Bulls Bears - India Valuations Handbook - 20180102-mosl.pdf

*

* Sectors in order of premium / discount to historical averages

BEST PERFORMERS MoM (%)

WORST PERFORMERS MoM (%)

Highlights of December edition  Nifty ended CY17 at a record high of 10,531, implying positive return of 29%, post two years of muted performance

 Laggards of yesteryears outperformed in CY17

 Midcaps significantly outperformed large caps in CY17

 Market-cap-to-GDP at eight-year high Research & Quant Team ([email protected]); +91 223982 5440

January 2018

Contents 

Strategy: A stellar finish to the year; all eyes on earnings recovery in CY18

NOTES:



Valuation deep dive for the month: Automobile

 Prices as on Dec 29, 2017



Indian equities: Nifty, sector performance and key valuation metrics

 BULL icon:



Global equities: Performance and valuation snapshot



Valuations: Nifty/Midcap companies



Sector highlights: Overview and sector valuations 

AUTO



BANKS / FINANCIALS



CAPITAL GOODS



CEMENT



CONSUMER



HEALTHCARE



MEDIA



METALS



OIL & GAS



RETAIL



TECHNOLOGY



TELECOM



UTILITIES

Sectors trading at a premium to historical averages

 BEAR icon: Sectors trading at a discount to historical averages

 Valuations are on 12-month forward basis unless otherwise mentioned

 Sector valuations are based on MOSL coverage companies

 Global equities data sourced from Bloomberg. Sensex valuations based on MOSL estimates

Investors are advised to refer to important disclosures made at the end of this report.

BULLS & BEARS | January 2018

2

Strategy: A stellar finish to the year; all eyes on earnings recovery in CY18 









Nifty ends CY17 at a high: The Nifty ended CY17 with stellar 29% returns, after gaining 3% in December 2017. Even as one gets excited about CY17 returns, we note that the three-year CAGR returns for the Nifty stand at 8.5%. In December, FIIs turned net sellers after two months (sold USD0.7b), while DII flows remained robust (USD1.3b). For CY17, MF flows stood at USD18b (2.5x of CY16 inflows), while FII flows came in at USD7.7b (> CY15+CY16 inflows). Midcaps (+6.2% in December) continued to outperform the Nifty (led by robust DII flows), commanding a rich premium of 72% v/s large caps. Macros weakening at the margin: The last three years were characterized by strong macros for India, with twin deficits under control, a stable currency, rising forex reserves and low inflation. However, as we enter CY18, rising crude prices and consequent higher inflation have taken some sheen off the macros, even as they still remain healthy. In fact, the 10-year bond yields have increased 80bp in CY17 to 7.3%, incrementally posing a threat to the prevalent “low cost of capitalled valuation premium” narrative. The possibility of the Indian government missing its fiscal deficit target owing to lower indirect tax collections is concerning the markets. The BJP’s sixth victory in elections (formed a government in Gujarat with a majority in December 2017) provided some stability from the policy perspective, but its inferior performance in rural Gujarat has initiated a debate about potentially higher rural spending in the CY18 budget – its last full-fledged budget before the General Elections in 2019. However, if the government indeed increases rural spending, it will augur well for consumption, which, in our view, is set for a strong recovery in 2HFY18 and beyond, as GST-related supply chain disruption normalizes. Refer to our Rural Strategy notes, (Back on the saddle, Volume I) and (Back on the saddle, Volume II), for more details. India among the best-performing markets in CY17: For CY17, MSCI EM (+34%), India-Sensex (+28%), Brazil (+27%), Korea (+22%) and Indonesia (+20%) were the best performers among the key global markets in local currency terms. On the other hand, Russia (-16%) delivered negative returns. Over the last 12 months, MSCI EM (+34%) has outperformed MSCI India (+29%). However, over the last five years, MSCI India has outperformed MSCI EM by 55%. MSCI India P/E is at a premium of 52% to MSCI EM P/E, above its historical average premium of 43%. Sectoral performance trends – Real Estate, and Telecom top performers of CY17: Real Estate (+106%) and Telecom (+66%) – the underperformers of CY16 – were the top gainers in CY17. Metals (+48%), Private Banks (+47%), Media (+46%), Cement (+46%), Capital Goods (+40%), PSU Banks (+38%), Oil (+34%), NBFCs (+33%), Auto (+32%) and Consumer (+32%) were the other gainers. Utilities, Technology and Healthcare underperformed the Nifty. In this edition of ‘Bulls & Bears’, we take a deep dive into the valuation metrics of the Automobiles sector. All eyes on earning recovery in CY18: The key trigger that was missing for three years in an otherwise solid and strong India macro story was earnings growth. We expect that to change as we usher into 2HFY18 and FY19. Low base of demonetization, commodity price inflation, a demand recovery in a few B2C sectors and easing competitive headwinds in Telecom are expected to provide earnings recovery support, in our view. Relative weakening of macros (crude price rally, inflation pick up, spike in bond yields) are emerging concerns, though. However, we believe that the macros still remain healthy on balance. Overall, we remain sanguine on consumption revival in 2HFY18, led by normalization of GST-led issues, normal monsoon, MSP hikes, and low base. Our recent interactions with companies from consumption space further reinforce our belief that rural consumption is set for a strong recovery. That apart, a cyclical recovery in Financials and Infrastructure also interests us. Among the beaten-down sectors, we continue believing that Pharma offers a good contrarian play. ICICI Bank, SBI, Emami, Titan, SHTF, Bajaj Auto, Motherson Sumi, RBL, Sun Pharma and IGL are some of our preferred bets.

BULLS & BEARS | January 2018

3

Valuation deep-dive for the month: Automobiles  Auto sector has witnessed re-rating (ex-TTMT) over the past year, driven by a recovery in volumes, despite regulatory hurdles in the form of demonetization, technology switch (from BS-3 to BS-4) and GST. Initial signs of a recovery in rural volumes further improved volume growth visibility. As against a 10-year and 5-year average P/E of 17.5x and 21.0x, respectively, the sector is re-rated to 24.6x. The re-rating has been driven by key stocks like Maruti Suzuki, TVS Motor, Eicher Motors, Bharat Forge and Endurance Technologies. On the other hand, stocks such as Bosch, Amara Raja, Exide, M&M and Tata Motors have witnessed de-rating.

Trend in Auto P/E (ex TTMT) – one-year forward

 Unlike in the past, Auto (ex TTMT) is trading at ~29% premium to Sensex P/E, driven by sustained superior growth and capital efficiencies.

Trend in Auto P/E relative to Sensex P/E (%)

24.0

5 Yr Avg (x)

10 Yr Avg (x)

24.6

21.0 17.5

17.0 10.0

32.0

Auto P/E Ex TTMT (x)

Dec-17

Dec-16

Dec-15

Dec-14

Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

Dec-08

Dec-07

3.0

 We note that the re-rating is largely witnessed in rural-dependent OEMs like MSIL, MM and HMCL, as well as premium 2W companies like EIM and TVSL. Component manufacturers like BHFC (a recovery in exports) and ENDU outperformed other ancillaries.

Sensex PE (x)

25.0

24.6

18.0

19.0

11.0 Dec-16

Dec-17

22.1

22.4

FY19E

FY20E

Dec-15

Dec-14

Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

Dec-07

Dec-08

4.0

 Near-term challenges exist in the form of commodity inflation (even though OEMs pass through the same by considering corrective pricing actions) and regulatory related cost inflation (such as upcoming mandatory AC/ventilated cabins in CVs from January 2018 and ABS/CBS mandatory in 2W from April 2018). Demand sustainability in the domestic market – backed by a continued rural recovery, increasing competitive intensity and ramp-up in exports – would be the key factors driving sector valuations.

Trend in Auto sector RoE (ex TTMT) (%) 28.5

RoE

26.0

20.0

20.5

FY18E

18.8

FY16

20.0

21.0

FY15

FY13

FY12

FY11

FY09

4

FY10

19.1

FY14

20.9

FY17

23.9

 Auto should continue trading at a premium, as we expect aggregate EPS growth (ex-TTMT) to remain robust. We expect 16%/25.5%/18.4% earnings growth in FY18/19/20E. Aggregate RoE (ex-TTMT) is expected to improve 250bp to 22% in FY20.

BULLS & BEARS | January 2018

Auto P/E Ex TTMT (x)

31.0

Key highlights 

Indian equities: Nifty ends at a record high – up 29% in CY17 

 



Stock performance: Breadth positive in CY17; 44 Nifty stocks close higher





About the product

As the tagline suggests, BULLS & BEARS is a handbook on valuations in India. Every month, it will Global equities: India among the best-performing markets for CY17  For CY17, MSCI EM (+34%), India-Sensex (+28%), Brazil (+27%), Korea (+22%) and Indonesia (+20%) were the best cover: performers among the key global markets in local currency terms.  Valuations of Indian Sector valuations: Cyclicals at a premium to historical average P/B markets vis-à-vis global  Technology sector trades at a P/E of 16.6x, at a 5% premium to its historical average of 15.8x. Recent upward markets movement in stock prices has been a result of improved expectations on performance heading into FY19.  NBFCs trade at a P/B of 3.8x, above their historical average (29% premium). GSec yields have hardened more than  Current valuation of 50bp and now stabilized above 7%. If yields sustain at these levels over the medium term, it could meaningfully companies in various impact spreads of NBFCs, especially HFCs. sectors  PSU Banks now trade near its historical average P/B. It was the only negative performing sectors in December (-3%  Sectors that are return MoM). PSU Banks’ valuations have recovered over past few months with improved visibility on earnings post recapitalization and with improved outlook on stressed asset resolution. currently valued at Nifty-50 highlights: Autos trading at a premium to historical average premium/discount to  Auto sector is trading at a P/E of 19.0x, at a 24% premium to its historical average of 15.3x. Our channel checks their historical longindicated that retail growth in December 2017 was relatively weak in certain markets like Rajasthan and period averages Maharashtra as consumers await passage of the inauspicious period (15 December 2017 to 14 January 2018). 



