2 - Bulls Bears - India Valuations Handbook

*
* Sectors in order of premium /

discount to historical averages
Highlights of March edition
BEST PERFORMERS MoM (%) WORST PERFORMERS MoM (%)  Nifty exhausts toward the end — off
from peak levels to close just 10%
higher in FY18
 Real Estate, Private Banks, Tech, NBFC,
Metals top outperformers for FY18
 Healthcare, PSU Banks and Utilities only
negative performers for FY18
 Mid-caps underperform large-caps for
the third consecutive month
Research & Quant Team (Deven@MotilalOswal.com); +91 223982 5440 April 2018
Contents
 Strategy: It’s a tale of caution and opportunity now; apt stock picking to be more rewarding NOTES:
 Valuation deep dive for the month: Cement  Prices as on Mar, 2018
 Indian equities: Nifty, sector performance and key valuation metrics  BULL icon:
 Global equities: Performance and valuation snapshot Sectors trading
at a premium to
 Valuations: Nifty/Midcap companies historical averages
 Sector highlights: Overview and sector valuations  BEAR icon:
 AUTO Sectors trading
 BANKS / FINANCIALS at a discount to historical
 CAPITAL GOODS averages
 CEMENT  Valuations are on
 CONSUMER 12-month forward basis
 HEALTHCARE unless otherwise
 INFRASTRUCTURE mentioned
 MEDIA  Sector valuations are
 METALS based on MOSL coverage
 OIL & GAS companies
 RETAIL
 Global equities data
 TECHNOLOGY
sourced from Bloomberg.
 TELECOM
Sensex valuations based
 UTILITIES
on MOSL estimates
Investors are advised to refer to important disclosures made at the end of this report.
BULLS & BEARS | April 2018 2

Strategy: It’s a tale of caution and opportunity now; apt stock picking to be more rewarding
 Last two months take the sheen off Nifty: After sliding 4.9% in February, Nifty continued weakening further in March (-3.6%). Notably, ending FY18 at
10,114 (+10.2%), the index wiped out majority of yearly gains (until January 2018, the Nifty was up 20.2% YTD FY18), led by escalating volatility on the back
of unsupportive global and domestic events (concerns around global interest rate tightening, potential trade conflict, and domestic political uncertainty
after the BJP’s muted show in the recent by-polls). Nevertheless, investors found some comfort from the RBI’s 1HFY19 borrowing calendar (which soothed
nerves in the bond markets) and G-sec yields coming off from the high of 7.8% to 7.35% now. In March, FII and DII flows stood at USD2.1b and USD1b,
respectively. For FY18, DII bought USD 17.7b, almost ~4x of FY17, while FII flows stood at USD3.2b, less than 50% of FY17 flows. Midcaps (-4.6% in March)
underperformed the Nifty in March and FY18 (9% returns v/s 10% returns by Nifty). Note that midcaps still command a rich premium of 73% v/s large caps.
 Expect volatility to remain high; macro data point toward gradual demand uptick: After a relatively calm CY17, we believe volatility will remain
elevated in CY18 – especially given the market concerns about a potential global trade war after the US initiated tariff actions on imports from certain
countries. Moreover, the BJP’s dismal performance in the recent by-polls has introduced an element of uncertainty, especially with the General Elections
around the corner next year. In our view, markets will continue to closely monitor the outcome of the elections in a few key states in CY18. Nevertheless,
the markets have something to cheer about with evidence of demand revival in selected pockets (IIP data, core sector growth, monthly vehicle sales data,
fuel consumption data and GDP print, which all point toward bottoming out of macros). Encouragingly, our recently released thematic report on capex talks
about green shoots of capex recovery in sectors such as steel, cement and refinery. Our economist, Nikhil Gupta, in a note released yesterday, revised up
the FY19 GDP/GVA growth expectations by 10/30bp to 6.9%/6.7% and lowered the FY19 CPI inflation forecast by 70bp to 4.4%.
 India among laggards in Mar’18: For March 2018, Taiwan (+1%), Korea (+1%) and Brazil (+0%) were the only key global markets to close higher in local
currency terms. On the other hand, Indonesia (-6%), India (-4%) and Japan (-3%) were among the worst performers in the month. Over the last 12 months,
MSCI EM (+22%) has outperformed MSCI India (+9%). MSCI India P/E is at a premium of 41% to MSCI EM P/E, below its historical average premium of 43%.
 Sectoral performance trends for FY18: Real Estate (+39%), Private Banks (+24%), Technology (+17%), NBFC (+14%) and Metals (+13%) were the top
outperformers for FY18. Healthcare (-14%), PSU Banks (-7%) and Utilities (-7%) were the laggards in FY18. Titan (+104%), Bajaj Finance (+51%), Maruti
(+47%), HUL (+47%) and Tech Mah (+39%) were the top performers. Lupin (-49%), Tata Motors (-30%), Sun Pharma (-28%), Dr Reddy’s (-21%) and SBI (-15%)
were the top laggards. In this edition of ‘Bulls & Bears,’ we take a deep dive into the valuation metrics of the Cement sector.
 Correction offers interesting buying opportunities; bottom-up stock selection is the mantra in CY18: Given our expectations of elevated volatility and
earnings recovery, we believe proper stock-picking will be more rewarding in CY18, unlike the previous year which was characterized by a broad-based
market rally. The recent correction does offer a good buying opportunity, but we prefer names that provide “quality with earnings visibility.” Cooling off of
bond yields post the announcement of the 1H government borrowing calendar is incrementally positive from valuations viewpoint, in our view. At 17.7x
FY19E, the Nifty is now trading closer to its long-term averages and is not expensive, in our view, given the context of earnings bottoming out. We continue
to prefer large-caps over mid-caps, given the sharp valuation premium of mid-caps. Moreover, our CY18 theme of ‘Consumption Recovery’ is playing out
well, with strong performances across consumer and auto companies. We believe the government will look to drive consumption demand in an election
year. However, a spike in crude oil price remains a key risk as it can distort the improving macro narrative. Our top ideas – Large cap bets: HDFC, M&M,
Motherson Sumi, Titan, ICICI Bank, L&T and HPCL. Mid-cap bets: RBL, Exide, Teamlease, Repco, SHTF and Emami.
Valuation deep-dive for the month: Cement
 The cement sector has re-rated significantly since FY13 due to the Trend in Cement P/E – one-year forward
expected improvement in industry dynamics, led by better demand and Cement P/E (x) 5 Yr Avg (x) 10 Yr Avg (x) 15 Yr Avg (x)
43.0
slowing capacity addition. Interestingly, the re-rating has been uniform
across mid-caps and large-caps, with some preference for companies
33.0
exhibiting better cost control and gaining market shares. Average one-year 27.8
forward EV/EBIDTA multiple is 10.6x, at a 14% premium to the long-period
23.0 19.9
average. Current valuations of ~10.6x EV/EBITDA are down from the peak 22.8
levels of ~15x EV/EBITDA about 12 months ago due to a lower-than- 17.8
13.0
estimated improvement in earnings.
 Earnings in the sector have been disappointing over the past 3-4 years.
While some improvement is expected over the next 24 months, it may not 3.0
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
be as sharp as earlier estimated due to cost push and higher supply
addition.
 Sector valuations, after being supported by commodity deflation in FY15-
FY16 (~35% of overall cost exposed to commodity prices), have moderated
Trend in Cement EV/EBIDTA – one-year forward
significantly over the past six months, with an increase in the underlying
fuel prices. We expect the full impact of cost push in 2HFY18 to come Cement EV/EBDITA (x) 10 Yr Avg (x)
18.0
through in FY19. Hence, price increases will be critical for margin
improvement and to offset the impact of cost push. 14.0
 Over the last 3-4 years, while demand has been subdued due to weakening
macro factors, better-managed companies have consistently invested in 10.6
10.0
cost efficiencies. In the process, the balance sheets of companies – 9.3
particularly of large-caps – have also improved meaningfully. 6.0
 Sector valuations have moderated over the last 12 months due to weaker-
than-estimated earnings, cost push, and capacity addition announcements 2.0 Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
across most regions. While multiples are expected to remain elevated,
they should moderate from the previous highs, in our view.

