INSTITUTIONAL EQUITY RESEARCH PhillipCapital Market ...backoffice.phillipcapital.in/Backoffice/Research...Sector strategy and top ideas We recommend being overweight on media, telecom,

INSTITUTIONAL EQUITY RESEARCH

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PhillipCapital – Market Intelligence Bulls pick up pace and FIIs record flows, but poor monsoon could play spoilsport

INDIA | STRATEGY | Monthly Update

13 April 2017

Market commentary: UP, up, and away NIFTY gained 3.3% mom in March as BJP’s solid win in UP raised hopes of accelerating reforms. Global investor sentiment was supportive as well, given a less-hawkish-than-expected Fed. The Nifty is currently trading at 17.4x one-year forward PE, which is almost +2SD above its 10-year average of 15.4x. Nifty premium to MSCI EM and MSCI Asia ex-Japan continues to rise, but price-to-book still looks attractive. Flows update: FIIs back in the driving seat Last month saw DII outflows of US$ 884mn, while FIIs added record flows of US$ 5.9bn, driving a liquidity fueled rally. Not surprisingly, India was the top destination for foreign funds vs. Asian EM peers. Key theme in focus: Jitters over a weak monsoon Skymet has predicted a below-normal monsoon for 2017 (95% of Long Period Average) on a potential El Nino return in late-July. While, of late, shocks of a poor monsoon to rural GDP have become less pronounced, the impact on inflation is still worrisome. Our analysis indicate that from 2000 to 2015, India experienced below-normal monsoon in eight out of 16 years with average agri GDP growth at 0.4% (vs. 2.9% average agri GDP), while CPI was 5.8%. We highlight three key themes and stock plays to ride out another weak

monsoon. Top picks to hedge exposure: Voltas, Colgate, HUL, ITC, and Parag Milk Foods. For further details, refer to our earlier report. 4QFY17 preview – Broadly positive, more hits than misses Growth expectations appear muted for IT services, pharma, and telecom, but remonetisation tailwinds will drive a healthy 12% yoy topline growth in consumer (vs. nil in 3QFY17). PC coverage (145 stocks) universe’s sales/EBITDA/PAT is likely to grow by 12%/6%/49% yoy. Most of the profit growth is due to a low base in financials and metals (like in 3QFY17). PAT ex‐financials is likely to grow by about 8.3% yoy. PAT ex‐financials and metals is likely to see only a marginal growth of 0.2%. For further details, refer to our 4QFY17 preview. Sector strategy and top ideas We recommend being overweight on media, telecom, metals & mining, financials, and cement. We are underweight on IT and pharma, and equal weight on cap goods and oil & gas.

Our top ideas are: Reliance Industries, Bharti Airtel, KEC International, Glenmark, NIIT Tech, ZEEL, Tata Steel, Emami, and GCPL.

Aashima Mutneja, CFA (+91 22 66679974) [email protected]

Naveen Kulkarni, CFA, FRM (+91 22 66679947) [email protected]

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_Rural_Resurgence_-_March_2017_20170330135035.pdf

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_Q4FY17_Results_Preview_-_Apr_2017_20170411111121.pdf

mailto:[email protected]

mailto:[email protected]


MARKET INTELLIGENCE MONTHLY UPDATE

INDEX

Key theme in focus – Weak monsoon jitters ................................................................................................... 3

Sector strategy & top picks

PC top stock ideas .................................................................................................................................. 5-7

Market performance & valuations

Global indices performance ................................................................................................................. 9

NIFTY valuations .................................................................................................................................. 10

Global valuations ................................................................................................................................. 11

Sector performance ............................................................................................................................. 12-13

Sector valuations ................................................................................................................................. 14-15

BSE200 top gainers & losers ................................................................................................................ 16-17

Styles performance .............................................................................................................................. 18

Styles valuations .................................................................................................................................. 19

FII & DII analysis

Flows update ........................................................................................................................................ 21

Macro & market indicators

Macro indicators – global .................................................................................................................... 23

Macro indicators – India ...................................................................................................................... 24

Market indicators ................................................................................................................................ 25

Commodities tracker ............................................................................................................................ 26

Model portfolio .................................................................................................................................... 27



Below-normal monsoon could spell one more year of disappointing agri growth. Focus on our three key strategies to ride out another weak monsoon

Skymet has forecasted a below-normal monsoon with 15% probability of a drought Skymet has been directionally correct in four of its five predictions (IMD yet to take a call)

Adverse monsoon effects have become more manageable in recent history We recommend three strategies and stock picks to ride out a weak monsoon

Key Monsoon Statistics 2000-2015 1951-2015

Normal Monsoon Avg. Agri-GDP 2.9% 2.8%

Avg. CPI 6.8% 7.6%

Below Normal Monsoon

(95% LPA) Avg. Agri-GDP 0.4% -1.1%

Avg. CPI 5.8% 7.8%

Key Strategies Stock picks

Cautious on rural discretionary and rural-focused NBFC's

Escorts, Hero Motocorp, Finolex cables, Mahindra & Mahindra Financial Services, Bharat Financial Inclusion, DB Corp, and HMVL

Increase exposure to consumer durables on what looks like an extended summer

Voltas will benefit from a dry and hot season

Expect further upside from consumer staples and dairy companies

High-inflation beneficiaries: Colgate, HUL, ITC, and Marico. Dairy: Parag Milk Foods