The Nifty ended CY17 at a record high of 10,531, up 29% for the year, post two years of muted performance. Notably, the Nifty delivered positive returns in all four quarters of CY17, with the March and December quarters delivering the highest QoQ returns since June 2014. CY17 was a year of strong returns, led by valuation re-rating. Strong flows and government reforms drove the performance in the year, offsetting earnings growth concerns. Real Estate (+106%) and Telecom (+66%) – the underperformers of CY16 – were the top gainers in CY17. Metals (+48%), Private Banks (+47%), Media (+46%), Cement (+46%), Capital Goods (+40%), PSU Banks (+38%), Oil (+34%), NBFCs (+33%), Auto (+32%) and Consumer (+32%) were the other gainers. Bajaj Fin (+109%), Tata Steel (+87%), Indiabulls Hsg (+84%), Maruti (+83%) and Hindalco (+77%) were the top performers in CY17. Lupin (-40%), Dr Reddy’s (-21%), Coal India (-12%), Sun Pharma (-9%) and Tata Motors (-9%) were the top laggards.

BULLS & BEARS | January 2018

5

Indian equities: Nifty ends at record high— up 29% in CY17

Institutional flows (INR b)

12

10

7.7

BULLS & BEARS | January 2018

-3

Sep-17

Jun-17

Mar-17

-5 Dec-16

-5

6

3

0

-1

Sep-16

-4

-4.9

CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17

-2

4

4

3

Jun-16

2.9

4

Mar-16

-4.7 -0.5 -10.9 -13.0

3.3

3

Sep-15

5.9

10.2 5.3

4

8

7

Dec-15

14.0 16.2

5

Jun-15

20.0

6

Mar-15

24.5

Dec-14

29.3

CY17

CY16

CY15

CY14

CY13

CY12

CY11

CY10

CY09

CY08

CY07

CY06

CY05

CY04

CY03

CY02

CY01

CY00

CY99

CY98

CY97

CY96

CY94

CY93

CY95

14

Sep-14

-12.2

QoQ Return (%)

Jun-14

16.9

Net DII Flows (USD b)

Mar-14

17.6

-25

Nifty QoQ change (%)— delivered positive returns in all four quarters of CY17

Dec-13

17.8

-15 -16

-18

-52

Sep-13

5.3

3 -4

-23

June-13

5.4

7

Dec-17

Net FII Flows (USD b)

29

31

28

18

11

3 -1

CY92

In CY17, India recorded highest-ever inflows from domestic MFs of USD~18b, 2.5x of the full-year inflows of USD7.1b in CY16. FII flows in CY17 stood at USD7.7b, higher than cumulative inflows for CY16 (USD2.9b) and CY15 (USD3.3b). DIIs (ex-MFs) saw outflows of USD4.0b in CY17 – the sixth successive year of outflows.

20

13

Mar-13



2 year of negative return till now in 2011 cycle

36 40

36 37

CY17 was a year of strong returns, led by valuation re-rating. Strong flow and reforms drove the performance, offsetting earnings growth concerns.

CY91



The Nifty ended CY17 at a record high of 10,531, up Nifty YoY change (%) — CY17 returns highest in last three years 29% for the year, post two years of muted 4 years of negative return in 1990s cycle 2 year of negative return in 2000s cycle performance. Notably, in CY17, the Nifty delivered positive returns in all four quarters of CY17, with 72 76 69 67 the March and December quarters delivering the 55 highest QoQ return since June 2014.

Dec-12



Indian equities: Laggards of yesteryears outperformed in CY17 

Real Estate (+106%) and Telecom (+66%) – the underperformers of CY16 – were the top gainers in CY17.



Metals (+48%), Private Banks (+47%), Media (+46%), Cement (+46%), Capital Goods (+40%), PSU Banks (+38%), Oil (+34%), NBFCs (+33%), Auto (+32%) and Consumer (+32%) were the other gainers.



Midcaps outperformed the benchmark by 18% in CY17.

Sectoral performance – absolute and relative to Nifty (%): Real Estate, Telecom, Metals top performers MoM Abs. Performance (%) Sector

CY17

MoM Relative Performance (%)

CY17

Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- DecJan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- DecChg (%) Chg (%) 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17

Real Estate

8

9

7

20

0

6

7

-2

-3

11

6

7

106

4

5

4

19

-3

7

1

-1

-2

6

7

4

78

Telecom

19

5

-9

0

1

3

10

1

-10

26

0

11

66

15

2

-12

-1

-3

4

4

3

-9

20

1

8

37

Metal

15

2

-1

-4

0

1

9

7

2

9

-6

7

48

11

-2

-4

-6

-4

2

3

8

3

3

-5

4

19

Nifty Midcap

7

7

4

5

-3

1

4

-1

-1

8

2

6

47

3

3

1

4

-7

2

-1

0

0

3

3

3

19

Banks-Pvt

6

6

3

5

8

0

6

-2

0

3

2

3

47

2

2

0

3

5

1

0

0

1

-3

3

0

18

Media

7

12

7

4

-7

-2

4

-6

3

7

3

7

46

3

9

4

3

-10

-1

-2

-4

5

1

4

4

18

Cement

11

3

5

8

-1

-1

9

4

-5

11

-5

2

46

6

-1

1

6

-4

0

3

5

-4

5

-4

-1

17

Cap. Goods

8

4

7

9

-2

-3

5

-4

-1

7

0

4

40

4

0

4

7

-5

-2

-1

-2

0

2

1

1

11

Banks-PSU

8

4

8

5

-3

-2

13

-11

-8

25

2

-3

38

4

0

4

4

-7

-1

7

-10

-6

20

3

-6

10

Oil

6

5

0

7

-1

-7

7

7

-2

12

-4

2

34

1

2

-3

5

-5

-6

2

9

-1

6

-3

-1

5

NBFC

7

1

11

4

0

0

7

-1

-2

1

-2

3

33

3

-2

7

3

-3

1

1

1

-1

-4

-1

0

4

Auto

8

-1

2

3

6

-3

5

-3

2

5

-1

6

32

3

-5

-1

2

3

-2

-1

-2

3

0

0

3

3

Consumer

5

3

5

2

7

3

-3

1

-4

5

1

4

32

1

-1

2

0

4

4

-9

2

-3

-1

2

1

3

Utilities

9

1

4

2

-5

0

4

-3

-2

6

-1

3

20

4

-2

0

1

-8

1

-1

-1

-1

1

0

0

-9

Technology

-6

8

0

-7

6

-4

6

-4

-1

4

4

5

11

-10

5

-3

-9

3

-3

0

-2

0

-1

5

2

-18

Healthcare

0

4

0

-2

-10

5

0

-7

3

6

-2

6

0

-4

0

-4

-3

-13

6

-6

-6

4

0

-1

3

-28

Nifty-50

5

4

3

1

3

-1

6

-2

-1

6

-1

3

29

BULLS & BEARS | January 2018

7

Indian equities: Breadth positive in CY17; 44 Nifty stocks close higher Nifty – best and worst performers in CY17: Bajaj Fin (+109%), Tata Steel (+87%), Indiabulls Hsg (+84%), Maruti (+83%) and Hindalco (+77%) were the top performers. Lupin (-40%), Dr Reddy’s (-21%), Coal India (-12%), Sun Pharma (-9%) and Tata Motors (-9%) were the worst performers.  Nifty – best and worst performers in December: Hindalco (+14%), Maruti (+13%), Vedanta (+11%), Lupin (+8%) and ONGC (+8%) were the top performers on MoM basis. Coal India (-5%), SBI (-3%), Power Grid (-3%), NTPC (-2%) and Bharti Infra (-1%) were the top negative performers. Best and worst Nifty performers (YoY) in CY17 (%) – 44 companies in Nifty delivered positive returns 

56 52 51 51 49 42 40 40 39 36 35 35 33 32 32 30 29

29 27 26 25 24 24 23 19 18 14 10 9 9 8 8 7 3 3 3 2

Coal India

Sun Pharma

Tata Motors

Bosch

ONGC

Infosys

Aurobindo

Cipla

Tech Mah.

NTPC

HCL Tech

ITC

Power Grid

TCS

Bharti Infratel

IOC

UPL

SBI

BPCL

Axis Bank

Hero Moto

M&M

Bajaj Auto

Nifty

Zee Ent

Asian Paints

Ambuja Cem.

Wipro

UltraTech

ICICI Bank

HDFC

Yes Bank

L&T

Eicher Motors

HPCL

Kotak Mah.Bk

Adani Ports

IndusInd Bk

GAIL

Vedanta

HUL

HDFC Bank

Bharti Airtel

Reliance Ind.

Maruti

Hindalco

Tata Steel

Indiabulls Hsg

Bajaj Fin.