Key highlights
 Indian equities: Nifty exhausts toward the end — off from peak levels to close just 10% higher in FY18
 After rallying strongly by 20.2% (FY18 YTD) up to January, the Nifty corrected meaningfully by 4.9% in February
and 3.6% in March to close FY18 at 10,114 (+10.2% YoY).
 Markets were trapped in volatility in February and March owing to unsupportive global developments on bond
yields, fears of potential trade conflict as well as domestic political uncertainty.
 Real Estate (+39%), Private Banks (+24%), Technology (+17%), NBFC (+14%) and Metals (+13%) were the top
outperformers for FY18. Healthcare (-14%), PSU Banks (-7%) and Utilities (-7%) were the laggards in FY18.
 Stock performance: Breadth positive in FY18; 34 Nifty stocks close higher
 Titan (+104%), Bajaj Finance (+51%), Maruti (+47%), HUL (+47%) and Tech Mah (+39%) were the top performers. About the product
Lupin (-49%), Tata Motors (-30%), Sun Pharma (-28%), Dr Reddy’s (-21%) and SBI (-15%) were the top laggards. As the tagline suggests,
 Global equities: India among worst-performing markets in March BULLS & BEARS is a
 For March 2018, Taiwan (+1%), Korea (+1%) and Brazil (+0%) were the only key global markets to close higher in
handbook on valuations in
local currency terms. On the other hand, Indonesia (-6%), India (-4%) and Japan (-3%) were among the worst
performers in the month. India. Every month, it will
 Over the last 12 months, MSCI EM (+22%) has outperformed MSCI India (+9%). However, over the last five years, cover:
MSCI India has outperformed MSCI EM by 83%. MSCI India P/E is at a premium of 41% to MSCI EM P/E, below its
historical average premium of 43%.
 Valuations of Indian
markets vis-à-vis global
 Sector valuations: Global Cyclicals – the top underperformer; NBFC outperforms
 Metals trades near its historical average P/B of 1.4x. EV/EBITDA is at 5.0x, at a 13% discount to its historical markets
average. Concerns about a trade war – as US aims to protect its domestic market and impose tariff restrictions –  Current valuation of
drove the de-rating of the metals sector. Global steel prices have weakened amid concerns about weakening companies in various
demand in China.
 Oil & Gas trades in line with its historical average – P/B of 1.5x (v/s 10-year average of 1.6x P/B) and P/E of 11.5x sectors
(v/s 10-year average of 11.5x). Brent crude oil prices were highly volatile in March; prices rose sharply from  Sectors that are
USD65/bbl to +USD70/bbl. This, combined with the upcoming elections, has exerted pressure on the stock currently valued at
performance of oil marketing companies.
premium/discount to
 Nifty-50 highlights: Automobile sees continued demand momentum across segments
their historical long-
 Auto sector is trading at a P/E of 16.7x, at a 10% premium to its historical average of 15.2x. PV and 2W retails
remain healthy, supported by festive demand in the key northern, central and western markets. period averages