Source: Skymet, data,gov.in, PhillipCapital India Research

Excess, 20%

Above Normal, 35%

Normal, 30%

Below Normal, 10%

Drought, 5%

-20%

-15%

-10%

-5%

0%

5%

10%

80%

85%

90%

95%

100%

105%

110%

2012 2013 2014 2015 2016

Skymet 1st forecast Actual Deviation (rhs)



PHILLIPCAPITAL – MARKET INTELLEGENCE

Sector Strategy & Top Picks



PC top stock ideas

METALS & MINING - Overweight Tata Steel: Strong core performance; pension resolution in focus TATA IN | RATING: Buy | CMP: Rs 495 | TARGET: Rs 600 | UPSIDE: 21%

Domestic volume growth led by ramp up at Kalinganagar along with higher prices of steel & ferro alloys. Final Anti-Dumping duty (ADD) on flat products for five years is expected to be notified soon, after DG-Anti Dumping released final findings and marginally tweaked reference prices for HRC higher. This has formed a floor price for the next five years and will provide cushion in a falling price scenario.

ADD on Chinese/Russian imports into EU (final duty for China revised upwards) and spread expansion has helped improve profitability. Tata Steel Europe has concluded the sale of two of its highest loss-making segments – Long products business in Europe (LPE), which involved Scunthorpe, and its speciality steel business – the latter for 100mn GBP. These will help to stem the cash burn.

The UK unions have also voted in favour of a proposed change in the pension scheme to ‘defined contribution’ from ‘defined benefit’. This will also help reduce annual outgo.

These measures are a prerequisite and will eventually help Tata Steel to form a JV with ThyssenKrupp and become the second-largest steel player in Europe. This would help offload some debt from Tata Steel’s book and ease its debt overhang.

MEDIA - Overweight Zee Entertainment – Industry leading ad-revenue growth to continue Z IN | RATING: BUY| CMP: Rs 534 | TARGET: Rs 570 | UPSIDE: 7%

Ad revenue growth to revive from Q1FY18, primarily due to increased competitive intensity in telecom, FMCG and mobile handsets sectors.

Steady-to-higher market share gains in regional markets to cushion near‐term negative impact of a market‐share loss in Hindi GEC.

New programming launches will prop-up its viewership share in the medium term.

Digitisation of phase-3 and 4 markets to help achieve 17-18% subscription revenue CAGR in FY17-19.

Zee might use proceeds from the sale of its sports business for redeeming its preference shares in advance.

TELECOM - Overweight Bharti Airtel – Beneficiary of industry consolidation BHARTI IN | RATING: BUY | CMP: Rs 350 | TARGET: Rs 410 | UPSIDE: 17%

Bharti Airtel is a key beneficiary of consolidation in the telecom industry, as it will lead to improvement in return ratios and pricing in the long term.

Medium term will remain challenging because of the onslaught of Jio, but Bharti has executed well and will be able to defend its turf. Jio will start charging customers and its tariff plans indicate an ARPU not much lower than Bharti’s current ARPU. While realisations will decline in the medium term, ARPU decline will be much slower.

In the long term, the telecom market will be supply constrained, which will provide significant pricing support. Bharti, with dominant market position and strong spectrum footprint, will see sharp EBIDTA growth.

Bharti currently trades 8x FY18 EV/EBIDTA. Considering that its India business is still undervalued at 6.5x EV/EBIDTA, the scope for further rerating is immense considering. Idea trades at 9x FY18 EV/EBIDTA.

PHARMACEUTICALS - Underweight Glenmark Pharma: US business set for value growth



GNP IN | RATING: BUY | CMP: Rs 874 | TARGET: Rs 1100 | UPSIDE: 26%

US generic pipeline shaping up well. We expect niche launches in the differentiated generics space (hormones, oncology, respiratory) to consolidate its positioning in US generics over 3-4 years.

It is among the best executors of new launches in India with focused marketing of derma, respiratory, cardiac, and gynaecology drugs. It can replicate the same execution strategy in emerging markets such as Russia for long-term sustainable growth.

GNP’s progress on its research pipeline, both complex generics and NCEs, could provide upside to our long-term expectations. In FY17, it saw significant progress in its R&D pipeline: (1) In Q4, it successfully completed Phase-3 clinical trial results for GSP 301 a nasal spray for seasonal allergic rhinitis. After USFDA approval (might take a few quarters) it can launch this as a branded drug (US$ 100mn market). (2) received USFDA nod to initiate Phase-2 clinical trials for its respiratory IND molecule. This development could trigger an out-licensing opportunity for GNP in the near future.

It can see healthy improvement in profitability led by (guided) US$ 180mn debt reduction (supported by FCCBs by FY17) and debt reduction through cash generation from exclusivity in gZetia in Q3FY17.

Trades at 16x/15x our FY18/19 earnings. We expect qoq improvement in operating and financial performance, with earnings CAGR of 22% in FY16-19. TP of Rs 1,100 discounts our FY18/19 EPS by 20x/19x.

IT Services – Underweight NIIT Tech: Attractive valuations; bright outlook NITEC IN | RATING: BUY| CMP: Rs425| TARGET: Rs500 | UPSIDE: 18%

Over the last two years, NITEC has significantly rationalised its portfolio. Ex-COO, Sudhir Chaturvedi’s strategy of: (1) cross-selling IMS, (2) expanding the BFSI business in the US, (3) securing a leadership position in the transport vertical, and (4) reducing the low-margin government business – was executed to perfection. Over FY13-16, IMS

grew 55%, US’ contribution increased to 45% from 37%, and government business contribution reduced to 2% from 11%.