-4 -9 -9 -12

-21

-40 Lupin

87 84 83 77 73 71 66

Dr Reddy's

109

Best and worst Nifty performers (MoM) in December 2017 (%) – Breadth positive; 76% of Nifty stocks traded higher 14 13

11

8 8 7 7 7 7 7 6 6 6 6 5 5 5 4 4 3 3 3 3 3 3 3 3 3 2 2 2 2 1 1 1 1 1 1 0

BULLS & BEARS | January 2018

8

Coal India

SBI

Power Grid

NTPC

Bharti Infratel

IOC

Bosch

Aurobindo

IndusInd Bk

Indiabulls Hsg

Reliance Ind.

HPCL

Bajaj Auto

Asian Paints

Kotak Mah.Bk

Eicher Motors

Cipla

HDFC Bank

Bajaj Fin.

Adani Ports

HDFC

ICICI Bank

TCS

Zee Ent

UltraTech

Yes Bank

ITC

Tech Mah.

Nifty

BPCL

Ambuja Cem.

L&T

UPL

Hero Moto

Axis Bank

HCL Tech

Tata Steel

Dr Reddy's

Sun Pharma

GAIL

M&M

Bharti Airtel

Tata Motors

Wipro

Infosys

HUL

ONGC

Lupin

Vedanta

Maruti

Hindalco

0 0 -1 -1 -1 -1 -1 -1 -2 -3 -3 -5

Indian equities: Midcaps continue to outperform; premium to Nifty P/E climbs up 

Over the last 12 months, midcaps have delivered 47% returns, as against 29% by the Nifty. Also, over the last five years, midcaps have outperformed the Nifty by 70%.



Midcaps now trade at a 72% premium to the Nifty in terms of P/E.

225

12-month forward P/E (x) Nifty PE (x)

Dec-17

Aug-17

Apr-17

Dec-16

Aug-16

Apr-16

Dec-15

Aug-15

Apr-15

Dec-14

Midcap Vs Nifty PE Prem/(Disc) (%)

85

Nifty Avg: 18.0x Midcap Avg: 18.9x

31.0

248

Midcaps trading at 72% premium to Nifty

Midcap PE (x)

38.0

Nifty Midcap 100 Rebased

178

Dec-12

Dec-17

Nov-17

Oct-17

Sep-17

Aug-17

Jun-17

Mar-17

Jul-17

75 May-17

90 Apr-17

125

Feb-17

105

Jan-17

175

Dec-16

120

Aug-14

129

Apr-14

135

Nifty Rebased 5 Year CAGR: Nifty: 12.3% Midcap: 20.0%

275

147

Dec-13

Nifty Midcap 100 Rebased

Aug-13

Nifty Rebased

150

Midcaps outperformed large-caps by 70% in last five years

Apr-13

Midcaps significantly outperformed large-caps in last 12 months

31.4

72

55 Average: 4.4%

25

24.0 18.3

17.0

-5

BULLS & BEARS | January 2018

9

Dec-17

Aug-17

Apr-17

Dec-16

Aug-16

Apr-16

Dec-15

Aug-15

Apr-15

Dec-14

Aug-14

Apr-14

Dec-13

Aug-13

Dec-12

Dec-17

Aug-17

Apr-17

Dec-16

Aug-16

Apr-16

Dec-15

Aug-15

Apr-15

Dec-14

Aug-14

Apr-14

Dec-13

Aug-13

Apr-13

Dec-12

Source: MOSL, Bloomberg for Midcap valuation.

Apr-13

-35

10.0

Indian equities: Valuations above long-period averages 

Valuations of Indian equities remain rich. The Sensex trades at a 12-month forward P/E of 19x, at a 10% premium to the long-period average of 17.3x. Sensex P/B of 2.8x is also above its historical average.



At the current trailing P/E of 23.3x and forward P/E of 19x, we see limited triggers for further re-rating, unless accompanied by a boost in earnings.

12-month forward Sensex P/E (x) 25

12-month forward Sensex P/B (x) 4.3

24.6

21

3.5

19.0

10 Year Avg: 17.3x

17

2.8

10 Year Avg: 2.6x

2.8

13

2.0 1.6

5.0 23.3

23 18

3.0

13

2.0

Dec-17

Dec-16

Dec-15

Dec-14

Dec-13

Dec-12

Dec-11

10 Year Avg: 2.9x

3.2

1.8

BULLS & BEARS | January 2018

Dec-17

Dec-16

Dec-15

Dec-14

Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

Dec-07

10

Dec-08

1.0

Dec-17

Dec-16

Dec-15

Dec-14

Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

10.8 Dec-08

4.8

4.0

10 Year Avg: 18.5x

Dec-07

Dec-10

Trailing Sensex P/B (x)

25.2

8

Dec-09

Dec-07

Trailing Sensex P/E (x)

Dec-08

1.3

Dec-17

Dec-16

Dec-15

Dec-14

Dec-13

Dec-12

Dec-11

Dec-10

Dec-08

Dec-07

Dec-09

10.7

9

28

4.2

Indian equities: Market-cap-to-GDP at eight-year high 

The Sensex trades at a 12-month forward RoE of 14.9%, below its long-term average.



Market-cap-to-GDP ratio is 89% (FY18E GDP), above its long-term average.

12-month forward Sensex RoE (%) 20.5

Trend in Sensex RoE (%) 23.8

19.8

21.7

18.5

18.5 15.8

16.5

10 Year Avg: 15.6%

14.9

14.5

Average of 17% 16.9 16.6 16.1 15.4 14.9 15.3 14.1

15.3 12.9

13.7

Trend in India’s market-cap-to-GDP (%)

11

64

66

89

69

FY18E

FY12

FY11

FY10

FY09

FY08

FY07

55

FY16

71

BULLS & BEARS | January 2018

80

81

FY17

88

FY15

83

Average of 78% for the period

FY14

95

FY13

103

FY19E

FY18E

FY17

FY16

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

Dec-17

Dec-16

Dec-15

Dec-14

Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

Dec-08

Dec-07

12.5

Global equities: India among best-performing markets for CY17 

For CY17, MSCI EM (+34%), India-Sensex (+28%), Brazil (+27%), Korea (+22%) and Indonesia (+20%) were the best performers among the key global markets in local currency terms. On the other hand, Russia (-16%) has delivered negative returns.



Indian equities are trading at 22.7x FY18E earnings.



All key markets continue trading at a discount to India. However, India’s RoE remains superior to most EMs, an important differentiator for valuation premium.

India (Sensex) v/s other markets CY17 Chg (%) Index Value India

Mkt Cap Local In USD (USD T) Currency

Prem / Disc to India PE (%)

PE (x) CY16 / FY17

CY17 / FY18

CY16 / FY17

CY17 / FY18

PB (x)

RoE (%)

CY17 Chg (%) MSCI EM

34

CY16 / FY17

CY17 / FY18

CY16 / FY17

CY17 / FY18

India

28

3.3

3.1

12.9

13.7

Brazil

27

34,057

2.4

28

36

25.3

22.7

2,674

29.8

19

19

24.6

20.0

-3

-12

3.5

3.2

13.1

16.4

Korea

22

22,765

6.3

19

23

26.8

19.1

6

-16

2.0

1.9

8.5

10.0

Indonesia

20

Indonesia

6,356

0.5

20

20

27.9

18.4

10

-19

2.8

2.7

11.1

17.9

UK

7,688

3.8

8

18

37.4

15.6

48

-31

1.9

2.0

5.6

9.1

US

19

Taiwan

10,643

1.2

15

26

17.4

15.1

-31

-34

1.8

1.9

10.6

14.4

Japan

19

Brazil

76,402

0.9

27

25

286.5

14.7

1033

-36

1.9

1.7

0.8

10.6

Taiwan

China

3,307

7.7

7

14

18.2

14.6

-28

-36

1.8

1.6

10.3

11.8

UK

8

MSCI EM

1,158

10.4

34

34

19.0

14.2

-25

-38

2.0

1.8

10.9

10.4

China

7

Korea

2,467

1.7

22

37

19.9

10.4

-21

-54

1.1

1.1

6.0

11.4

Russia

4,122

0.6

-16

-11

7.2

6.3

-71

-72

0.6

0.6

8.9

7.3

US Japan

Russia

15

-16

Source: Bloomberg/MOSL

BULLS & BEARS | January 2018

12

Global equities: MSCI EM outperforms MSCI India in last 12 months 

Over the last 12 months, MSCI EM (+34%) has outperformed MSCI India (+29%). However, over the last five years, MSCI India has outperformed MSCI EM by 55%.



MSCI India P/E is at a premium of 52% to MSCI EM P/E, above its historical average premium of 43%.

MSCI EM outperforms MSCI India over 12 months MSCI India Rebased

138

MSCI India outperforms MSCI EM by 55% in last five years

MSCI EM Rebased

134 129

126

MSCI India v/s MSCI EM trailing P/E (x) MSCI India PE (x)

93

MSCI India v/s MSCI EM P/E premium (%) MSCI EM PE (x)

26.0

MSCI India Vs EM PE Premium (%)

100 75

23.9 MSCI India Avg: 19.3x

19.0

148

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17

Dec-17

Nov-17

Oct-17

Sep-17

Aug-17

Jul-17

Jun-17

May-17

Apr-17

30 Mar-17

90 Feb-17

65

Jan-17

102

Dec-16

100

MSCI EM Rebased

5 Year CAGR: MSCI India: 10.6% MSCI EM: 1.9%

10 Year CAGR: MSCI India: 4.0% MSCI EM: -0.7%

135

114

33.0

MSCI India Rebased

170

Average of 43%

50

15.8

52

25

12.0

MSCI EM Avg: 13.5x

BULLS & BEARS | January 2018

13

Jun-17

Dec-17

Dec-16

Jun-16

Dec-15

Jun-15

Dec-14

Jun-14

Dec-13

Jun-13

Jun-12

Dec-12

Dec-11

Jun-11

Dec-10

Jun-10

Jun-09

Dec-09

Dec-08

Dec-07

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Source: Bloomberg

Jun-08

0

5.0

Global equities: India’s share in world market cap drops below its historical average 

India’s share in the world market cap is at 2.3%, dropping below its long-term average of 2.4%.