Indian equities: Nifty loses strength toward year-end — up 10% in FY18
 After rallying strongly by 20.2% (FY18 YTD) up to January, the
Nifty FY and MoM change (%)— ends with 10% positive return in FY18
Nifty corrected meaningfully by 4.9% in February and 3.6% in
March to close FY18 at 10,114 (+10.2% YoY). 6 months of negative returns in FY18
 Markets were trapped in volatility in February and March owing 18.5
to unsupportive global developments on bond yields, fears of
potential trade conflict as well as domestic political uncertainty. 10.2
 In FY18, DIIs were significant buyers at USD17.7b, as against 5.8 5.6 4.7
USD4.5b in FY17. Domestic mutual fund flows remained strong 1.4
3.4 3.0
at USD21.7b (FY17 flows of USD8.4b). DIIs ex MFs were sellers
to a tune of USD4b (had sold USD3.9b in FY17). 1.0 1.3 1.1
1.6
 FIIs flows were at USD3.2b, as against USD8.3b in FY17. 4.9 3.6
May-17
Apr-17
Dec-17
Jun-17
Aug-17
FY17
Oct-17
Nov-17
Jan-18
Mar-18
Jul-17
FY18
Sep-17
Feb-18
Nifty QoQ change (%)— negative return after four consecutive quarters of
Institutional flows (INR b) — Domestic flows remain strong positive returns
Net FII Flows (USD b) QoQ Return (%)
14
12
10
5.1
17.7 7 8
6 5 4 4
25.8 4.5 3 4 3
23.4 25.0 17.7 3
18.1 12.1
13.1 13.1 13.7
8.5 8.3 0
3.2 -1
-4.1 -0.9 -3.7 -2 -3
-10.4 -12.7 -8.9 -1.5 -4 -5 -4
-5
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Mar-13
Mar-14
Jun-14
Mar-15
Jun-15
Mar-16
Jun-16
Mar-17
Jun-17
Mar-18
June-13
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Indian equities: Real Estate, Pvt Banks, Technology top outperformers
 Real Estate (+39%), Private Banks (+24%), Technology (+17%), NBFC (+14%) and Metals (+13%) were the top outperformers for FY18.
 Private Banks delivered positive returns in 9 out of the 12 months, while Consumer and Real Estate delivered positive returns in 8 out of the 12
months.
 Midcaps underperformed the benchmark (Nifty) in FY18.
 Healthcare (-14%), PSU Banks (-7%) and Utilities (-7%) were the only negative performers in FY18 – these sectors delivered 7, 8 and 7 months of
negative returns, respectively.
Sectoral performance—absolute and relative to Nifty (%) —Real Estate, Private Banks, Technology, NBFC, Metals top performers
MoM Abs. Performance (%) FY18 Relative to Nifty MoM Performance (%) FY18
Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Chg Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Chg
Sector
17 17 17 17 17 17 17 17 17 18 18 18 (%) 17 17 17 17 17 17 17 17 17 18 18 18 (%)
Real Estate 20 0 6 7 -2 -3 11 6 7 0 -5 -10 39 19 -3 7 1 -1 -2 6 7 4 -5 -1 -6 29
Banks - Pvt 5 8 0 6 -2 0 3 2 3 9 -7 -3 24 3 5 1 0 0 1 -3 3 0 4 -2 0 13
Technology -7 6 -4 6 -4 -1 4 4 5 11 0 -3 17 -9 3 -3 0 -2 0 -1 5 2 7 4 0 6
NBFC 4 0 0 7 -1 -2 1 -2 3 7 -6 2 14 3 -3 1 1 1 -1 -4 -1 0 3 -1 5 3
Metal -4 0 1 9 7 2 9 -6 7 3 -2 -12 13 -6 -4 2 3 8 3 3 -5 4 -1 3 -9 3
Cap Goods 9 -2 -3 5 -4 -1 7 0 4 6 -6 -3 12 7 -5 -2 -1 -2 0 2 1 1 2 -1 0 2
Consumer 2 7 3 -3 1 -4 5 1 4 0 -2 -2 11 0 4 4 -9 2 -3 -1 2 1 -5 3 2 1
Telecom 0 1 3 10 1 -10 26 0 10 -17 -1 -8 10 -1 -3 4 4 3 -9 21 1 7 -21 4 -4 0
Auto 3 6 -3 5 -3 2 5 -1 6 -3 -4 -3 9 2 3 -2 -1 -2 3 0 0 3 -8 1 0 -1
Nifty Midcap 5 -3 1 4 -1 -1 8 2 6 -2 -5 -5 9 4 -7 2 -1 0 0 3 3 3 -6 -1 -1 -1
Oil 7 -1 -7 7 7 -2 12 -4 2 1 -5 -6 8 5 -5 -6 2 9 -1 6 -3 -1 -4 0 -2 -2
Cement 8 -1 -1 9 4 -5 11 -5 2 -1 -4 -7 8 6 -4 0 3 5 -4 5 -4 -1 -5 1 -4 -3
Media 4 -7 -2 4 -6 3 7 3 7 2 -7 -2 5 3 -10 -1 -2 -4 5 1 4 4 -3 -2 1 -5
Utilities 2 -5 0 4 -3 -2 6 -1 3 -3 -4 -4 -7 1 -8 1 -1 -1 -1 1 0 0 -7 1 -1 -17
Banks - PSU 5 -3 -2 13 -11 -8 25 2 -3 0 -17 -2 -7 4 -7 -1 7 -10 -6 20 3 -6 -5 -12 2 -17
Healthcare -2 -10 5 0 -7 3 6 -2 6 -2 -3 -7 -14 -3 -13 6 -6 -6 4 0 -1 3 -6 2 -3 -24
Nifty Chg 1 3 -1 6 -2 -1 6 -1 3 5 -5 -4 10