NITEC has executed end-to-end solutions for 50 leading global airlines (clients), which include operations, enterprise and ticketing solutions, and mobility solutions.

Business rationalisation is now complete and current order book of US$ 310mn consists of largely high-margin onsite revenue. While FY17 revenue might still be tepid because of a soft 9mFY17 and lower government business, strong revenue growth in FY18 and beyond is possible based on current order book and bottoming out of NITL/GIS business – this would provide additional levers for margin expansion.

Currently trading at 9x FY18 P/E – attractive valuations. CONSUMER – Equal weight Emami HMN CODE IN | RATING: NEUTRAL | CMP: Rs 1020 | TARGET: Rs 1090 | UPSIDE: 7%

Liquidity situation has improved significantly in Q4 and trade channels have almost recovered. Consumer sentiment in both urban and rural areas has improved to pre-demonetisation levels. We expect growth to rebound in double digits from Q4FY17 onwards and expect strong sales growth in FY18/19.

Intense summer forecasts by IMD will help Emami to deliver strong growth in its summer portfolio, aiding growth.

It has shifted innovations that were to be released in Q3/Q4 to Q1FY18 – we expect FY18 sales growth to surprise positively due to innovation-led growth, which can lead to raised consensus EPS forecasts.

The stock trades at a significant discount to other FMCG companies; this widening gap is unwarranted.



GCPL GCPL IN | RATING: BUY | CMP: Rs 1674 | TARGET: Rs 1840 | UPSIDE: 10%

Liquidity situation has improved significantly in Q4 and trade channels have almost recovered. Consumer sentiment in both urban and rural areas has recovered to pre-demonetisation levels. We expect growth to rebound in double digits from Q4FY17 and see strong sales growth in FY18/19.

We see international markets growth accelerating with commodity prices back in inflationary territory. We expect improvement in demand in all the key markets of GCPL – Indonesia, Africa and Latin America.

Stock trades at 38x FY18 earnings (in line with sector) and we expect strong earnings growth in FY18/19 to drive the stock.

CAPITAL GOODS – Equal Weight KEC International – Ticking all the right boxes KEC IN | RATING: BUY | CMP: Rs 213 | TARGET: Rs 213 | UPSIDE: +8%

Robust FY17 order inflows (+42% yoy) lead to strong order book (1.4x FY18 sales). Expect strong FY18 orders, despite high base, driven by railways (on doubling of end market for OHE to 4,000kms) and TBCB projects (on Rs 106bn opportunity for KEC), which provides strong visibility for FY18/19 revenues (we expect 15%/12% yoy growth after two years of flat revenues).

Margins to expand 50bps over FY17-19, driven by absence of provisions for legacy orders, operating leverage benefits in the solar segment, and higher margin in recent international orders.

Improvement in working capital on strict control and recovery of Rs 5bn retentions in FY18 will drive benefits of financial leverage.

Consequently, we expect a 25% earnings CAGR over FY17-19 and RoE of 18.4% in FY19 (vs. 15.6% in FY17).

We have valued the stock at 15x FY19 earnings, which is below its +1SD of long-term average PE.

OIL & GAS – Equal weight Reliance Industries – Jio "Primed" for growth RIL IN | RATING: BUY | CMP: Rs 1,372 | TARGET: Rs 1,650 | UPSIDE: 20%

Jio’s launch was a success, with 72mn effective users (ahead of expectations) on a 100mn subscriber base, and attractive but disciplined pricing. Jio Prime's plans (1) offer a simplified tariff structure with no hidden charges, which make them attractive, aiding conversion and dependency, and (2) eased fears of margin‐destructive price wars – in fact, they exhibited good discipline towards protecting and improving pricing power.

In a recent analyst meet, it laid out a comprehensive strategy. Its key targets were 50% RMS and 50% EBIDTA margin. Some salient points: (1) Reducing the voice market, thereby pushing data usage. (2) At the right pricing, the Indian data market will grow to 500‐600 GB per month in the next 3‐4 years. Assuming a pricing of Rs 50/GB, the market size will be around Rs 3‐3.5tn annually. (3) Jio targets 50% RMS; higher ARPU and scale would result in EBITDA margin of ~50%.

Execution and network stability will be key; maintenance of high data speed, voice quality, and attractive offerings can boost usage and subscribers' preference for Jio. For now, we take a more conservative stance – Rs 180 blended ARPU in FY18 on a 90mn average subscriber base. Based on our primary thesis of industry consolidation to a four‐player market, we expect this to touch Rs 270+/300mn+ by FY25, implying revenue/EBITDA/margin of Rs 1tn/460bn/45% for Jio. Although much lower than RIL's targets, our estimates imply an EV of Rs 2.2tn for Jio, which is an equity value of almost Rs 1tn.

We value Jio at 8x FY25 EBITDA, discounted to FY18 end, and raise our SOTP‐based target for RIL to Rs 1,650 (from Rs 1,190) with telecom valuation of Rs 2.2tn EV vs. Rs 1tn earlier. While we keep RIL's EBITDA largely unchanged for FY17/18/19, due to lower IndAS‐based depreciation in FY17 and higher other income, we raise our EPS by 4%/14%/38%.



PHILLIPCAPITAL – MARKET INTELLIGENCE

Market Performance & Valuations



Global Indices Performance NIFTY gained 3.3% in March as BJP’s solid win in UP raised hopes of accelerating reforms. Global investor sentiment was supportive as well, given a less-hawkish-than-expected Fed

NIFTY gained 12% YTD, marginally underperforming MSCI Asia ex-Japan and MSCI EM that have rallied 13%.