Over the last 12 months, world market cap has increased 53.5% (USD35.7t), while India’s market cap is up 52%.

Trend in India's contribution to world market cap (%)

Market cap change in last 12 months (%)

India's Contribution to World Mcap (%) 3.3

3.5

Mkt cap chg 12M (%)

Curr Mcap (USD Tr)

52 2.4

India

3.0 Average of 2.4%

2.5

Korea

42

1.7

2.3

2.0

Dec-07 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jul-17 Dec-17

1.5

Taiwan

26

1.2

Brazil

25

0.9

Japan

25

Global market-cap-to-GDP (%) Current mkt cap to GDP (%) 122

* Based on GDP for Dec 2016

BULLS & BEARS | January 2018

China

India

Korea

Japan

UK

US

69

Source: Bloomberg

UK

22

3.8

Indonesia

22

0.5

105 55

50

China

19

7.7

US

18

29.8

46

Russia

128

Brazil

144

Indonesia

161

6.3

Russia

14

-1

0.6

Nifty: Auto trading at a premium to its historical average 

Auto sector is trading at a P/E of 19.0x, at a 24% premium to its historical average of 15.3x. Our channel checks indicated that retail growth was relatively weak In December 2017 in certain markets like Rajasthan and Maharashtra as consumers await passage of the inauspicious period (15Dec14Jan).

Snapshot: Nifty companies’ valuations Name Bajaj Auto Bosch Eicher Motors Hero MotoCorp Mahindra & Mahindra Maruti Suzuki Tata Motors Axis Bank HDFC Bank ICICI Bank IndusInd Bank Kotak Mahindra Bank Yes Bank State Bank Bajaj Finance HDFC Indiabulls Housing Larsen & Toubro Ambuja Cements Ultratech Cement Asian Paints Hind. Unilever ITC

Sector Auto Auto Auto Auto Auto Auto Auto Banks - Private Banks - Private Banks - Private Banks - Private Banks - Private Banks - Private Banks - PSU Banks - NBFC Banks - NBFC Banks - NBFC Capital Goods Cement Cement Consumer Consumer Consumer

BULLS & BEARS | January 2018

Current 18.5 35.5 30.3 19.8 18.0 27.2 7.9 20.3 23.2 19.4 22.3 25.8 14.4 13.0 29.7 30.7 12.0 24.0 33.8 31.8 46.7 51.8 26.8

PE (x) Relative to Sensex P/E (%) 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg 14.6 27 -3 -16 29.9 19 87 73 20.2 50 59 17 16.3 21 4 -6 15.3 17 -6 -11 17.1 59 43 -1 10.2 -23 -59 -41 15.3 33 7 -12 20.2 15 22 17 16.8 16 2 -3 16.2 37 17 -6 22.8 13 36 32 11.7 23 -24 -33 13.3 -2 -31 -23 14.4 106 56 -17 24.9 23 62 44 9.3 29 -37 -46 23.7 1 26 37 24.6 38 78 42 22.0 45 67 27 32.8 43 146 89 33.3 56 173 92 25.4 6 41 46

15

Current 4.6 5.9 9.3 5.9 2.9 6.2 1.8 1.9 4.3 2.3 3.8 3.8 2.5 1.3 5.4 5.3 3.4 3.0 2.6 4.1 12.7 42.8 6.6

PB (x) 10 Yr Avg Prem/Disc (%) 5.2 -11 5.1 16 5.1 82 7.0 -16 3.0 -3 2.9 113 2.3 -22 2.0 -4 3.4 27 2.1 8 2.4 56 2.9 32 2.2 18 1.3 0 2.2 143 4.8 12 2.3 45 3.4 -11 2.6 -3 2.9 41 10.2 24 28.3 51 7.1 -8

Relative to Sensex P/B (%) Current 10 Yr Avg 62 98 107 94 228 96 107 166 2 14 118 11 -38 -14 -32 -23 52 30 -19 -19 33 -8 35 11 -11 -18 -55 -52 90 -15 87 81 19 -11 6 29 -10 1 43 9 346 288 1406 978 131 172

Nifty: Oil & Gas trades near its historical average P/E 

Companies trading at a significant premium to their historical averages: Bharti Airtel (+142%), Maruti (+59%), HUL (+56%), Eicher Motors (+50%), Ultratech (+45%) and Asian Paints (+43%).



Companies trading at a significant discount to their historical averages: Power Grid (-28%), Tata Steel (-27%), Tata Motors (-23%), NTPC (-21%), ONGC (-19%) and Bharti Infratel (-14%).

Name Aurobindo Pharma Cipla Dr Reddy’ s Labs Lupin Sun Pharma Zee Ent. Hindalco Tata Steel Vedanta BPCL GAIL HPCL IOCL ONGC Reliance Inds. HCL Technologies Infosys TCS Tech Mahindra Wipro Bharti Airtel Bharti Infratel Coal India NTPC Power Grid Corp. Sensex

Sector Healthcare Healthcare Healthcare Healthcare Healthcare Media Metals Metals Metals Oil & Gas Oil & Gas Oil & Gas Oil & Gas Oil & Gas Oil & Gas Technology Technology Technology Technology Technology Telecom Telecom Utilities Utilities Utilities

BULLS & BEARS | January 2018

Current 14.1 23.8 23.8 21.3 27.5 35.1 11.2 11.5 8.3 10.4 16.1 10.1 9.5 8.9 15.2 13.3 15.6 18.4 13.5 15.8 91.5 20.3 13.2 11.7 10.2 19.0

PE (x) Relative to Sensex P/E (%) 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg 12.3 14 -26 -29 25.9 -8 25 50 26.8 -11 25 55 21.4 0 12 23 27.7 -1 45 60 25.9 36 85 49 9.8 14 -41 -44 15.7 -27 -40 -9 9.0 -8 -56 -48 10.4 0 -45 -40 13.9 16 -15 -20 8.6 18 -47 -50 10.2 -7 -50 -41 11.1 -19 -53 -36 14.1 8 -20 -19 13.2 1 -30 -24 16.9 -8 -18 -3 17.4 6 -3 0 12.3 10 -29 -29 14.5 9 -17 -16 37.8 142 382 118 23.7 -14 7 37 15.2 -13 -30 -12 14.9 -21 -38 -14 14.2 -28 -46 -18 17.3 10

16

Current 2.9 3.2 2.9 2.5 3.3 6.3 1.6 1.8 1.7 2.5 1.9 2.3 1.5 1.1 1.7 3.3 3.4 5.8 2.3 2.5 3.0 4.5 6.1 1.3 1.7 2.8

PB (x) 10 Yr Avg Prem/Disc (%) 2.6 10 3.5 -9 3.8 -25 4.5 -44 4.8 -31 5.1 24 1.5 11 2.2 -17 2.2 -21 1.5 64 1.9 2 1.1 109 1.2 27 1.6 -34 1.6 2 3.1 6 4.0 -16 5.8 -1 2.8 -18 2.9 -15 2.7 12 3.5 28 5.9 4 1.8 -25 2.0 -16 2.6 8

Relative to Sensex P/B (%) Current 10 Yr Avg 2 0 11 32 0 46 -11 72 17 84 123 95 -42 -43 -37 -18 -40 -18 -13 -43 -32 -28 -18 -57 -48 -56 -63 -40 -42 -38 15 17 19 53 102 120 -18 8 -12 12 6 3 57 33 116 126 -53 -32 -42 -25

Midcaps outperform Nifty by 3.2% in December 

In December 2017, Nifty Midcap100 was up 6.2%, as against Nifty’s rise of 3%.



Best midcap performers in December: Prime Focus (+26%), Jubilant Life (+20%), Delta Corp (+18%), Sanghi Ind (+16%) and Sadbhav Engg (+12%).



Worst midcap performers in December: MCX (-5%), Shilpa Medicare (-4%), Ashoka Buildcon (-2%) and Capital First (-2%).

Company Prime Focus Jubilant Life Delta Corp Sanghi Inds. Sadbhav Engg. Ipca Labs. Blue Star Team Lease Serv. CEAT SRF PVR Sanofi India DCB Bank India Cements Rain Industries GE T&D India Tata Elxsi Birla Corpn. Strides Shasun Alembic Pharma Jyothy Lab. Kaveri Seed Trident Ent.Network Capital First Ashoka Buildcon Shilpa Medicare Multi Comm. Exc.