Indian equities: Breadth positive in FY18; 34 Nifty stocks close higher
 Nifty – best and worst performers in FY18: Titan (+104%), Bajaj Finance (+51%), Maruti (+47%), HUL (+47%) and Tech Mahindra (+39%) were the top
performers. Lupin (-49%), Tata Motors (-30%), Sun Pharma (-28%), Dr Reddy’s (-21%) and SBI (-15%) were the worst performers.
 Nifty – best and worst performers in March: Titan (+15%), Bajaj Finance (+8%), IndusInd Bank (+7%), Tech Mahindra (+4%) and NTPC (+4%) were the top
performers on an MoM basis. Vedanta (-16%), Tata Steel (-15%), Adani Ports (-13%), Hindalco (-13%) and Tata Motors (-12%) were the top laggards.
Best and worst Nifty performers (YoY) in FY18 (%) – 34 companies in Nifty have delivered positive returns
104
51 47 47
39 34 31
27 27 25 24 24 23 21 20
17 16 15 14
11 11 11 11 10 10 10 9 8 5 4 4 3 2 1 0
-1 -1 -2 -2 -2 -2 -3 -4 -8 -9 -9
-15 -21
-28 -30
-49
Hero Moto
Bajaj Fin.
Reliance Ind.
Wipro
Axis Bank
TCS
Nifty
Hindalco
BPCL
Coal India
IOC
Dr Reddy's
Lupin
L&T
Asian Paints
Maruti
Tata Steel
Kotak Mah.Bk
GAIL
Vedanta
HUL
Bharti Airtel
HCL Tech
Zee Ent
NTPC
Eicher Motors
ICICI Bank
Cipla
IndusInd Bk
Adani Ports
UPL
Power Grid
Tata Motors
Titan Co
Infosys
Grasim Ind
UltraTech
Yes Bank
HDFC Bank
M&M
Bharti Infratel
SBI
Tech Mah.
Bajaj Finserv
Indiabulls Hsg
HDFC
HPCL
Bajaj Auto
ONGC
ITC
Sun Pharma
Best and worst Nifty performers (MoM) in March 2018 (%) – Breadth negative; 72% of Nifty stocks traded lower
15
8 7
4 4 3 3 2
2 2 1 1 0 0
0 0 0 -1 -1 -2 -2
-3 -3 -3 -4 -4 -4 -4 -4 -5 -5 -6 -6 -7 -7 -7 -7
-7 -7 -8 -8 -9 -9 -9
-10 -11 -12 -13 -13-15 -16
Hero Moto
Axis Bank
Wipro
Bajaj Fin.
Reliance Ind.
Coal India
Asian Paints
BPCL
Nifty
Lupin
NTPC
HCL Tech
Kotak Mah.Bk
GAIL
TCS
Dr Reddy's
IOC
Hindalco
Eicher Motors
Zee Ent
Maruti
L&T
Bharti Airtel
Cipla
Tata Steel
ICICI Bank
Vedanta
IndusInd Bk
HUL
UPL
Adani Ports
Power Grid
Tata Motors
Titan Co
Infosys
UltraTech
Yes Bank
SBI
Grasim Ind
Tech Mah.
Bajaj Finserv
M&M
HDFC
HDFC Bank
Indiabulls Hsg
Bharti Infratel
ITC
ONGC
Sun Pharma
Bajaj Auto
HPCL
Indian equities: Midcaps underperformed large-caps over 12 months
 Midcaps have struggled over the last few months, resulting in its underperformance versus large-caps. Over the last 12 months, midcaps have
delivered 9% returns, as against 10% by the Nifty. However, over the last five years, midcaps have outperformed the Nifty by 75%.
 In March 2018, Nifty Midcap100 was down 4.6%, as against Nifty’s fall of 3.6%. Midcaps now trade at a 73% premium to the Nifty in terms of P/E.
Midcaps underperformed large-caps in last 12 months Midcaps outperformed large-caps by 75% in last five years
Nifty Rebased Nifty Midcap 100 Rebased Nifty Rebased Nifty Midcap 100 Rebased
130 315 5 Year CAGR:
Nifty: 12.2%
120 255 Midcap: 20.4% 253
110
110 195
109 178
100 135
90 75
May-17
Dec-17
Apr-17
Mar-17
Jun-17
Aug-17
Mar-18
Oct-17
Nov-17
Jan-18
Jul-17
Sep-17
Feb-18
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
12-month forward P/E (x) Midcaps trading at 73% premium to Nifty
Midcap PE (x) Nifty PE (x) Midcap Vs Nifty PE Prem/(Disc) (%)
38.0 85
Nifty Avg: 18.4x 73
Midcap Avg: 19.3x 29.7
31.0 55
Average: 4.5%
24.0 25
17.0 17.1 -5
10.0 -35
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Source: MOSL, Bloomberg for Midcap valuation.

Indian equities: Valuations moderate; now at long-period averages
 Valuations of Indian equities have moderated from the recent highs. The Sensex trades at a 12-month forward P/E of 17.7x, at a 2% premium to its
long-period average of 17.3x. Sensex P/B of 2.6x is at its historical average.
 At the current trailing P/E of 22.8x and forward P/E of 17.7x, we see limited triggers for further re-rating, unless accompanied by a boost in earnings.
12-month forward Sensex P/E (x) 12-month forward Sensex P/B (x)
25 3.9
3.4
21.1
21 3.3
10 Year Avg: 17.3x

2.7 10 Year Avg: 2.6x 2.6
17 17.7
13 2.1
10.7 1.6
9 1.5
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Trailing Sensex P/E (x) Trailing Sensex P/B (x)
26 4.3
3.8
21.6
22 3.6
22.8
10 Year Avg: 18.6x 10 Year Avg: 2.8x
18 2.9 2.9
14 2.2
1.8
10.8
10 1.5
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Indian equities: Market-cap-to-GDP at seven-year high
 Sensex trades at a 12-month-forward RoE of 15%, below its long-term average.
 Market-cap-to-GDP ratio is at 84% (FY18E GDP), above its long-term average.
12-month forward Sensex RoE (%) Trend in Sensex RoE (%)

20.5 23.8
19.0 21.7
18.5
18.5
Average of 17%
16.5 15.8 16.9 16.5
10 Year Avg: 15.4% 16.0
15.0 15.3 15.4 14.9
14.3 14.8
14.5 12.9 12.9
12.5
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Trend in India’s market-cap-to-GDP (%)
103 Average of 78% for the period

95
88
83 81 80 84
71
64 66 69
55
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E

Global equities: India among worst-performing markets for March
 For March 2018, Taiwan (+1%), Korea (+1%) and Brazil (+0%) were the only key global markets to close higher in local currency terms. On the other
hand, Indonesia (-6%), India (-4%) and Japan (-3%) were among the worst performers.
 Indian equities are trading at 22.6x 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

Prem / Disc to India MoM Chg (%)
CY18 YTD Chg (%) PE (x) PB (x) RoE (%)
PE (%)
Taiwan 1
Index Mkt Cap Local CY17 / CY18 / CY17 / CY18 / CY17 / CY18 / CY17 / CY18 /
In USD Korea 1
Value (USD T) Currency FY18 FY19 FY18 FY19 FY18 FY19 FY18 FY19
India 32,969 2.2 -3 -5 22.6 17.7 2.9 2.6 12.9 14.8 Brazil 0
US 2,641 29.4 -1 -1 21.4 16.9 -5 -4 3.2 3.0 13.7 17.8 Russia 0

Japan 21,454 6.4 -6 0 15.8 16.2 -30 -8 1.7 1.7 11.1 11.0 MSCI EM -2
Indonesia 6,189 0.5 -3 -4 21.4 15.7 -5 -11 2.4 2.4 11.6 17.5
UK -2
Taiwan 10,919 1.3 3 13 16.0 14.0 -29 -21 1.8 1.8 11.5 14.8
US -3
UK 7,057 3.7 -8 -5 13.1 13.4 -42 -24 1.7 1.8 15.0 9.5
Brazil 85,366 1.0 12 12 21.2 12.7 -6 -28 2.0 1.7 8.9 12.7 China -3
MSCI EM 1,171 10.5 1 1 15.2 12.5 -33 -29 1.8 1.6 11.9 12.2 Japan -3
China 3,169 7.7 -4 -1 15.6 12.3 -31 -30 1.7 1.4 10.9 12.1 India -4
Korea 2,446 1.8 -1 0 12.7 9.5 -44 -46 1.0 1.0 9.7 10.8 Indonesia -6
Russia 4,419 0.6 7 8 7.3 6.1 -68 -66 0.7 0.7 9.6 11.2
Source: Bloomberg/MOSL

