Market Outlook - Kotak Securities · 2018. 11. 29. · •Market breadth has been very shallow with...

Market Outlook- By Rusmik Oza

- Sr. VP (Head of Fundamental Research)

5th Oct’18

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Performance: Regional markets

Source: Kotak Institutional Equities (KIE)

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Performance: Sectoral


▪ Between 2014 & 2017 The NSE Mid Cap Index cumulatively out performed the Nifty by 58%.

▪ YTD 2018, the NSE Mid Cap Index has underperformed the Nifty by 23%. (YTD = Jan to Sep’18)

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Key Parameters: 10 Yr G-Sec, Brent Crude, CPI & Currency


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GST: Still below Budgetary target


▪ Government needs a monthly run rate of Rs.1.19 tn for 2H-FY19.

▪ Our house target of GFD/GDP is ~3.5% Vs Government target of 3.3%.

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Trade Deficit & CAD: Could go out of control


▪ Monthly Trade Deficit has widened to USD 18 bn in Jul’18

▪ CAD/GDP may rise to 2.6-2.8% of GDP in FY19E (Q1-FY19: 2.4%)

▪ This will increase borrowing cost for corporates and lead to further weakness in the INR

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CPI: To rise in 2H-FY19


▪ Risk of inflation going up (i.e. Poor monsoon, Higher MSP, Crude & imported inflation)

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Liquidity: Could remain tight in the system


▪ Liquidity situation not as grim as 2013. Recent RBI measures has eased the liquidity pressure.

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Loan Growth: Better than Deposits & picking up


▪ Grey line in the below char is Loan growth & red line is Deposit growth.

▪ Loan growth is at 13.5% Vs Deposit growth of 8.6%

Corporate Loan growth: 2%

Service Loans: 27%

Retail Loans: 18%

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Crude: Iran sanctions could lead to spike in crude prices


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Crude: OECD crude production below 5 year average


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Crude: US crude production has increased by ~2 mn barrels/day

Source: Bloomberg

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Flows: Local Flows dominate led by MFs


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Flows: Local Flows dominate led by MFs


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Earnings: KIE sectoral earnings estimates

Overall earnings growth expectation is ~22% for next two years (for Nifty 50).There is risk to earnings growth due to disruption being seen in many sectors

Source: Kotak Institutional Equities (KIE) & PCG

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MSCI World Chart: Still in comfort zone (Thanks to USA)

Source: Bloomberg & Kotak Private Client Group

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MSCI EM Chart: On the verge of Bear phase


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MSCI India Chart: Has broken 200 DMA today


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Nifty Daily Chart: Has broken 200 DMA


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MSCI EM Vs MSCI India Fw PE chart: Gap is still very high


In below chart: Green line is MSCI India FW PE and Yellow is MSCI EM Fw PE

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Nifty Fw PE chart: Support at 16.5x on Fw basis


In below chart: Yellow line is the Weekly Fw PE chart & Purple is the 200 WMA

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Nifty Vs Mid Cap Fw PE chart: Gap has narrowed


In below chart: Yellow line is the Weekly Fw PE chart & Purple is the 200 WMA

• Macros concerns have increased: Crude, Trade Balance, Inflation risk & Fiscal

• Market breadth has been very shallow with poor delivery volumes.

• INR depreciation & market fall is very bad for FPIs invested in India.

• Earnings growth (mfg sector) will look good for 1H-FY19E. 2H-FHY19 = challenging

• Nifty & Mid Cap Index is trading at 16.5x & 17.5x, respectively on 1 Yr Fw EPS.

• Valuations have moderated close to 10 year average.

• Market has broken 2000 DMA. Remain cautious with downside bias

• Long term investors need to have 2-3 year view & spread the buying in tranches.

• Focus on Good management, superior earnings growth & reasonable valuations.

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Observations & Investment Strategy

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Top Picks: For the month of Oct’18 (with one year view)

For detailed reports kindly visit Kotak Securities - Private Client Group - Path: Login to www.kotaksecurities.com > Research > Equity Reports > Stock Recommendation Snapshot

http://www.kotaksecurities.com/

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Thank You

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Q&A Session

Market Outlook - Kotak Securities · 2018. 11. 29. · •Market breadth has been very shallow with...

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