PE (x) Current 10 Yr Avg Prem/Disc (%) 23.3 30.8 -24 15.1 13.3 13 41.3 38.1 8 17.2 13.4 28 29.4 25.0 18 24.3 23.8 2 36.2 24.8 46 41.3 26.4 56 18.0 8.1 123 20.3 8.6 136 36.3 41.8 -13 31.0 26.4 18 19.6 15.9 24 19.5 20.8 -6 10.4 3.1 232 40.8 62.8 -35 25.3 18.4 37 22.7 12.5 82 13.2 51.5 -74 22.0 16.5 33 36.7 31.5 17 14.0 13.4 5 9.1 8.5 6 42.0 32.2 30 16.9 22.5 -25 42.6 20.5 108 22.9 19.4 18 25.4 33.4 -24

BULLS & BEARS | January 2018

Relative to Sensex P/E (%) Current 10 Yr Avg 22 78 -21 -23 117 120 -10 -22 55 44 28 38 91 43 117 53 -5 -53 7 -50 91 142 63 52 3 -8 3 20 -45 -82 115 263 33 6 20 -28 -31 197 16 -5 93 82 -26 -23 -52 -51 121 86 -11 30 124 18 20 12 33 93

17

PB (x) Relative to Sensex P/B (%) Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg 4.8 3.3 42 67 27 2.6 1.7 60 -7 -37 4.8 2.3 107 69 -12 2.2 0.9 141 -22 -65 3.6 2.8 25 25 8 2.6 3.0 -12 -7 14 9.1 7.9 14 219 203 7.7 4.6 70 172 74 2.6 1.1 142 -8 -59 3.0 1.3 129 5 -50 5.4 2.9 84 90 12 5.4 4.3 27 91 63 2.1 1.5 41 -25 -42 1.0 0.8 31 -64 -70 2.6 0.7 272 -7 -73 8.6 7.3 18 201 177 7.5 5.2 45 164 97 2.4 1.1 109 -16 -57 2.1 3.4 -38 -27 28 4.1 4.5 -10 43 73 6.4 3.4 87 125 30 3.5 3.2 11 25 22 1.3 1.0 30 -53 -61 3.7 3.0 24 30 13 2.4 1.7 41 -17 -36 2.4 1.5 56 -16 -42 4.0 2.7 48 42 4 3.3 3.9 -15 16 48

Price Chg (%) MoM CY17 26 88 20 25 18 180 16 185 12 56 10 12 10 71 10 168 9 68 8 29 8 23 7 10 5 81 5 57 5 577 4 47 4 39 3 83 3 -22 2 -11 2 14 1 34 1 56 0 -7 -2 21 -2 55 -4 -11 -5 -28

Sector valuations: Cyclicals at a premium to historical average P/B 







Technology sector trades at a P/E of 16.6x, at a 5% premium to its historical average of 15.8x. Recent upward movement in the stock prices has been a result of improved expectations on performance heading into FY19. While seasonal weakness, led by lesser working days and furloughs, are likely to impact 3QFY18, underlying optimism around increased technology spend, resolution of pressures in key accounts and correction of course in problem verticals have been proving out to be a reason for a sentiment boost. NBFCs trade at a P/B of 3.8x, above their historical average (29% premium). GSec yields have hardened more than 50bp and now stabilized above 7%. If yields sustain at these levels over the medium term, it could meaningfully impact spreads of NBFCs, especially HFCs. HFCs levered most to market borrowings will be primarily impacted in this case. Despite the impact of RERA on the real estate sector, most HFCs have reported healthy disbursement growth in 2QFY18, and this trend is expected to continue in 3QFY18. PSU Banks now trade near its historical average P/B. It was the only negative performing sectors in December (-3% return MoM). PSU Banks’ valuations have recovered over past few months with improved visibility on earnings post recapitalization and with improved outlook on stressed asset resolution. Auto is trading at a P/E of 19.0x, at a 24% premium to its historical average of 15.3x. In December 2017, our channel checks indicated relatively weak retail growth in certain markets like Rajasthan and Maharashtra as consumers await passage of the inauspicious period (15Dec-14Jan). Snapshot: Sector valuations PE (x)

Sector Auto Banks - Private Banks - PSU NBFC Capital Goods Cement Consumer Healthcare Infrastructure Media Metals Oil & Gas Retail Technology Telecom Utilities

BULLS & BEARS | January 2018

Current 19.0 21.4 13.1 23.2 30.3 25.5 40.6 23.3 18.1 28.9 11.2 12.1 48.0 16.6 Loss 11.4

Relative to Sensex P/E (%)

10 Yr Avg Prem/Disc (%) Current 10 Yr Avg 15.3 24.5 0 -13 16.6 28.8 13 -5 3.6 259.8 -31 -72 17.7 31.7 22 2 26.4 14.7 60 49 18.4 38.7 34 5 30.4 33.8 114 76 22.8 2.3 23 31 13.5 34.5 -5 -23 23.2 24.5 52 33 12.1 -7.3 -41 -31 11.7 3.2 -36 -31 26.0 84.6 153 49 15.8 4.8 -13 -8 14.3 -20.3 -40 -15

18

PB (x) Current 4.2 2.9 0.9 3.8 3.3 3.1 12.0 3.4 2.1 5.4 1.7 1.6 9.8 3.9 3.1 1.5

Relative to Sensex P/B (%)

10 Yr Avg Prem/Disc (%) Current 10 Yr Avg 3.1 32.4 47 20 2.2 31.8 3 -15 1.0 -7.0 -68 -62 3.0 29.0 35 13 3.7 -12.1 15 40 2.2 38.7 9 -15 9.6 25.0 321 272 3.9 -12.8 20 50 1.7 21.8 -25 -34 4.1 33.9 91 55 1.5 12.9 -40 -44 1.6 3.2 -43 -40 6.6 47.6 244 154 4.1 -5.4 37 57 2.5 24.4 11 -2 1.7 -13.7 -48 -34

Autos: Muted retail growth; rural sentiment positive The Auto sector is trading at a P/E of 19.0x, at a 24% premium to its historical average of 15.3x. In December 2017, our channel checks indicated relatively weak retail growth in certain markets like Rajasthan and Maharashtra as consumers await passage of the inauspicious period (15Dec-14Jan). Within PVs, MSIL continues to see better retails than competitors. 2W OEMs are expected to report healthy wholesale growth YoY due to a low base owing to demonetization. Rural sentiment remains positive as growth rates in rural markets continue to be encouraging.

Sector Performance MoM: +6% Company Amara Raja Batt. Ashok Leyland Bajaj Auto Bharat Forge Bosch CEAT Eicher Motors Escorts Exide Inds. Hero Motocorp M&M Mahindra CIE Maruti Suzuki Motherson Sumi Tata Motors TVS Motor Co.

Current 25.7 20.6 18.5 30.1 35.5 18.0 30.3 18.2 24.1 19.8 18.0 23.7 27.2 28.5 7.9 33.4

PE (x) 10 Yr Avg 16.4 16.6 14.6 28.9 29.9 8.1 20.2 11.3 20.4 16.3 15.3 35.6 17.1 21.1 10.2 15.4

BULLS & BEARS | January 2018

Prem/Disc (%) 57 24 27 4 19 123 50 61 18 21 17 -33 59 35 -23 117

Relative to Sensex P/E (%) Current 10 Yr Avg 35 -5 8 -4 -3 -16 59 67 87 73 -5 -53 59 17 -4 -35 27 18 4 -6 -6 -11 25 105 43 -1 50 22 -59 -41 76 -11

19

Current 4.3 4.7 4.6 6.2 5.9 2.6 9.3 3.0 3.2 5.9 2.9 2.5 6.2 7.0 1.8 9.9

PB (x) 10 Yr Avg 3.5 2.7 5.2 3.9 5.1 1.1 5.1 0.9 3.2 7.0 3.0 3.5 2.9 4.6 2.3 3.3

Prem/Disc (%) 23 74 -11 61 16 142 82 228 1 -16 -3 -28 113 52 -22 197

Relative to Sensex P/B (%) Current 10 Yr Avg 51 33 64 2 62 98 120 48 107 94 -8 -59 228 96 7 -65 14 23 107 166 2 14 -13 32 118 11 147 77 -38 -14 249 27

Private Banks: NCLT resolution a key monitorable for corporate lenders While the resolution success through NCLT has been limited so far, the impending decision on several stressed assets – with many of them receiving active interest from bidders – will make things interesting for corporate lenders. We expect resolution process for these cases to get completed over the next few months, as the resolution deadline draws close. Asset quality trends for corporate lenders – ICICIBC and AXSB – will remain a key monitorable in 2HFY18. Private Banks are trading at 2.9x P/B, above their long-period average P/B of 2.2x, as earnings/growth visibility remains strong. Several private banks have reported an uptick in their loan growth, led by rising demand for working capital loans, strong traction in select vehicle lines, and continued market share gains from PSU banks. Loan growth thus stands at ~25%+ for mid-sized private banks and ~15% for larger banks, mainly driven by retail loans. A benign interest rate environment with healthy CASA inflows has enabled banks Sector Performance to maintain low cost of funds, MoM: +3% protecting margins. Company Axis Bank DCB Bank Federal Bank HDFC Bank ICICI Bank IndusInd Bank J & K Bank Kotak Mah. Bank South Ind.Bank Yes Bank

Current 20.3 19.6 17.1 23.2 19.4 22.3 10.4 25.8 9.5 14.4

PE (x) 10 Yr Avg 15.3 15.9 11.1 20.2 16.8 16.2 7.7 22.8 7.0 11.7

BULLS & BEARS | January 2018

Prem/Disc (%) 33 24 54 15 16 37 36 13 36 23

Relative to Sensex P/E (%) Current 10 Yr Avg 7 -12 3 -8 -10 -36 22 17 2 -3 17 -6 -45 -56 36 32 -50 -60 -24 -33