Global equities: MSCI EM outperforms MSCI India in last 12 months
 Over the last 12 months, MSCI EM (+22%) has outperformed MSCI India (+9%). However, over the last five years, MSCI India has outperformed MSCI
EM by 83%.
 MSCI India P/E is at a premium of 41% to MSCI EM P/E, below its historical average premium of 43%.
MSCI EM outperforms MSCI India over 12 months MSCI India outperforms MSCI EM by 83% in last five years
MSCI India Rebased MSCI EM Rebased MSCI India Rebased MSCI EM Rebased
135 230
10 Year CAGR: 5 Year CAGR:
MSCI India: 6.6% MSCI India: 10.2% 189
125 180 MSCI EM: 0.6% MSCI EM: 2.5%
122
115 130
106
109
105 80
95 30
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
May-17
Dec-17
Apr-17
Mar-17
Jun-17
Aug-17
Mar-18
Oct-17
Nov-17
Jan-18
Jul-17
Sep-17
MSCI India v/s MSCI EM trailing P/E (x) Feb-18 MSCI India v/s MSCI EM P/E premium (%)
MSCI India PE (x) MSCI EM PE (x) MSCI India Vs EM PE Premium (%)
33.0 100
26.0 75
21.6 Average of 43%
MSCI India Avg: 19.3x
19.0 50
15.3 41
12.0 25
MSCI EM Avg: 13.5x
5.0 0
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Source: Bloomberg

Global equities: India’s share in world market cap drops to 2.7%
 India’s share in the world market cap is at 2.7% (up 10bp YoY).
 Over the last 12 months, world market cap has increased by 14.2% (USD10.1t), while India’s market cap is up 16.8%.
Trend in India's contribution to world market cap (%) Market cap change in last 12 months (%)
India's Contribution to World Mcap (%) Mkt cap chg 12M (%) Curr Mcap (USD Tr)
3.5
3.3
3.0 Korea 26 1.8
Average of 2.5% 2.7

2.5 Brazil 25 1.0
2.0
Japan 20 6.4
1.6
1.5
1.3
Dec-09
May-10
May-17
Apr-11
Apr-14
Mar-08
Jun-13
Mar-15
Aug-15
Jun-16
Mar-18
Nov-10
Jan-13
Nov-13
Jan-16
Nov-16
Oct-17
Sep-08
Feb-09
Jul-09
Sep-11
Feb-12
Jul-12
Sep-14
Taiwan 17
2.2
India 17
Global market-cap-to-GDP (%)
China 12 7.7
Current mkt cap to GDP (%)
158
139 29.4
129 124 US 11
97
69 UK 11 3.7
56 53 50
Indonesia 10 0.5
Indonesia
Korea
India
China
Japan
Brazil
Russia
US
UK
Russia 8 0.6
* Based on GDP for Dec 2016
Source: Bloomberg

Nifty: Auto sees continued demand momentum across segments
 Auto sector is trading at a P/E of 16.7x, at a 10% premium to its historical average of 15.2x. PV and 2W retails remain healthy, supported by festive
demand in the key northern, central and western markets. Within PVs, MSIL continues to see better retails than competitors, led by new launches.
Retails of 100-125cc motorcycles are growing by more than 15%.
Snapshot: Nifty companies’ valuations

Relative to Sensex P/E Relative to Sensex P/B
PE (x) PB (x)
(%) (%)
Prem/Disc
Name Sector Current 10 Yr Avg Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
(%)
Bajaj Auto Auto 15.8 14.8 7 -11 -14 3.8 5.2 -27 45 101
Eicher Motors Auto 27.4 20.7 32 54 20 8.5 5.4 58 223 108
Hero MotoCorp Auto 17.9 16.4 9 0 -5 5.3 7.0 -24 103 171
Mahindra & Mahindra Auto 16.3 15.3 6 -9 -11 2.7 3.0 -8 4 15
Maruti Suzuki Auto 24.0 17.3 38 35 0 5.6 3.0 86 112 16
Tata Motors Auto 6.0 10.1 -40 -66 -42 1.2 2.1 -42 -52 -17
Axis Bank Banks - Private 16.4 15.8 4 -8 -9 1.7 2.0 -13 -34 -24
HDFC Bank Banks - Private 23.5 20.2 16 32 17 3.5 3.3 7 34 27
ICICI Bank Banks - Private 16.9 16.6 2 -5 -4 1.9 2.1 -8 -27 -19
IndusInd Bank Banks - Private 22.8 16.1 41 28 -7 4.0 2.5 61 51 -5
Kotak Mahindra Bank Banks - Private 25.3 22.2 14 42 28 3.6 2.8 27 38 10
Yes Bank Banks - Private 12.8 11.3 13 -28 -35 2.3 2.1 12 -11 -19
State Bank Banks - PSU 13.9 13.4 4 -22 -22 1.0 1.2 -17 -60 -52
Bajaj Finance Banks - NBFC 28.7 14.0 105 61 -19 5.2 2.3 126 100 -10
HDFC Banks - NBFC 37.2 27.2 37 109 57 4.3 4.6 -5 66 76
Indiabulls Housing Banks - NBFC 11.8 9.3 27 -34 -46 3.4 2.4 41 28 -8
Larsen & Toubro Capital Goods 22.7 23.2 -2 28 34 3.0 3.2 -5 16 25
Grasim Inds Cement 8.8 9.5 -7 -50 -45 1.3 1.0 24 -51 -60
Ultratech Cement Cement 32.0 23.9 34 80 38 3.8 2.9 31 45 12
Asian Paints Consumer 44.1 33.3 33 148 92 12.3 10.3 19 368 298
Hind. Unilever Consumer 47.8 33.9 41 169 96 43.8 28.9 52 1571 1017
ITC Consumer 25.1 25.5 -1 42 47 5.7 7.1 -19 119 173

