Motilal Oswal India Strategy Report for FY16

Leading brokerage firm Motilal Oswal has come up with its India Strategy Report for FY16. The report is a detailed one which covers different sectors like Automobiles, Capital Goods, Cement, Consumer, Financial-Banks, Financial NBFCs, Healthcare, Media, Oil & Gas, Metals, Real Estate, Technology, Telecom, Retail etc in Indian Industry and the possible winners going forward.

Team Motilal Oswal

Facts Regarding FY15
  • Indian equities have delivered positive returns for three consecutive years, and positive returns in five out of the last six years.
  • Sectoral performances have been very divergent in CY15YTD. Telecom was the top performer with 14% return and significantly outperformed the Nifty (1% return); it was followed by Capital Goods (+13%) and Healthcare (+13%). PSU Banks (-22%) and Metals (-13%) were the top underperformers.
  • Lupin was the best-performing Sensex stock (32% return) for CY15, followed by Maruti Suzuki (21%) and HUL (21%). Hindalco, Tata Steel, Sesa Sterlite, Hero Motocorp, SBI, ITC, ICICI Bank, GAIL and Tata Motors were the top underperformers (delivering negative returns of 10-30%).
  • Valuations of Indian equities are near the long-term averages; need growth to pick-up. The Sensex trades at 16.9x P/E (slightly above its long-period average of 16.2x) and near its 10-year average P/B of 2.8x.
  • Domestic MFs have turned big buyers in Indian equities for 14 consecutive months. DII (ex MFs) have also turned net buyers by pumping in USD1.3b in three months after 13 months of outflows.
  • FIIs invested another USD6.2b in the first half of CY15 compared with USD16.2b in CY14. However, FIIs have been net sellers in recent months.
  • FII holding in BSE-200 companies is at an all-time high of 25.6% compared with DII at 10.9%. FIIs have bought USD 169b in 23 years. Since Jan 2000, FIIs bought USD158b compared with DIIs’ USD8.8b. We expect this trend to stabilize as domestic flows have turned positive now

Future Ahead - FY16/FY17
  • Delay in domestic recovery and global commodity fall continue be the headwinds for earnings growth. Other factors such as muted rural consumption, continuing asset quality woes in PSU banks and adverse cross currency movements continue to pull down the aggregate growth of corporate India.
  • However, we believe government-led capital spending and favorable inflation leading to lower rates will create conducive environment for earnings growth recovery.
  • Expect Sensex EPS to grow 15% to 1,561 in FY16 and 22% to 1,907 in FY17. Since the last preview, three-fourths of the Sensex companies would see an EPS cut led by Tata Steel, Sun Pharma, Hindalco, Tata Motors, Coal India and GAIL. Top upgrade drivers are Maruti, NTPC, ONGC and Bajaj Auto.
  • One-third of the Sensex companies would contribute more than two-thirds of FY16 Sensex EPS expansion. Key contributors to the EPS expansion would be ONGC, Tata Motors, ICICI Bank, HDFC Bank, Tata Steel and Reliance Ind, M&M, Axis Bank, HDFC and SBI

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