20

Current 1.9 2.1 1.6 4.3 2.3 3.8 0.7 3.8 1.1 2.5

PB (x) 10 Yr Avg 2.0 1.5 1.1 3.4 2.1 2.4 0.9 2.9 0.9 2.2

Prem/Disc (%) -4 41 42 27 8 56 -20 32 22 18

Relative to Sensex P/B (%) Current 10 Yr Avg -32 -23 -25 -42 -44 -57 52 30 -19 -19 33 -8 -75 -66 35 11 -63 -67 -11 -18

PSU Banks: Improved earnings visibility PSU Banks now trade near its historical average P/B. It was the only sector which delivered negative returns in December (-3% return MoM). PSU banks’ valuations have recovered over the past few months, with improved visibility on earnings post recapitalization and improved outlook on stressed asset resolution. With the resolution timeline of the cases referred to NCLT coming close, the outlook for certain metal and power assets looks promising. We note that metal and power assets together constitute ~45% of the two RBI lists put together, which in turn constitutes ~40% of systemic GNPLs. The government and the IBBI have amended the IBC and tightened the eligibility norms in bidding for stressed assets, which will have implications on asset recovery, particularly in smaller cases. This, however, will help improve credit discipline over the medium term. Higher borrowing by the government would put pressure on bond yields, which could lead to treasury losses for PSU banks – bond yields have already surged sharply over the past month. Also, fiscal pressure could impact banks’ recapitalization plans. Company Bank of Baroda Bank of India Canara Bank Indian Bank Punjab Natl.Bank St Bk of India Union Bank (I)

Current 7.5 NA 13.5 8.9 14.0 13.0 NA

PE (x) 10 Yr Avg 7.5 7.6 7.9 5.9 9.0 13.3 7.6

BULLS & BEARS | January 2018

Prem/Disc (%) 0 71 50 55 -2 -

Sector Performance MoM: -3%

Relative to Sensex P/E (%) Current 10 Yr Avg -61 -57 -56 -29 -55 -53 -66 -26 -48 -31 -23 -56

21

Current 0.9 0.8 0.7 1.1 0.9 1.3 0.5

PB (x) 10 Yr Avg 1.1 0.9 0.8 0.8 1.0 1.3 0.8

Prem/Disc (%) -15 -14 -8 35 -12 0 -40

Relative to Sensex P/B (%) Current 10 Yr Avg -68 -60 -72 -65 -75 -70 -63 -70 -69 -62 -55 -52 -82 -68

NBFCs: GSec yields could play party-pooper NBFCs trade at a P/B of 3.8x, above their historical average (29% premium). GSec yields have hardened more than 50bp and now stabilized above 7%. If yields sustain at these levels over the medium term, it could meaningfully impact spreads of NBFCs, especially HFCs. HFCs levered most to market borrowings will be impacted the most in this case. Despite the impact of RERA on the real estate sector, most HFCs have reported healthy disbursement growth in 2QFY18. This trend is expected to continue in 3QFY18. The festive season has been good for vehicle finance players. They have witnessed strong growth in the car and tractor segments. M&HCV sales have picked up over the last 2-3 months, providing some respite to CV financiers. Our interaction with gold financiers suggests that gold loan disbursements have picked up slowly in past two months. MFIs are witnessing a turnaround Sector Performance in terms of disbursements and collections. Credit costs should MoM: +3% decline going forward. Company Bajaj Finance Bharat Financial Capital First Chola. Invst. & Fin. Dewan Housing GRUH Finance HDFC Indiabulls Housing L&T Fin.Holdings LIC Housing Fin. M & M Financial Muthoot Finance PNB Housing Shri.City Union. Shriram Trans.

Current 29.7 23.2 16.9 19.1 13.3 43.6 30.7 12.0 18.2 12.5 27.2 11.2 21.3 15.3 116.6

PE (x) 10 Yr Avg 14.4 21.0 22.5 14.9 7.3 22.3 24.9 9.3 16.5 10.5 16.5 8.1 23.2 13.6 32.7

BULLS & BEARS | January 2018

Prem/Disc (%) 106 11 -25 28 82 95 23 29 11 19 64 38 -8 13 257

Relative to Sensex P/E (%) Current 10 Yr Avg 56 -17 22 21 -11 30 1 -14 -30 -58 130 29 62 44 -37 -46 -4 -5 -34 -39 43 -5 -41 -53 12 34 -20 -22 514 89

22

Current 5.4 3.9 2.4 3.5 1.9 13.0 5.3 3.4 3.0 2.0 3.0 2.2 3.3 2.2 2.4

PB (x) 10 Yr Avg 2.2 3.8 1.7 1.9 1.1 6.5 4.8 2.3 1.9 1.9 2.1 1.5 3.3 2.1 2.1

Prem/Disc (%) 143 1 41 84 68 100 12 45 57 7 41 41 -2 8 13

Relative to Sensex P/B (%) Current 10 Yr Avg 90 -15 36 45 -17 -36 22 -29 -34 -57 358 148 87 81 19 -11 7 -26 -29 -29 6 -18 -24 -41 15 27 -22 -22 -17 -20

Capital Goods: Private sector investment continues to remain muted Capital Goods sector trades at a 12% discount to its historical P/B average, but at a 15% premium to its historical P/E average. Intention to set up new project has shown steep decline of 67% YoY in 3QFY18 to INR768b. Private sector investment have declined by 71% YoY to INR355b and even government projects have declined by 62% YoY. Slow down has witnessed across sectors with sectors like electricity has witnessed a decline of 48%, transport services down 35% , construction and real estate down 91% YoY. Project completion has shown decline of 19% YoY in 3QFY18. Renegotiation of contract on account of GST implementation could have impacted the execution. Projects stalled remain elevated at INR13.2t, 13.3% of projects under implementation. Lack of clearances has led to stalled project staying at elevated levels

Sector Performance MoM: +4% Company ABB BHEL Blue Star CG Power & Indl. Cummins India GE T&D India Havells India K E C Intl. Larsen & Toubro Siemens Solar Inds. Thermax Voltas

Current 52.7 31.0 36.2 45.0 27.7 40.8 41.4 22.9 24.0 43.9 39.5 36.4 34.3

PE (x) 10 Yr Avg 62.8 20.9 24.8 13.4 23.2 62.8 25.3 15.7 23.7 47.5 19.1 25.2 20.7

BULLS & BEARS | January 2018

Prem/Disc (%) -16 48 46 237 19 -35 64 45 1 -8 107 44 66

Relative to Sensex P/E (%) Current 10 Yr Avg 177 262 63 21 91 43 137 -23 46 34 115 263 118 46 20 -9 26 37 131 174 108 10 92 46 81 19

23

Current 7.3 1.0 9.1 1.3 5.8 8.6 8.6 4.6 3.0 5.3 1.9 4.5 5.3

PB (x) 10 Yr Avg 6.9 3.0 7.9 1.1 5.6 7.3 5.4 2.2 3.4 6.5 3.5 4.3 3.4

Prem/Disc (%) 6 -66 14 18 5 18 61 105 -11 -17 -46 6 58

Relative to Sensex P/B (%) Current 10 Yr Avg 158 164 -65 13 219 203 -53 -57 106 112 201 177 204 104 62 -15 6 29 88 146 -33 32 60 63 86 28

Cement: Increase in import duty on petcoke should result in price hikes Cement trades at EV/EBITDA of 11.8x, at a 32% premium to the historical average. The Indian government has increased import duty on petcoke from 2.5% to 10%, which translates into effective increase in petcoke price by INR500600/t. The corresponding increase required in cement realization to offset the cost increase is INR40/t or INR2.5/bag. RIL has also increased prices of domestic petcoke by INR500/T in response to this. We believe cost push for the industry in the form of higher petcoke prices would be passed on to end consumers, as was done in case of petcoke ban in states of Uttar Pradesh, Rajasthan and Haryana. AllIndia prices should witness an increase of INR 2-3/bag to offset the impact of cost push. Sector Performance MoM: +2% PE (x) Company ACC Ambuja Cem. Birla Corpn. Grasim Inds India Cements Sanghi Inds. Shree Cement UltraTech Cem

Current 26.6 33.8 22.7 10.8 19.5 17.2 36.4 31.8

10 Yr Avg 23.8 24.6 12.5 8.5 20.8 13.4 21.3 22.0

Prem/Disc (%) 12 38 82 26 -6 28 71 45

BULLS & BEARS | January 2018

Relative to Sensex P/E (%) 10 Yr Current Avg 40 37 78 42 20 -28 -43 -51 3 20 -10 -22 91 23 67 27

PB (x) Current 3.5 2.6 2.4 1.4 1.0 2.2 6.0 4.1

10 Yr Avg 2.9 2.6 1.1 1.0 0.8 0.9 3.8 2.9

Prem/Disc (%) 20 -3 109 35 31 141 60 41

24

Relative to Sensex P/B (%) Current 10 Yr Avg 22 -10 -16 -51 -64 -22 113 43

9 1 -57 -61 -70 -65 44 9

Consumer: Trades at 34% premium to LPA Consumer sector P/E remains above its historical average (34% premium). In a pleasant surprise, 2QFY18 results saw positive commentary from management of FMCG companies – i.e. rural growth already exceeding urban growth before the benefits of near-normal monsoon have started to come through. Post GST, the trade channels are getting back to normal, and consumer off-takes have improved. Companies had mentioned that wholesale channel should return back to normal levels by end of CY17. We believe volume growth prospects for 2HFY18 are brighter than they have been for many years. Another factor likely to boost sales is the end of commodity cost deflation, bringing back the price-led part of sales growth. We continue to like rural recovery plays owing to their robust earnings prospects.