Nifty: NBFCs trade above their historical average P/B
 Companies trading at a significant premium to their historical averages: Bharti Airtel (+358%), Titan (+87%), HUL (+41%), Maruti (+38%), Ultratech
Cement (+34%) and Asian Paints (+33%).
 Companies trading at a significant discount to their historical averages: Tata Steel (-44%), Tata Motors (-40%), Power Grid (-32%), ONGC (-31%) and
Dr Reddy’s (-29%).
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Prem/Disc Prem/Disc
Name Sector Current 10 Yr Avg Current 10 Yr Avg Current 10 Yr Avg Current 10 Yr Avg
(%) (%)
Cipla Healthcare 20.1 25.9 -22 13 50 2.7 3.4 -21 4 33
Dr Reddy’ s Labs Healthcare 18.4 25.9 -29 3 50 2.4 3.8 -38 -9 48
Lupin Healthcare 18.3 22.1 -17 3 28 2.1 4.5 -53 -20 74
Sun Pharma Healthcare 22.7 28.1 -19 27 62 2.9 4.8 -40 10 86
Zee Ent. Media 32.8 26.1 25 84 51 6.1 5.2 17 132 101
Hindalco Metals 8.3 9.7 -15 -53 -44 1.2 1.4 -13 -53 -45
Tata Steel Metals 8.2 14.7 -44 -54 -15 1.2 1.9 -36 -53 -25
Vedanta Metals 8.3 9.3 -10 -53 -46 1.6 2.1 -27 -40 -17
BPCL Oil & Gas 10.4 10.4 -1 -42 -40 2.1 1.6 36 -20 -40
GAIL Oil & Gas 14.3 13.1 9 -19 -24 1.7 1.7 -3 -36 -33
HPCL Oil & Gas 10.9 8.6 28 -38 -50 2.1 1.2 76 -21 -55
IOCL Oil & Gas 10.1 8.8 14 -43 -49 1.4 1.0 38 -47 -61
ONGC Oil & Gas 7.6 11.1 -31 -57 -36 1.0 1.5 -38 -64 -40
Reliance Inds. Oil & Gas 13.3 12.9 3 -25 -25 1.6 1.5 3 -39 -40
Titan Inds. Retail 59.1 31.6 87 233 83 14.8 8.8 67 463 242
HCL Technologies Technology 15.1 13.2 15 -15 -24 3.5 3.1 13 32 19
Infosys Technology 16.0 16.8 -5 -10 -3 3.5 4.0 -12 34 54
TCS Technology 19.3 17.5 11 9 1 5.9 5.8 2 126 124
Tech Mahindra Technology 15.6 12.3 27 -12 -29 2.8 2.7 3 7 6
Wipro Technology 15.3 14.7 4 -14 -15 2.3 2.9 -20 -11 13
Bharti Airtel Telecom 217.8 47.6 358 1126 175 2.3 2.6 -11 -11 1
Bharti Infratel Telecom 20.7 24.6 -16 16 42 4.2 3.6 19 62 38
Coal India Utilities 10.7 14.9 -28 -40 -14 7.1 6.1 16 169 136
NTPC Utilities 11.2 14.6 -23 -37 -16 1.3 1.7 -28 -52 -33
Power Grid Corp. Utilities 9.4 13.7 -32 -47 -21 1.6 1.9 -19 -41 -26
UPL Others 15.4 13.2 17 -13 -24 3.3 2.6 30 27 -1
Sensex 17.8 17.3 3 2.6 2.6 1

Midcaps underperform for third consecutive month
 In March 2018, Nifty Midcap100 was down 4.6%, as against Nifty’s fall of 3.6%.
 Best midcap performers in March: Jyothy Lab (+14%), Ashoka Buildcon (+13%), Team Lease (+7%), Shilpa Medicare (+6%) and ENIL (+4%).
 Worst midcap performers in March: Delta Corp (-28%), Birla Corp (-21%), Prime Focus (-18%), Trident (-17) and MCX (-14%).
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%) Price Chg (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg MoM CY18YTD
Jyothy Lab. 35.7 31.9 12 101 84 6.5 3.5 84 149 37 14 2
Ashoka Buildcon 35.2 22.3 58 98 29 2.3 1.5 53 -11 -41 13 1
Team Lease Serv. 37.2 28.1 33 109 62 6.8 4.8 41 160 87 7 -9
Shilpa Medicare 17.5 20.7 -15 -1 20 3.1 2.7 11 17 6 6 -25
Ent.Network 45.2 35.1 29 155 103 3.7 3.0 23 40 15 4 -2
SRF 19.0 8.8 117 7 -49 2.8 1.3 111 9 -48 3 -1
Sanofi India 31.9 26.7 19 80 55 5.4 4.3 25 105 65 1 10
Blue Star 30.7 25.1 22 73 45 8.4 7.8 7 219 203 1 -7
Sanghi Inds. 13.2 13.3 -1 -26 -23 1.7 0.9 93 -34 -65 1 -16
GE T&D India 35.8 62.4 -43 102 261 7.5 7.1 5 185 174 0 -8
Alembic Pharma 21.7 16.3 33 22 -5 4.0 4.5 -11 52 74 -1 4
Sadbhav Engg. 24.7 24.7 0 39 43 3.2 2.8 16 22 6 -1 -7
DCB Bank 17.9 16.4 9 1 -5 1.8 1.5 20 -33 -43 -2 -17
Rain Industries 9.2 3.3 182 -48 -81 2.4 0.7 236 -8 -72 -2 1
Ipca Labs. 22.4 23.6 -5 26 36 2.8 3.0 -8 5 16 -2 10
Kaveri Seed 12.0 13.2 -10 -33 -24 3.0 3.2 -5 16 24 -3 -12
Jubilant Life 13.4 13.0 3 -25 -25 2.6 1.6 60 0 -37 -4 7
CEAT 17.7 9.1 94 0 -47 2.1 1.1 88 -21 -57 -6 -23
Strides Shasun 16.5 55.2 -70 -7 219 1.9 3.3 -43 -28 29 -6 -18
Tata Elxsi 22.6 18.5 22 27 7 6.9 5.2 32 163 101 -6 1
Capital First 13.9 22.2 -38 -22 28 2.0 1.7 20 -23 -35 -7 -11
PVR 32.6 42.2 -23 83 144 4.6 3.0 54 77 16 -8 -14
India Cements 18.7 23.1 -19 5 34 0.8 0.8 7 -69 -71 -11 -22
Multi Comm. Exc. 22.1 35.3 -37 25 104 2.4 3.9 -37 -7 49 -14 -27
Trident 6.5 8.6 -25 -64 -50 0.9 1.0 -10 -66 -62 -17 -34
Prime Focus 14.5 26.2 -45 -19 51 2.2 2.9 -24 -15 13 -18 -33
Birla Corpn. 16.8 16.7 1 -5 -4 1.6 1.2 34 -41 -55 -21 -38
Delta Corp 30.1 35.9 -16 69 107 3.8 2.3 61 44 -9 -28 -19

