presentation on equity markets - kotaksecurities.com · •global pmi : jp morgan global composite...

Presentation on Equity Markets

10th Jul’18

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Performance: Regional markets

Source: Kotak Institutional Equities (KIE)

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Performance: Sectoral Indices


• Global Growth: Expected growth of ~3.2% in CY18

• Trade War: US & China trade war will effect global GDP growth

• EM Currency: China devaluation could be a threat to EM currencies

• US Fed rate: Two more rate hikes in 2018 (total 4 rate hikes in 2018)

• ECB Tapering: From € 60 bn to € 30 bn to future € 15 bn to Zero in Dec’18

• Oil prices: Monitor OPEC supply increase and IRAN sanctions

• Global PMI : JP Morgan Global Composite PMI is steady at ~54

• China PMI: Market Mfg PMI was 51 in Jun’18

• Bond Yields: Expect the US 10 Yr to peak out at 3.5% in future

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International: Factors influencing markets

• Twin Deficits: Upside risk to CAD (2.9%) & Fiscal Deficit (3.5%).

• BoP: Captures Inflows & Outflows. Turning negative in FY19.

• PMI: Recovering - Mfg PMI (53); Service PMI (52.6)

• Credit Offtake: Still remains subdued in single digit

• Currency: Strong Dollar, High crude prices & FPI outflows = Weak INR

• Inflation: CPI to average >4.5% in FY19 Vs. 3.6% in FY18

• RBI Rates: Look for another 25 bps rate hike in CY18.

• Monsoon: Start is poor, reservoir levels are low

• Govt. Spend: Strong, but could slow down

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Domestic Macros: Important Indicators

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Macros: Headwinds


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GST: Need monthly run rate of Rs.1.04 lakh cr



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Trade Deficit: Non oil, non gold at an all time high


Low Corporate profits & low savings = > CAD.

CAD/GDP to go to ~2.9% in FY19E.

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MSP: Impact of 40-60 bps on CPI


Weighted average increase in MSP is ~17.4% over FY18 season.

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Flows: SIPs dominate local flows


FII outflows (CYTD)

S.Korea: USD 3.4 bn

Taiwan: USD 10.0 bn

Thailand: USD 5.9 bn

Indonesia: USD 3.6 bn

Phillipines: USD 1.2 bn

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Q1 FY19E Earnings Preview: Aggressive future estimates


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Earnings: Aggressive future estimates

KIE is building in Nifty earnings growth of 23% in FY19E and 20% in FY20E. Numbers look aggressive but the base of FY18 is very low. Expect RoEs to improve to more than 15% in FY20E (from 12.7% in FY18).


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Earnings: Estimates for past few years


KIE EPS Estimates:

SensexFY19E: Rs.1755FY20E: Rs.2180

NiftyFY19E: Rs.545FY20E: Rs.670

Note: ~45% of Nifty earnings comes from Forex driven companies.

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Nifty Valuations: On the higher side

Nifty valuations rich at 18.8x Fw PE but not in bubble zone.

Further re-rating looks difficult – given macro headwinds.


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Valuations: Earnings Yield Vs. Bond YieldBond Yields are far higher then Earnings yield. This puts Equity market valuations at risk.


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Mid Cap Vs Nifty Valuations

Source: Kotak PCG Research

• Nifty FY19E EPS: Rs.545 & FY20E EPS: Rs.670

• Nifty trades at 18.8x on 1 Yr Fw EPS. Hardly any scope of re-rating.

• Returns to be based on earnings delivery rather than PE expansion.

• Several midcaps have corrected in 2018.

- Additional Surveillance measures by SEBI, Corporate governance issues & Auditor related issues.

• Need to be very selective while choosing midcaps.

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

• Apportion larger allocation towards large caps (that too in safer names).

• Preferred Sectors: Automobiles, Pharmaceuticals, Agro Chemicals, Housing Finance, Metals and Infra & Construction.

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Investment Strategy

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Preferred Picks:

Also add: Pharma, Housing Fin & Agrochemicals

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

Kotak Securities - Institutional Equities - Path: Login to www.kotaksecurities.com > Research > Equity Reports > India Daily Institutional Equities Research Report

http://www.kotaksecurities.com/


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Ideas for this month:

Source: Kotak PCG Research & Kotak Institutional Equities (KIE)

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

Kotak Securities - Institutional Equities - Path: Login to www.kotaksecurities.com > Research > Equity Reports > India Daily Institutional Equities Research Report



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Thank You

presentation on equity markets - kotaksecurities.com · •global pmi : jp morgan global composite...

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