Sector Performance MoM: +4% Company Asian Paints Britannia Inds. Colgate-Palm. Dabur India Emami GlaxoSmith C H L Godrej Consumer Hind. Unilever ITC Jyothy Lab. Marico Nestle India P & G Hygiene Page Industries Pidilite Inds. United Breweries United Spirits

Current 46.7 46.6 40.7 39.2 41.6 37.1 42.2 51.8 26.8 36.7 42.5 54.5 55.1 66.3 45.4 63.1 74.9

PE (x) 10 Yr Avg 32.8 28.5 32.0 29.1 26.8 27.4 28.6 33.3 25.4 31.5 29.2 39.7 34.8 33.0 27.6 71.4 91.0

BULLS & BEARS | January 2018

Prem/Disc (%) 43 63 27 35 55 35 47 56 6 17 46 37 58 101 64 -12 -18

Relative to Sensex P/E (%) Current 10 Yr Avg 146 89 145 65 114 85 106 68 119 55 95 58 122 65 173 92 41 46 93 82 124 69 187 129 190 101 249 90 139 59 232 312 294 425

25

Current 12.7 14.8 21.2 10.0 13.0 7.9 9.0 42.8 6.6 6.4 14.8 21.0 31.9 28.8 9.9 9.6 15.2

PB (x) 10 Yr Avg 10.2 11.0 24.7 9.0 9.4 7.4 6.4 28.3 7.1 3.4 9.2 23.8 13.2 14.9 6.8 8.2 10.1

Prem/Disc (%) 24 35 -14 11 38 7 41 51 -8 87 61 -12 143 93 46 18 51

Relative to Sensex P/B (%) Current 10 Yr Avg 346 288 419 318 647 842 251 242 357 257 177 180 218 144 1406 978 131 172 125 30 422 250 637 805 1024 401 913 468 248 158 238 211 437 286

Healthcare: Pricing pressure in US and push to generics in India are key concerns Healthcare trades at a P/E of 23.3x – near its historical average P/E of 22.8x. Strides Shasun and Glenmark trade at 74% and 51%, respectively, at a significant discount to their historical average P/E, while Ajanta Pharma, Biocon, Aurobindo, Granules, Torrent Pharma, Divis and Shilpa Medicare are trading at a premium to their historical averages.  Although the outlook for FY18 remains negative, companies expect price erosion to come down from high-double-digits to low-double-digits.  With inventory now at near-pre-GST levels, domestic business of Indian pharma companies is expected to bounce back in 2HFY18. Pricing pressure in the US due to an increase in competition, faster approval by US FDA and the new Draft Pharmaceutical Policy 2017 are the key concerns in the medium term for Indian Sector Performance pharma companies. MoM: +6% Company Aurobindo Pharma Ajanta Pharma Biocon Cadila Health. Cipla Divi's Lab. Dr Reddy's Labs Fortis Health. Glaxosmit Pharma Glenmark Pharma. Granules India Ipca Labs. Jubilant Life Lupin Sanofi India Sun Pharma.Inds. Strides Shasun Shilpa Medicare Torrent Pharma.

Current 14.1 24.3 59.1 19.6 23.8 26.8 23.8 38.6 47.5 14.3 16.1 24.3 15.1 21.3 31.0 27.5 13.2 22.9 24.2

BULLS & BEARS | January 2018

PE (x) 10 Yr Avg 12.3 12.5 23.0 19.8 25.9 21.4 26.8 43.2 43.4 29.3 11.2 23.8 13.3 21.4 26.4 27.7 51.5 19.4 15.7

Prem/Disc (%) 14 94 157 -1 -8 26 -11 -11 9 -51 44 2 13 0 18 -1 -74 18 54

Relative to Sensex P/E (%) Current 10 Yr Avg -26 -29 28 -28 211 33 3 15 25 50 41 23 25 55 103 149 150 151 -25 69 -15 -35 28 38 -21 -23 12 23 63 52 45 60 -31 197 20 12 27 -10

26

Current 2.9 5.7 6.0 4.5 3.2 5.2 2.9 1.2 13.7 2.7 2.3 2.6 2.6 2.5 5.4 3.3 2.1 4.0 4.4

PB (x) 10 Yr Avg 2.6 3.8 2.7 4.8 3.5 5.0 3.8 1.7 10.1 4.5 1.5 3.0 1.7 4.5 4.3 4.8 3.4 2.7 3.9

Prem/Disc (%) 10 50 124 -6 -9 2 -25 -25 35 -41 52 -12 60 -44 27 -31 -38 48 14

Relative to Sensex P/B (%) Current 10 Yr Avg 2 0 99 43 109 1 59 84 11 32 82 92 0 46 -56 -37 381 286 -6 73 -19 -43 -7 14 -7 -37 -11 72 91 63 17 84 -27 28 42 4 57 49

Infrastructure: Awarding activity to see pick up in 4QFY18 Infrastructure trades at a 22% premium to its historical P/B average and a 34% premium to its historical P/E average. Government has recently announced capex of INR7t to be incurred in road infrastructure development under the Bharatmala program. Bharatmala program envisages to award road projects worth INR5.3t over the next two years and execute the same by 2022. NHAI has already issued RFP of INR600b to be awarded by Feb 2017. Ordering activity is expected to see traction by 4QFY18. IRB Infra trades at a discount to historical P/B, whereas Ashoka, KNR and Sadbhav trade at a premium.

Company Ashoka Buildcon IRB Infra.Devl. KNR Construct. Sadbhav Engg.

Current 42.6 10.3 22.8 29.4

PE (x) 10 Yr Avg 20.5 12.7 8.1 25.0

BULLS & BEARS | January 2018

Prem/Disc (%) 108 -19 181 18

Relative to Sensex P/E (%) Current 10 Yr Avg 124 18 -46 -27 20 -53 55 44

27

Current 2.4 1.3 3.8 3.6

PB (x) 10 Yr Avg 1.5 1.9 1.2 2.8

Prem/Disc (%) 56 -33 213 25

Relative to Sensex P/B (%) Current 10 Yr Avg -16 -42 -55 -27 32 -54 25 8

Media: Mixed recovery The Media sector trades at a one-year forward P/E of 28.4x, at a 22% premium to historical average of 23.2x. Changes in the GST compliances continue to affect the ad market, witnessing mixed performance. There is no clarity on the recovery from the national or local advertisers’ spend. Though, broadcasters are positive on ad spend, print and radio continue to feel the heat. Digitization remains the key theme in the sector. Subscriber-level ARPU improvement in Phase I/II markets and uptick in Phase III/IV digitization are the key triggers on the subscription front. The implementation timelines of non-discriminatory content pricing regulation on the media value chain remains a key monitorable.

Company Ent.Network H T Media Jagran Prakashan PVR Prime Focus Sun TV Network Zee Entertainment

Current 42.3 8.5 13.0 36.8 19.3 29.1 34.6

PE (x) 10 Yr Avg 32.2 20.4 15.6 41.8 30.7 20.2 25.8

BULLS & BEARS | January 2018

Prem/Disc (%) 31 -58 -17 -12 -37 44 34

Relative to Sensex P/E (%) Current 10 Yr Avg 124 86 -55 18 -31 -10 95 142 3 77 54 17 84 49

28

Current 3.7 0.9 2.3 5.5 4.0 8.2 6.2

PB (x) 10 Yr Avg 3.0 1.7 3.6 2.9 3.3 5.1 5.1

Prem/Disc (%) 25 -51 -35 87 18 61 22

Relative to Sensex P/B (%) Current 10 Yr Avg 32 13 -70 -34 -17 36 94 12 40 27 193 95 122 95

Metals: Sharp increase in long steel product prices Metals trades near its historical average P/B of 1.5x. EV/EBITDA is at 6.4x, a 10% discount to historical average. There has been an impressive rally in long steel product prices in India, driven by higher global scrap prices and improving domestic demand. Flat product prices are also likely to increase on rising global prices. Base metal prices were largely unchanged. We remain positive on JSW Steel, as it benefits from higher steel spreads. Hindalco is well placed to benefit from higher aluminum prices and low-cost captive raw material. NMDC is likely to benefit from premium for high-grade ore and strong steel demand in China.