Sector valuations: Global Cyclical top underperformer; NBFC outperforms
 Metals trades near its historical average P/B of 1.4x. EV/EBITDA is at 5.0x, a 13% discount to historical average. Concerns about a trade war – as US aims
to protect its domestic market and impose tariff restrictions – drove the de-rating of the metals sector. Global steel prices have weakened amid
concerns about weakening demand in China. Aluminum was also weak owing to oversupply concerns.
 Oil & Gas trades in line with its historical average – P/B of 1.5x (v/s 10-year average of 1.6x P/B) and P/E of 11.5x (v/s 10-year average of 11.5x). Brent
crude oil price was highly volatile in March; prices rose sharply from USD65/bbl to +USD70/bbl. Volatility, combined with the upcoming elections, has
kept OMCs’ stock performance under stress.
 NBFCs trade at a P/B of 3.5x, above their historical average (20% premium). G-Sec yields still remain elevated even though they have come off the
recent highs post the announcement of 1HFY19 borrowing calendar. While this would impact all NBFCs, those with a higher share of market borrowings
will be impacted more. On the other hand, players with a higher share of bank borrowings will be relatively insulated, since banks are not expected to
increase MCLR drastically, going forward. HFCs are likely to see higher traction in both disbursements and collections.
 Infrastructure trades at a 9% premium to its historical P/B average and an 18% premium to its historical P/E average. Post subdued ordering until
December 2017, awarding as well as construction activity has picked up significantly in the roads sector. Construction activity is progressing at 25km per
day in FY18 and awarding has also picked up and reached 23km per day. 80% of the awarding until March 2018 has been on the HAM mode.
Snapshot: Sector valuations
Relative to Sensex Relative to Sensex
PE (x) PB (x)
Sector P/E (%) P/B (%)
Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Auto 16.7 15.2 10.1 -6 -14 3.6 3.2 13.6 37 22
Banks - Private 19.7 16.5 19.7 12 -6 2.6 2.2 19.8 1 -15
Banks - PSU 12.5 12.1 3.5 -29 -30 0.7 0.9 -24.4 -73 -64
NBFC 24.2 17.9 34.8 37 3 3.5 2.9 20.3 35 13
Capital Goods 26.8 26.2 2.2 51 48 3.1 3.6 -14.0 18 37
Cement 22.8 19.9 14.6 29 12 2.8 2.2 23.8 6 -13
Consumer 38.3 30.9 24.0 117 79 11.1 9.5 16.8 325 272
Healthcare 20.5 23.0 -10.8 16 32 3.0 3.9 -23.1 15 51
Infrastructure 15.8 13.4 18.3 -10 -24 1.9 1.7 8.9 -27 -33
Media 25.6 22.8 11.9 45 31 4.8 4.0 19.3 85 56
Metals 9.8 12.0 -18.2 -44 -31 1.4 1.4 -0.7 -45 -45
Oil & Gas 11.5 11.5 0.3 -35 -33 1.5 1.6 -2.1 -42 -40
Retail 45.7 26.4 73.0 158 51 10.1 6.6 52.6 288 157
Technology 17.2 15.8 8.8 -3 -8 4.0 4.1 -3.2 52 58
Telecom Loss - - - - 2.3 2.5 -6.1 -12 -4
Utilities 10.4 14.2 -26.4 -41 -16 1.4 1.7 -19.2 -48 -34

Autos: Continued demand momentum across segments
The auto sector is trading at a P/E of 16.7x, at a 10% premium
to its historical average of 15.2x.
PV and 2W retails remain healthy, supported by festive

demand in the key northern, central and western markets.
Within PVs, MSIL continues to see better retails than
competitors, led by new launches. Retails of 100-125cc
motorcycles are growing by more than 15%.
CVs continue to see healthy momentum in wholesales, driven

by strict overloading vigilance in the key northern states like
Uttar Pradesh (UP), Haryana, Rajasthan and Delhi. There is
sequential 1-2% reduction in discount levels within CVs for the
second consecutive month.
Rural-centric OEMs are witnessing healthy retail growth of 8-

10% as sentiment remains positive.
Sector Performance
MoM: -3%
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Amara Raja Batt. 23.5 16.6 41 32 -4 3.9 3.5 12 50 36
Ashok Leyland 22.7 16.6 36 27 -4 5.3 2.7 97 103 5
Bajaj Auto 15.8 14.8 7 -11 -14 3.8 5.2 -27 45 101
Bharat Forge 26.2 28.2 -7 47 63 5.7 3.9 44 115 51
Bosch 30.5 30.2 1 71 74 5.2 5.1 1 97 97
CEAT 17.7 9.1 94 0 -47 2.1 1.1 88 -21 -57
Eicher Motors 27.4 20.7 32 54 20 8.5 5.4 58 223 108
Escorts 18.0 11.1 62 1 -36 2.9 1.0 196 10 -62
Exide Inds. 22.5 20.4 10 26 18 3.1 3.2 -1 20 23
Hero Motocorp 17.9 16.4 9 0 -5 5.3 7.0 -24 103 171
M&M 16.3 15.3 6 -9 -11 2.7 3.0 -8 4 15
Mahindra CIE 17.9 34.2 -48 1 98 2.0 3.2 -39 -26 24
Maruti Suzuki 24.0 17.3 38 35 0 5.6 3.0 86 112 16
Motherson Sumi 24.9 22.0 13 40 27 5.8 4.7 23 121 82
Tata Motors 6.0 10.1 -40 -66 -42 1.2 2.1 -42 -52 -17
TVS Motor Co. 25.4 15.8 61 43 -9 7.7 3.6 115 192 37

