.

Low inflation characterized this

period post 2015. The INR has been

relatively less volatile despite

several global headwinds. FX

reverses surging.

600

450

300

150

CHART BOOK | August 2020

June 2020

Valuations: Nifty forward P/E at premium to LT mean while P/B at discount



The Nifty 12-month forward P/E of 20.7x is now at a premium of 17.6% v/s LT average of 17.6x.



At 2.5x, the Nifty’s 12-month forward P/B is slightly below the historical average of 2.6x.

12-month forward Nifty P/E (x)

12 month forward Nifty P/E (x)

24.7

20.7

LT Avg: 17.6x

12-month forward Nifty P/B (x)

4.4

3.6

2.8

2.0

1.2

LT Avg: 2.6x

2.9

2.5

CHART BOOK | August 2020

June 2020

Valuations: Nifty trailing P/E trading at premium to LT averages while P/B is at a

discount



The Nifty’s 12-month trailing P/E of 23.7x is trading at ~27% premium to its LT average of 18.7x since Mar’05.



At 2.7x, the Nifty 12-month trailing P/B is well below the historical average of 3x.

12-month trailing Nifty P/E (x)

12 month trailing Nifty P/E (x)

25.2 23.7

LT Avg: 18.7x

12-month trailing Nifty P/B (x)

5.5

4.5

3.5

2.5

1.5

12 month trailing Nifty P/B (x)

LT Avg: 3x

3.1

2.7

CHART BOOK | August 2020

June 2020

Sectoral valuations: Private Banks near LT mean while IT trades at a premium

Pvt Banks’ valuations near LT mean

4.3

3.5

2.8

2.0

1.3

0.5

P/B (x)

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

2.8

2.3

1.9

3.4

2.2

1.0

Technology trading at 12% premium to LT averages

28.0

22.0

16.0

10.0

4.0

26.4

P/E (x)

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

20.8

17.4

19.4

13.9

7.8

CHART BOOK | August 2020

June 2020

Sectoral Valuations: Metals at -1SD; Oil and Gas above LT mean

Metals: Valuations at -1SD; well below book value

6.0

4.5

3.0

1.5

0.0

P/B (x)

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

4.4

2.2

1.5

0.8

0.6

0.9

Oil & Gas: Valuations above LT mean

3.7

2.9

2.1

1.3

0.5

P/B (x)

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

3.1

2.0

1.7

1.3

1.1

1.8

CHART BOOK | August 2020

June 2020

Sectoral Valuations: Consumer off 7%, while Autos near -1SD

Auto valuations at -1SD; down 41% from peak in Dec’17

P/B (x)

6.0

4.5

3.0

1.5

0.0

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

3.7

4.4

3.1

2.5

1.5

Down 41% since

peak in Dec-17

2.6

Consumer valuations above 1SD; 7% away from peak

P/E (x)

52.0

42.0

32.0

22.0

12.0

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

47.8

40.1

32.0

24.0

17.4

Down 7% since peak

in Aug-18

44.2

CHART BOOK | August 2020

June 2020

Top Ideas

Company

Mkt Cap

(US$ B)

EPS (INR)

FY20

FY21E

FY22E

EPS CAGR

FY20-22,

18.9

11.3

40.8

6.1

7.6

10.8

58.7

156

PE (x)

FY21E

FY22E

PB (x)

FY21E

FY22E

ROE (%)

FY21E

FY22E

Stocks away from

(%)

52 Week 2 Year

high

-15

-2

-9

-37

-3

-25

-2

-3

-2

-8

-37

-39

-20

-56

-42

-11

-7

-37

-6

-24

-1

-38

-1

-4

-55

-37

-16

-55

-42

PREFERRED LARGE-CAP STOCKS

Hind. Unilever

Infosys

Bharti Airtel

ICICI Bank

Wipro

Titan Company

Dabur India

M&M

L & T Infotech

Tata Consumer

Alkem Lab

Motherson Sumi

AU Small Finance

ICICI Securities

Aditya Birla Fashion

Team Lease Serv.

5.5

5.2

4.1

2.9

1.3

0.4

31.2

38.9

-7.5

12.3

16.6

17.1

8.6

17.6

86.7

95.4

3.7

22.6

16.8

-0.2

48.9

34.3

41.6

10.2

16.1

17.3

11.3

31.9

95.2

7.8

101.3

1.2

20.7

-7

64.6

44.2

48.2

5.4

24.3

18.7

19.7

10.6

44.3

113.8

9.9

126.8

5.5

28.9

26.4

-1.2

64.4

23.2

54.3

21.6

16.3

25.3

54.8

26.3

78.7

18.9

28.6

50.1

102.9

14.3

52.8

48.5

13.7

21.2

43.2

17.3

25.7

17.2

23.4

10.6

5.9

4.5

1.8

2.5

12.8

6.4

2.8

4.5

2.6

4.6

10.2

17.7

4.6

10.5

5.1

4.3

1.6

2.2

12.4

11.9

1.8

5.3

2.7

3.8

2.4

3.9

8.6

21.3

3.9

28.2

25.2

7.7

8.8

16.1

15.2

23.3

8.2

28.1

5.1

18.3

3.3

13.5

58.4

-66.2

17.6

25.4

4.3

12.1

15.2

24.9

25.4

10.1

27.7

6.3

19.7

14.3

16.3

54.3

-18.6

PREFERRED MID-CAP STOCKS

As on 31 July’20

CHART BOOK | August 2020

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.

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June 2020

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institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major

institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the

"Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOFSL has entered into a chaperoning

agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this

chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and

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

For Singapore

In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets services license and an exempt financial

adviser in Singapore,

as per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary

Authority of Singapore. Persons in Singapore should contact MOCMSPL in respect of any matter arising from, or in connection with this report/publication/communication. This report is distributed solely to persons who

qualify as “Institutional Investors”, of which some of whom may consist of "accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the SFA”). Accordingly,

if a Singapore person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and inform MOCMSPL.

Disclaimer: The report and information contained herein is strictly confidential and meant solely for the selected recipient 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. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or

solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is

suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own

investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such

investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own

advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another

derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or

fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as

endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required

from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the

securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of

these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is

already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This

document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This

report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or

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