Source: Bloomberg, PhillipCapital India Research, Prices as of Mar 31, 2017

4.7% 3.5% 3.5%

3.3% 3.3%

2.7% 2.5%

1.6% 1.5%

1.2% 0.6%

0.2% 0.1%

-0.2% -1.1%

-2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

STOXX50 Asia ex Japan

MSCI EM India Nifty

Korea Australia

Singapore Hong Kong

US (NASDAQ) MSCI WORLD

Taiwan US (SPX) CSI 300

HANG SENG CHINA ENT INDX Japan

1m % performance

13.1% 12.4%

12.1% 10.2%

9.9% 9.6%

9.4% 6.6%

6.2% 6.0%

5.8% 5.7%

4.4% 3.5%

-1.1%

-2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

Asia ex Japan MSCI EM

India Nifty Singapore

US (NASDAQ) Hong Kong

HANG SENG CHINA ENT INDX Korea

MSCI WORLD Taiwan

US (SPX) STOXX50

CSI 300 Australia

Japan

3m % performance

13.1% 12.5%

12.2% 10.2%

9.9% 9.6%

9.4% 6.6%

6.1% 6.0%

5.8% 5.1%

4.4% 3.5%

-1.1%

-2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

Asia ex Japan MSCI EM

India Nifty Singapore

US (NASDAQ) Hong Kong

HANG SENG CHINA ENT INDX Korea

MSCI WORLD Taiwan

US (SPX) STOXX50

CSI 300 Australia

Japan

YTD % performance

20.3% 18.9%

17.7% 17.6% 17.5%

17.3% 17.3%

17.0% 16.2%

14.2% 13.4% 13.3%

12.7% 9.5%

7.3%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

US (NASDAQ) India Nifty

STOXX50 Hong Kong

Asia ex Japan MSCI EM Australia

Japan HANG SENG CHINA ENT INDX

US (SPX) MSCI WORLD

Taiwan Singapore

Korea CSI 300

1 yr % performance



NIFTY Valuations Nifty looks expensive on PE (trading at a 30% premium to MSCI EM), but attractive on price-to-book.

Nifty vs. other regions Nifty cons FY18E earnings expectations have gone up 3% in last 1-month Country/Region ____Earnings Growth (%)____ ____________P/E____________ CY 2016 CY 2017 CY 2018 CY 2016 CY 2017 CY 2018

S&P 500 1% 9% 12% 18.9x 18.3x 16.3x India 1% 18% 19% 18.1x 17.3x 14.6x

Japan -1% 14% 10% 19.0x 16.4x 15.0x

France 3% 8% 11% 15.5x 15.0x 13.6x

Shanghai -10% 11% 13% 14.6x 14.0x 12.4x

Germany -1% 9% 9% 14.1x 13.8x 12.7x

MSCI Asia ex Japan -8% 20% 10% 13.8x 13.1x 11.9x

MSCI EM -2% 21% 12% 13.5x 12.4x 11.1x

Brazil 19% 34% 12% 15.0x 12.0x 10.8x

Hong Kong -10% 10% 9% 12.1x 12.0x 11.0x

South Korea 15% 23% 7% 11.4x 9.7x 9.0x

Russia 16% 17% 13% 7.7x 6.2x 5.5x

Nifty one-year forward PE Nifty one-year forward PB


300

350

400

450

500

550

600

650

700

Ap

r-1

1

Au

g-1

1

Dec

-11

Ap

r-1

2

Au

g-1

2

Dec

-12

Ap

r-1

3

Au

g-1

3

Dec

-13

Ap

r-1

4

Au

g-1

4

Dec

-14

Ap

r-1

5

Au

g-1

5

Dec

-15

Ap

r-1

6

Au

g-1

6

Dec

-16

FY12E FY13E FY14E FY15E

FY16E FY17E FY18E

Avg + 1SD

10-yr Avg

Avg -1SD

5

7

9

11

13

15

17

19

21

Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16

1-yr Fwd Nifty PE

Avg + 1SD

10-yr Avg

Avg -1SD

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5


1-yr Fwd Nifty PB



Global Valuations Developed markets continue to trade at a premium to their long-run average; EM valuations look more attractive

US S&P 500: One-year forward PE Emerging markets: One-year forward PE

MSCI Asia ex Japan: One-year forward PE trends Developed markets: One-year forward PE


Mean

Mean + 1SD

Mean -1SD

8

9

10

11

12

13

14

15

16

17

18


SPX 1-yr fwd PE

Mean

Mean + 1SD

Mean -1SD

5

7

9

11

13

15

17


MSCI EM 1-y fwd PE

MSCI Asia ex Japan 1-y fwd PE

Mean + 1SD

Mean -1SD

5

7

9

11

13

15

17

19


MSCI Asia ex Japan 1-y fwd PE

Mean

Mean + 1SD

Mean -1SD

7

8

9

10

11

12

13

14

15

16

17


MXWO Index 1-y fwd PE



Sector Performance Nifty’s 3.3% gain in March was driven by solid rebound in realty stocks and PSU banks that rallied on hopes of a NPA resolution soon. Pharma continued to underperform and is down 3.9% in the last three months