Sector Performance MoM: +7% PE (x) Company Hind.Zinc Hindalco Inds. Jindal Steel JSW Steel Natl. Alum NMDC Rain Industries SAIL Tata Steel Vedanta

Current 10.0 11.2 NA 11.4 15.7 10.7 10.4 NA 11.5 8.3

10 Yr Avg 8.5 9.8 14.9 14.0 17.6 14.9 3.1 14.0 15.7 9.0

Prem/Disc (%) 19 14 -19 -11 -28 232 -27 -8

BULLS & BEARS | January 2018

Relative to Sensex P/E (%) 10 Yr Current Avg -47 -51 -41 -44 -14 -40 -19 -18 2 -43 -14 -45 -82 -19 -40 -9 -56 -48

PB (x) Current 3.7 1.6 0.7 2.1 1.5 1.7 2.6 1.1 1.8 1.7

10 Yr Avg 2.0 1.5 2.0 1.3 1.4 3.9 0.7 1.2 2.2 2.2

Prem/Disc (%) 83 11 -67 60 6 -56 272 -9 -17 -21

29

Relative to Sensex P/B (%) Current 10 Yr Avg 29 -42 -77 -26 -48 -40 -7 -62 -37 -40

-24 -43 -24 -50 -47 47 -73 -55 -18 -18

Oil & Gas: OPEC extends oil cut to end of 2018 Oil & Gas trades at its historical average P/B of 1.6x and P/E of 12.1x (v/s 10-year average of 11.7x). Brent crude oil price remained elevated at ~USD64/bbl post OPEC and Russia agreed to extend oil cut to end of 2018. Rising crude price is positive for ONGC/OIL; their stock prices have moved up, led by an increase in crude oil prices. GAIL’s positive stock performance is also because of rising crude prices. Though Singapore complex GRMs remained at ~USD7/bbl during the month, elevated crude prices affected the stock performance of OMCs. Petronet continued its strong utilization at Dahej facility. IGL also appears to have Sector Performance witnessed strong volume MoM: +2% growth. Company BPCL GAIL (India) Guj.St.Petronet HPCL IOCL Indraprastha Gas MRPL ONGC Petronet LNG Reliance Inds.

Current 10.4 16.1 17.5 10.1 9.5 30.4 11.8 8.9 15.6 15.2

PE (x) 10 Yr Avg 10.4 13.9 12.2 8.6 10.2 10.7 10.5 11.1 10.6 14.1

BULLS & BEARS | January 2018

Prem/Disc (%) 0 16 43 18 -7 185 12 -19 48 8

Relative to Sensex P/E (%) Current 10 Yr Avg -45 -40 -15 -20 -8 -29 -47 -50 -50 -41 60 -38 -38 -39 -53 -36 -18 -39 -20 -19

30

Current 2.5 1.9 2.3 2.3 1.5 6.0 1.8 1.1 3.5 1.7

PB (x) 10 Yr Avg 1.5 1.9 1.8 1.1 1.2 2.3 1.7 1.6 2.1 1.6

Prem/Disc (%) 64 2 27 109 27 163 4 -34 65 2

Relative to Sensex P/B (%) Current 10 Yr Avg -13 -43 -32 -28 -18 -30 -18 -57 -48 -56 110 -14 -36 -34 -63 -40 21 -21 -42 -38

Retail: Rich valuations of 56x do not factor in downside risk The Retail sector trades at a P/E of 48x, at a 85% premium to historical average. Regulations governing the jewellery industry, including identity proofs for all transactions over INR 200,000, GST implementation and crackdown on black money, have tilted trade decisively in favor of organized players, among which TTAN has benefitted the most – there has been a strong revival and market share gain in Jewellery. Banking on this enormous opportunity on value migration in the space, we have recently initiated coverage on PC Jeweller (India's second-largest Jewellery Retailer ) with a Buy rating. JUBI’s recent initiatives are admirable, but have come slightly late and will take time to bear fruit, in our view. The company is facing challenges to stay relevant amid competition from online and offline players. JUBI has, in fact, lagged other QSR peers like Westlife on SSSG for the last seven quarters and Yum India for the last four quarters. Every quarter of delay in SSSG recovery leads to further EPS cuts because of high fixed cost intensity. Double-digit SSSG is essential for sustained margin growth for a business with 6-7% cost inflation. Company Jubilant Food PC Jeweller Titan Inds.

Current 67.9 26.0 56.9

PE (x) 10 Yr Avg 67.2 13.0 30.9

BULLS & BEARS | January 2018

Prem/Disc (%) 1 99 84

Relative to Sensex P/E (%) Current 10 Yr Avg 258 288 37 -25 200 78

31

Current 13.5 4.2 13.4

PB (x) 10 Yr Avg 12.5 2.0 8.7

Prem/Disc (%) 8 105 54

Relative to Sensex P/B (%) Current 10 Yr Avg 374 374 48 -22 373 233

Technology: An improved outlook? Technology sector trades at a P/E of 16.6x, a 5% premium to its historical average of 15.8x. Recent upward movement in stock prices has been a result of improved expectations on performance heading into FY19. While seasonal weakness, led by lesser working days and furloughs are likely to impact 3QFY18, underlying optimism around increased technology spend, resolution of pressures in key accounts and correction of course in problem verticals have been proving out to be a reason for a sentiment boost. In the meanwhile, more clarity is awaited on the US tax reforms to assess the likely impact on Indian vendors. Barring Infosys, all companies are trading at a premium to historical valuations. Premiums for Tier-II are steeper compared to the large caps. Sector Performance MoM: +5% Company Cyient HCL Technologies Hexaware Tech. Infosys KPIT Tech. MphasiS NIIT Tech. TCS Tech Mahindra Wipro Zensar Tech.

Current 14.3 13.3 20.2 15.6 13.3 16.2 13.3 18.4 13.5 15.8 13.1

PE (x) 10 Yr Avg 11.4 13.2 12.3 16.9 9.9 11.1 8.7 17.4 12.3 14.5 7.6

BULLS & BEARS | January 2018

Prem/Disc (%) 26 1 65 -8 35 46 53 6 10 9 72

Relative to Sensex P/E (%) Current 10 Yr Avg -25 -34 -30 -24 6 -29 -18 -3 -30 -43 -15 -36 -30 -50 -3 0 -29 -29 -17 -16 -31 -56

32

Current 2.6 3.3 4.5 3.4 1.8 2.7 2.1 5.8 2.3 2.5 2.2

PB (x) 10 Yr Avg 1.9 3.1 2.7 4.0 1.9 2.0 1.5 5.8 2.8 2.9 1.6

Prem/Disc (%) 38 6 67 -16 -5 32 41 -1 -18 -15 37

Relative to Sensex P/B (%) Current 10 Yr Avg -9 -29 15 17 58 3 19 53 -37 -28 -5 -22 -28 -45 102 120 -18 8 -12 12 -23 -39

Telecom: IUC impact and ARPU down-trading; double whammy to EBITDA Bharti and Idea in the last one month have continued to rally about 8-10% sustaining high valuation. We believe telecom sector’s EV/EBITDA of 9.3x, a 16% premium to historical average, does not fully capture EBITDA growth potential beyond FY18. We remain positive on the sector. Coming quarters should see the following impact on Revenue and EBITDA due to the cut in IUC rate to INR 0.06/min from INR0.14/min from 1st October 2017 and further ARPU down-trading. The competitive and capex intensity in the sector should bottom out by FY18. RJio’s frequent correction in price plans should drive ARPU-led value accretion and healthy FCF generation.

Company Bharti Airtel Idea Cellular Tata Comm

Current 90.5 NA 45.3

PE (x) 10 Yr Avg 37.8 27.4 52.6

BULLS & BEARS | January 2018

Prem/Disc (%) 140 -14

Relative to Sensex P/E (%) Current 10 Yr Avg 381 118 58 140 203

33

Current 3.0 2.6 10.4

PB (x) 10 Yr Avg 2.7 2.1 7.2

Prem/Disc (%) 11 23 44

Relative to Sensex P/B (%) Current 10 Yr Avg 6 3 -8 -19 270 175

Utilities: Electricity generation growth slows to just ~2% in November Utilities trade at a P/B of 1.5x, at a 14% discount to historical average. Coal India, CESC and NHPC trade at a premium to historical average P/B, while NTPC, Power Grid, Tata Power and JSW Energy trade at a discount to historical average P/B. Short-term power prices were down ~13% MoM to INR3.5/kWh on lower demand. Conventional electricity generation grew 1.8% YoY in November 2017. YTD growth was ~4% YoY.

Sector Performance MoM: +3% Company CESC Coal India JSW Energy NHPC NTPC Power Grid Corpn Tata Power

Current 10.6 13.2 26.6 11.2 11.7 10.2 12.6

PE (x) 10 Yr Avg 18.1 15.2 15.8 11.7 14.9 14.2 20.3

BULLS & BEARS | January 2018

Prem/Disc (%) -42 -13 69 -5 -21 -28 -38

Relative to Sensex P/E (%) Current 10 Yr Avg -44 5 -30 -12 40 -9 -41 -32 -38 -14 -46 -18 -34 17

34

Current 1.1 6.1 1.4 1.1 1.3 1.7 1.8

PB (x) 10 Yr Avg 0.9 5.9 1.7 0.9 1.8 2.0 2.2

Prem/Disc (%) 18 4 -15 19 -25 -16 -18

Relative to Sensex P/B (%) Current 10 Yr Avg -61 -64 116 126 -50 -37 -60 -64 -53 -32 -42 -25 -38 -18

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BULLS & BEARS | January 2018

Terms & Conditions: This report has been prepared by MOSL 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 MOSL. 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 notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by virtue of their receiving this report. Analyst Certification 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 MOSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an independent view with regards to subject company for which Research Team have expressed their views. Regional Disclosures (outside India) This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL & its group companies to registration or licensing requirements within such jurisdictions. For Hong Kong: This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. 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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., MOSL 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.

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For Singapore Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited: 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. MOSL, 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 MOSL. 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. 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The person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL 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.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id: [email protected], Contact No.:022-30801085. Registration details of group entities.: MOSL: SEBI Registration: INZ000158836; CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products

BULLS & BEARS | January 2018

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