9.0%

7.3%

5.9%

5.4%

4.7%

4.3%

4.1%

3.8%

3.7%

3.4%

3.3%

3.3%

2.8%

2.5%

2.3%

1.2%

0.2%

-1.0%

-1.6%

-4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

NIFTY REALTY

NIFTY PSU BANK

NIFTY MEDIA

NIFTY FMCG

NIFTY Midcap 50

NIFTY Midcap 100

NIFTY BANK

NIFTY SERV SECTOR

NIFTY500

NIFTY MNC

Nifty

NIFTY INFRA

NIFTY NEXT 50

NIFTY ENERGY

NIFTY AUTO

NIFTY COMMODITIES

NIFTY IT

NIFTY METAL

NIFTY PHARMA

1m % sector price performance

23.6%

15.9%

14.2%

13.7%

13.5%

12.8%

12.3%

12.2%

11.3%

10.5%

10.2%

10.1%

9.5%

9.2%

8.2%

7.0%

6.9%

5.4%

-3.9%

-25.0% -15.0% -5.0% 5.0% 15.0% 25.0% 35.0%

NIFTY REALTY

NIFTY METAL

NIFTY ENERGY

NIFTY MEDIA

NIFTY Midcap 50

NIFTY BANK

NIFTY Midcap 100

NIFTY COMMODITIES

NIFTY NEXT 50

NIFTY SERV SECTOR

NIFTY FMCG

NIFTY500

NIFTY MNC

Nifty

NIFTY INFRA

NIFTY AUTO

NIFTY IT

NIFTY PSU BANK

NIFTY PHARMA

3m % sector price performance



Sector Performance Top YTD leaders: Realty (+25%), media (+21%), and PSU banks (+21%). Notable yoy gains by metals (+63%) on a rally in commodities


24.5%

21.2%

20.7%

19.3%

18.7%

18.6%

16.4%

15.2%

14.5%

14.2%

13.7%

13.1%

13.0%

12.6%

12.2%

12.1%

5.9%

3.2%

1.0%

-25.0% -15.0% -5.0% 5.0% 15.0% 25.0% 35.0%

NIFTY REALTY

NIFTY MEDIA

NIFTY PSU BANK

NIFTY BANK

NIFTY Midcap 100

NIFTY Midcap 50

NIFTY NEXT 50

NIFTY SERV SECTOR

NIFTY METAL

NIFTY500

NIFTY FMCG

NIFTY INFRA

NIFTY ENERGY

NIFTY COMMODITIES

Nifty

NIFTY MNC

NIFTY AUTO

NIFTY IT

NIFTY PHARMA

YTD % sector price performance

62.9%

42.5%

41.0%

39.5%

36.6%

35.9%

34.4%

33.9%

33.2%

32.6%

24.0%

23.0%

22.3%

21.3%

19.8%

18.9%

17.8%

-4.4%

-4.7%

-25.0% -5.0% 15.0% 35.0% 55.0% 75.0%

NIFTY METAL

NIFTY COMMODITIES

NIFTY PSU BANK

NIFTY ENERGY

NIFTY MEDIA

NIFTY Midcap 50

NIFTY Midcap 100

NIFTY NEXT 50

NIFTY REALTY

NIFTY BANK

NIFTY500

NIFTY AUTO

NIFTY MNC

NIFTY INFRA

NIFTY SERV SECTOR

Nifty

NIFTY FMCG

NIFTY IT

NIFTY PHARMA

1yr % sector price performance



Sector Valuations Most sectors are trading above their peak historic one-year forward PE multiples. Pharma valuations are depressed due to higher regulatory pressures


LPA

+ 1SD

-1SD

6

8

10

12

14

16

18

Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16

Autos 1-yr fwd PE

LPA

+ 1SD

-1SD

10

15

20

25

30

35 FMCG 1-y fwd PE

LPA

+ 1SD

-1SD

5

7

9

11

13

15

17

19

21 Banks 1-y fwd PE

LPA

+ 1SD

-1SD

5

7

9

11

13

15

17

19

21

23 IT 1-y fwd PE

LPA

+ 1SD

-1SD

5

10

15

20

25

30 Pharma 1-y fwd PE

LPA

+ 1SD

-1SD

0

2

4

6

8

10

12

14

16

PSU Banks 1-y fwd PE



Sector Valuations Cyclical sector valuations (metals and oil & gas) look attractive despite the recent run-up in commodities

Source: Bloomberg, PhillipCapital India Research, Prices as of Mar 31, 2017.

LPA

+ 1SD

-1SD

0

5

10

15

20

25

Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17

Realty 1-y fwd PE

LPA

+ 1SD

-1SD

4

6

8

10

12

14

16

18

20


Metals 1-y fwd PE

LTA

+ 1SD

-1SD

5

7

9

11

13

15

17

19

21

23 Infra 1-y fwd PE

LPA

+ 1SD

-1SD

5

10

15

20

25

30

35

40


Media 1-y fwd PE

LPA

+ 1SD

-1SD

6

7

8

9

10

11

12

13

14

15 Energy 1-y fwd PE

LPA

+ 1SD

-1SD

5

7

9

11

13

15

17

19

21

23

25 Service Sector 1-y fwd PE



BSE200 Top Gainers & Losers

BSE200 Top Gainers & Losers this month

Top Gainers Last Price % 1m Chg Top Losers Last Price % 1m Chg

Jet Airways India Ltd 531.8 24.0 Idea Cellular Ltd 85.2 -23.0

Crompton Greaves Consumer Electricals Ltd 230.0 22.5 Divi's Laboratories Ltd 628.4 -17.0

Shriram City Union Finance Ltd 2320.0 22.3 Tech Mahindra Ltd 452.5 -10.2

InterGlobe Aviation Ltd 1042.2 21.7 United Spirits Ltd 2056.2 -10.0

Blue Dart Express Ltd 5205.0 21.4 Coal India Ltd 291.3 -9.4

Housing Development & Infrastructure Ltd 82.0 20.1 NMDC Ltd 134.2 -8.2

Shriram Transport Finance Co Ltd 1093.7 18.9 Dr Reddy's Laboratories Ltd 2636.0 -8.2

Indiabulls Housing Finance Ltd 990.2 17.7 Glenmark Pharmaceuticals Ltd 857.4 -5.7

Rural Electrification Corp Ltd 181.0 17.5 Apollo Hospitals Enterprise Ltd 1179.1 -5.4

MRF Ltd 61000.1 17.3 Bharti Airtel Ltd 337.6 -5.1

BSE200 Top Gainers & Losers last 3m

Top Gainers Last Price % 3m Chg Top Losers Last Price % 3m Chg

Jindal Steel & Power Ltd 123.9 75.9 Divi's Laboratories Ltd 628.4 -19.3

Sun TV Network Ltd 796.4 52.6 CRISIL Ltd 1914.0 -15.4

Dewan Housing Finance Corp Ltd 373.4 51.6 Dr Reddy's Laboratories Ltd 2636.0 -14.4

Indiabulls Housing Finance Ltd 990.2 49.3 Bayer CropScience Ltd/India 3781.0 -11.1

Natco Pharma Ltd 863.0 48.0 Mindtree Ltd 455.5 -10.5

Crompton Greaves Consumer Electricals Ltd 230.0 47.8 Tata Motors Ltd 281.4 -8.7

Jet Airways India Ltd 531.8 46.4 Info Edge India Ltd 816.0 -8.5

Adani Enterprises Ltd 110.8 44.8 Tech Mahindra Ltd 452.5 -7.8

Rural Electrification Corp Ltd 181.0 43.0 Engineers India Ltd 144.7 -6.6

Reliance Capital Ltd 620.5 40.2 Bharti Infratel Ltd 320.8 -6.2




BSE200 Top Gainers & Losers

BSE200 Top Gainers & Losers yoy

Top Gainers Last Price % yoy Chg Top Losers Last Price % yoy Chg

Vedanta Ltd 274.8 204.6 Divi's Laboratories Ltd 628.4 -37.7

Bajaj Finserv Ltd 4100.4 135.0 Mindtree Ltd 455.5 -31.9

Biocon Ltd 1134.9 131.2 GlaxoSmithKline Pharmaceuticals Ltd 2710.0 -28.9

Hindalco Industries Ltd 195.1 125.2 Wockhardt Ltd 741.5 -24.0

Rural Electrification Corp Ltd 181.0 118.5 Reliance Communications Ltd 38.8 -23.0

Muthoot Finance Ltd 379.7 111.5 Ashok Leyland Ltd 85.0 -22.9

Sun TV Network Ltd 796.4 110.8 Tata Elxsi Ltd 1492.5 -21.6

Natco Pharma Ltd 863.0 107.5 Hexaware Technologies Ltd 215.6 -20.5

Jubilant Life Sciences Ltd 815.8 98.7 Idea Cellular Ltd 85.2 -20.3

Hindustan Zinc Ltd 291.0 97.3 United Spirits Ltd 2056.2 -17.7

BSE200 Top Gainers & Losers YTD

Top Gainers Last Price % YTD Chg Top Losers Last Price % YTD Chg

Jindal Steel & Power Ltd 123.9 79.2 Divi's Laboratories Ltd 628.4 -19.8

Sun TV Network Ltd 796.4 61.7 Dr Reddy's Laboratories Ltd 2636.0 -13.8

Crompton Greaves Consumer Electricals Ltd 230.0 58.1 CRISIL Ltd 1914.0 -13.4

Dewan Housing Finance Corp Ltd 373.4 53.2 Mindtree Ltd 455.5 -12.7

Jet Airways India Ltd 531.8 53.1 Bayer CropScience Ltd/India 3781.0 -10.2

Indiabulls Housing Finance Ltd 990.2 52.2 Info Edge India Ltd 816.0 -9.3

Natco Pharma Ltd 863.0 48.6 Tech Mahindra Ltd 452.5 -7.4

Adani Enterprises Ltd 110.8 44.9 Bharti Infratel Ltd 320.8 -6.7

Rural Electrification Corp Ltd 181.0 44.9 Tata Motors Ltd 281.4 -6.0

Reliance Capital Ltd 620.5 44.0 Multi Commodity Exchange of India Ltd 1211.0 -4.4




Styles Performance Growth outperformed value in March; small-caps outperformed large-caps by 2.8% and mid-caps by 2.2% (on an absolute-return basis)

Value vs. growth Large-cap vs. small-cap

Large vs. mid-caps Mid vs. small-caps


0.56

0.57

0.58

0.59

0.60

0.61

0.62

0.63 MSCI Value vs. Growth

Growth Outperforms

Value Outperforms

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16

MSCI Large Cap vs. Small Cap

Large Caps outperform

Small Cap outperforms

0.5

0.6

0.7

0.8

0.9

1.0


MSCI Large vs Mid-Caps

Mid-Cap outperforms

Large Cap outperforms

1.0

1.2

1.4

1.6

1.8

2.0

2.2


MSCI Mid vs Small-Caps

Mid Cap outperforms

Smalll cap outperforms



Styles Valuations Despite a recent rally, mid-caps look attractive, while large-caps are trading at full valuations. Value narrowed its PE discount to growth.

Value vs. growth: One-year forward PE Value vs. growth: One-year forward PB

Large vs. mid-cap: One-year forward PE Large vs. mid-cap: One-year forward PB


-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16

1-yr Fwd PE LPA PE discount (V/G)

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16

1-yr Fwd PB PB discount (V/G) LPA

0

5

10

15

20

25

Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16

1-yr Forward PE NIFTY Midcap PE NIFTY PE

0

1

2

3

4

5

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

1-yr Forward PB Nifty Mid-Cap PB NIFTY PB




FII & DII Analysis



Flows Update March saw net DII outflows of US$ 884mn and FII inflows of US$ 5.9bn. India continued to be the preferred destination for foreign fund-flows vs. Asian EM peers.

FII, DII Flows vs. NIFTY Index (in USD mn) Cumulative FII, DII flow trends

EM Asia Flows (USD, mn) Sector-wise FII assets under management (USD, mn), (As of Feb 28, 2017)

Net Foreign Flows ($,mn) Today MTD QTD YTD YTD YoY

India 68 4603 6160 6160 408

Taiwan -41 2509 5581 5581 44

Indonesia -20 759 626 626 867

Thailand -8 113 185 185 -72

Vietnam 7 102 154 154 1242

Sri Lanka 7 34 37 37 315

S. Korea 12 12 12 4777 655

Pakistan -3 -23 -161 -161 66

Phillipines 0 -251 -349 -349 -118

Source: Bloomberg, NSDL, PhillipCapital India Research, Prices as of Mar 31, 2017

5000

5500

6000

6500

7000

7500

8000

8500

9000

9500

-1000

-500

0

500

1000

1500

(in

$m

n)

INBTDINT Index FIINNET Index NIFTY Index

-10000

-5000

0

5000

10000

15000

20000

25000

30000

35000

40000

(in

$ m

n)

DII FII

75.0

57.6

34.6 33.1

26.4 25.5 25.2 21.2

18.7 12.5

5.6 2.4

0

10

20

30

40

50

60

70

80




Macro & Market Indicators



Macro Indicators – Global – Steady as she goes Global manufacturing PMI, inflation expectations, and exports, continue to show healthy signs of recovery. Next Fed rate hike: Most likely in June rather than in May Global Manufacturing PMI is seeing a steady recovery Global Inflation expectations (5y5y Inflation Swap Forward)

Global exports continue to improve Probability of a Fed rate hike (as of March 31, 2017)

Current implied probabilities

Fed Meeting Prob of no hike Prob of hike 1-1.25 1.25-1.5 1.5-1.75 1.75-2 2-2.25 2.25-2.5

May-17 86.7% 13.3% 13.3% 0.0% 0.0% 0.0% 0.0% 0.0%

Jun-17 40.0% 60.0% 52.8% 7.2% 0.0% 0.0% 0.0% 0.0%

Jul-17 34.9% 65.1% 51.2% 13.0% 0.9% 0.0% 0.0% 0.0%

Sep-17 18.8% 81.2% 43.7% 30.6% 6.5% 0.4% 0.0% 0.0%

Nov-17 16.9% 83.1% 41.1% 31.9% 9.0% 1.1% 0.0% 0.0%

Dec-17 11.2% 88.8% 33.0% 35.0% 16.7% 3.7% 0.4% 0.0%

Jan-18 10.5% 89.5% 31.6% 34.9% 17.8% 4.5% 0.6% 0.0%


48

49

50

51

52

53

54 JP Morgan Global Manufacturing PMI

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

US Europe Japan

0

500

1000

1500

2000

2500

40

45

50

55

60

65

70

75

May

-12

Au

g-1

2

No

v-1

2

Feb

-13

May

-13

Au

g-1

3

No

v-1

3

Feb

-14

May

-14

Au

g-1

4

No

v-1

4

Feb

-15

May

-15

Au

g-1

5

No

v-1

5

Feb

-16

May

-16

Au

g-1

6

No

v-1

6

Feb

-17

Nomura Asia Export Leading Index Baltic Dry Index



Macro Indicators - India Jan 2017 IIP growth (+2.7%) is back to pre-demonetisation levels, with improvements across investments and consumption. However, inflation unexpectedly inched higher due to an unfavorable base. February 2017 WPI surged to 6.5% and is likely to remain elevated

Quarterly GDP growth rate (%) Inflation

IIP growth rate (%) Rates


5.0%

7.7%

5.4%

4.6%

6.7%

7.8%

6.4%

5.8%

7.5%

8.3%

6.6% 6.7%

7.8% 7.8%

6.5%

7.9%

7.2% 7.4%

7.0%

3%

4%

5%

6%

7%

8%

9%

GD

P G

row

th Y

oY

%

Real GDP Growth (YoY %) Avg GDP (YoY %)

-6

-4

-2

0

2

4

6

8

10

12

14 WPI YoY (%) CPI YoY (%)

-10

-5

0

5

10

15

20

25

Ap

r-0

6

Sep

-06

Feb

-07

Jul-

07

Dec

-07

May

-08

Oct

-08

Mar

-09

Au

g-0

9

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

IIP Growth Rate (%)

3

4

5

6

7

8

9

10

%

CRR Repo Reverse Repo



Market Indicators INR was one of the best performing EM currency last month and gained 3% mom. 10-year G-Sec yields continue to firm up, India VIX down 23% YTD

INR appreciated 3% in March-17 10-yr G-Sec yields

Brent Crude (USD/bbl) India VIX


62

63

64

65

66

67

68

69

70

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17

USD/INR

4

5

6

7

8

9

10

11

12 10yr GOI Yields

LTA

0

20

40

60

80

100

120

140

160

Jan

-01

Jul-

01

Dec

-01

Jun

-02

Dec

-02

Jun

-03

N

ov-

03

May

-04

No

v-0

4

May

-05

Oct

-05

A

pr-

06

Oct

-06

Ap

r-0

7

Sep

-07

Mar

-08

Sep

-08

Mar

-09

A

ug-

09

Feb

-10

Au

g-1

0

Feb

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Ju

n-1

3

Dec

-13

Jun

-14

Dec

-14

May

-15

No

v-1

5

May

-16

No

v-1

6

Brent Crude ($/bbl)

0

10

20

30

40

50

60

70

80

Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16

India VIX



Commodities Tracker Steel prices corrected amidst a weakening market; zinc prices bounce off three-week lows following expectations of resurging China demand


400

600

800

1000

1200

1400

1600

1800

2000 Gold ($/OZ)

0

20

40

60

80

100

120

140

160 Indonesian Coal Price ($/ton)

0

200

400

600

800

1000

1200 Steel ($/ton) - China HRC

0

500

1000

1500

2000

2500

3000

3500 LME Aluminium ($/ton)

0

2000

4000

6000

8000

10000

12000 LME Copper ($/ton)

0

1000

2000

3000

4000

5000 LME Zinc ($/ton)



Model Portfolio

_____________EPS (Rs)________________ ___________EPS Growth (%)____________ ______________P/E (x)______________

Company Weight FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FMCG 10.0%

HUL 2.0% 18.9 19.4 22.1 4% 2% 14% 49 48 42 Colgate Palmolive India Ltd 2.0% 22.3 22.1 25.5 9% -1% 15% 45.8 46.3 40.2 ITC 6.0% 7.8 8.6 9.6 2% 10% 11% 35.8 32.7 29.3 Automobile 8.5%

Maruti 3.0% 151.3 243.2 273.1 23% 61% 12% 40.7 25.3 22.5 Tata motors 3.0% 34.3 24.9 42.3 -21% -28% 70% 13.6 18.7 11.0 Bajaj Auto 2.5% 126.2 137.3 159.3 16% 9% 16% 22.3 20.5 17.7 IT 6.0%

Infy 6.0% 59.0 63.2 71.9 9% 7% 14% 16.4 15.4 13.5 Pharmaceuticals 6.0%

Sun Pharma 4.0% 24.1 29.0 32.2 12% 20% 11% 27.7 23.0 20.7 Aurobindo 2.0% 35.0 40.8 50.3 24% 16% 23% 18.6 16.0 13.0 Cement 4.0%

Ultratech 3.0% 83.3 104.5 108.3 9% 25% 4% 48.4 38.6 37.3 Dalmia Bharat 1.0% 21.5 59.1 65.8 25% 175% 11% 17.7 6.4 5.8 Metals & Mining 12.3%

Tata Steel 3.0% 9.5 25.8 62.3 - 170% 142% 50.3 18.6 7.7 JSW Steel 2.0% 6 15 18 -25% 160% 24% 34 13 11 Hindalco 2.0% 3.8 13.8 16.6 -72% 265% 21% 51.0 14.0 11.6 NTPC 3.3% 12.4 12.1 13.6 21% -2% 12% 13.4 13.7 12.2 Vedanta 2.0% 10.6 21.2 27.9 4% 101% 31% 24.5 12.2 9.3 Industrial 4.0%

L&T 2.0% 44.9 62.1 72.1 -5% 38% 16% 37.6 27.2 23.4 NCC 2.0% 4.3 4.4 6.2 112% 2% 43% 20.8 20.4 14.2 Finance 33.3%

Axis bank 4.0% 34.5 12.7 18.9 11% -63% 49% 14.9 40.4 27.1 indusInd bank 3.0% 38.4 49.7 64.3 13% 29% 29% 37.0 28.6 22.1 SBI 4.5% 13.0 13.0 16.0 -43% 0% 23% 22.4 22.4 18.2 Cholamadalam Fin 2.5% 36.4 47.9 60.3 20% 32% 26% 29.2 22.1 17.6 HDFC Ltd 5.0% 44.9 46.6 51.3 16% 4% 10% 32.6 31.4 28.5 LIC Housing Finance 2.0% 32.9 38.1 41.2 20% 16% 8% 19.0 16.4 15.2 HDFC bank 6.0% 48.6 57.9 69.9 19% 19% 21% 29.7 24.9 20.6 ICICI Bank 6.3% 16.7 14.6 12.2 -13% -13% -16% 16.7 19.2 22.9 Oil & Gas 5.0%

Reliance Industries 5.0% 92.3 96.3 78.3 15% 4% -19% 14.7 14.1 17.4 Telecom 9.5%

Bharti Infratel 2.0% 12.6 14.3 15.4 19% 13% 8% 28.5 25.1 23.2 Bharti Airtel 3.0% 9.8 9.4 14.4 -35% -4% 54% 35.8 37.4 24.3 Dish TV 2.0% 6.6 2.6 3.6 - -61% 41% 15.2 39.3 27.9 Zee Entertainment 2.5% 9.5 11.2 15.9 10% 18% 42% 55.7 47.2 33.2 Others 1.5%

Tata Comm 1.5% 8 5 14 105% -36% 177% 93.2 144.8 52.3



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No

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