Private Banks: Loan growth showing signs of pick-up; resolutions still some time away
Loan growth for the fortnight ended 2nd March 2018 came in at
8.25%, led by healthy traction in retail across private banks. Several
private sector banks (HDFCB, KMB, YES, IIB) cited an improvement in
loan demand in both retail and working capital segments .Credit
demand from corporates remains muted, as the capex cycle is still
some time away from a recovery. Loan growth stands at ~25%+ for
mid-sized private banks and ~15% for larger banks.
With the RBI’s revised framework on stressed assets coming into
effect from 1st April, 2018 we expect an increase in stress loans for
corporate lenders , and consequently, a rise in provisions as banks
also prepare for Ind-AS. Progress on some of the NCLT cases under
list 1 will be closely watched as they have been entangled in
complicated litigation.
In the near term, retail lenders are better placed than corporate
lenders due to the moderate economic growth environment. With
16 banks (with total loan market share of ~37%) under the RBI’s
PCA, there lies a huge opportunity for private banks . Resolutions
for stressed assets will remain a key
Sector Performance
trigger for the sector, especially
Axis Bank and ICICI Bank. MoM: -3%
Axis Bank 16.4 15.8 4 -8 -9 1.7 2.0 -13 -34 -24
DCB Bank 17.9 16.4 9 1 -5 1.8 1.5 20 -33 -43
Federal Bank 13.7 11.2 23 -23 -35 1.3 1.1 14 -51 -56
HDFC Bank 23.5 20.2 16 32 17 3.5 3.3 7 34 27
ICICI Bank 16.9 16.6 2 -5 -4 1.9 2.1 -8 -27 -19
IndusInd Bank 22.8 16.1 41 28 -7 4.0 2.5 61 51 -5
J & K Bank 5.0 6.9 -28 -72 -60 0.6 0.9 -36 -78 -66
Kotak Mah. Bank 25.3 22.2 14 42 28 3.6 2.8 27 38 10
South Ind.Bank 6.0 6.9 -13 -66 -60 0.8 0.9 -12 -71 -67
Yes Bank 12.8 11.3 13 -28 -35 2.3 2.1 12 -11 -19

PSU Banks: Still not out of the woods
PSU Banks now trade below the historical average P/B at
0.9x (24% discount).
Multiple overhangs weigh on PSBs: Post the announcement
of the PNB fraud, there has been heightened scrutiny, which
will eventually reflect on the PSBs’ performance. The RBI’s
revised guidelines on resolution of stressed assets will keep
pressure on provisioning requirements, as banks may have to
refer increasing number of cases to NCLT. We expect
significant provisioning requirement for PSBs if Ind-AS is
implemented in the full-fledged manner. Overall, we expect
PSU banks’ credit costs to remain elevated in FY19, an
improvement in margins due to moderation in interest
reversals and a rise in lending yields.
Resolutions for certain power and metal assets will be
pushed further due to litigation arising at the bidding stage.
We note that metal and power assets together constitute
~45% of the two RBI lists put together, which in turn
constitute ~40% of systemic GNPLs.
Sector Performance
MoM: -2%
Bank of Baroda 8.5 10.4 -18 -52 -40 0.8 1.0 -19 -68 -60
Bank of India NA 7.6 - -56 0.6 0.9 -35 -77 -65
Canara Bank 7.1 8.2 -14 -60 -53 0.5 0.8 -30 -80 -70
Indian Bank 7.4 6.0 22 -59 -65 0.8 0.8 9 -68 -70
Punjab Natl.Bank 11.2 10.3 10 -37 -41 0.5 1.0 -47 -80 -62
St Bk of India 13.9 13.4 4 -22 -22 1.0 1.2 -17 -60 -52
Union Bank (I) NA 7.4 - -57 0.4 0.8 -52 -85 -68

NBFCs: HFCs and vehicle financiers to have a good quarter
NBFCs trade at a P/B of 3.5x, above their historical average
(20% premium).
G-Sec yields continue to harden and seem to have settled
above 7.5%. While this would impact all NBFCs, those with a
higher share of market borrowings will be impacted more.
On the other hand, players with a higher share of bank
borrowings will be relatively insulated since banks are not
expected to increase MCLR drastically going forward.
HFCs are likely to see higher traction in both disbursements
and collections, as traditionally 4Q has been a strong
quarter.
Vehicle financiers are likely to have a good quarter as LCV
and SCV sales are likely to remain strong. Also, MCV and
HCV sales should also continue with good traction. PVs, 2W
and 3W are likely to be a bit slow in some markets.
Our interaction with gold financiers and MFIs suggests that
disbursements have picked up
and demon effects have been Sector Performance
largely mitigated. MoM: 2%
Bajaj Finance 28.7 14.0 105 61 -19 5.2 2.3 126 100 -10
Capital First 13.9 22.2 -38 -22 28 2.0 1.7 20 -23 -35
Chola. Invst. & Fin. 19.8 14.4 37 11 -17 3.7 1.9 95 40 -27
Dewan Housing 10.7 7.2 48 -40 -58 1.6 1.1 45 -39 -58
GRUH Finance 48.9 23.2 111 175 34 14.3 6.8 111 447 163
HDFC 37.2 27.2 37 109 57 4.3 4.6 -5 66 76
Indiabulls Housing 11.8 9.3 27 -34 -46 3.4 2.4 41 28 -8
L&T Fin.Holdings 14.3 16.2 -11 -19 -6 2.6 2.0 33 -1 -24
LIC Housing Fin. 12.1 10.8 12 -32 -38 1.9 1.9 -1 -29 -27
M & M Financial 24.0 16.7 44 35 -4 2.9 2.2 34 10 -17
Muthoot Finance 9.1 8.1 12 -49 -53 1.8 1.5 15 -32 -40
PNB Housing 18.7 22.5 -17 5 30 3.0 3.3 -8 16 27
Shri.City Union. 15.3 13.6 12 -14 -21 2.2 2.0 7 -16 -21
Shriram Trans. 13.7 12.6 9 -23 -27 2.2 2.1 9 -15 -20

Capital Goods: Industrial capex on a recovery path
Capital Goods sector trades at a 14% discount to its historical
P/B average, but at a 2% premium to its historical P/E average.
Industrial sectors like steel, oil & gas and cement have shown
early signs of recovery, with companies announcing greenfield
as well as brownfield expansion.
Incrementally, indicators like industrial credit have turned
positive since December 2017, indicating a pick-up in industrial
activity.
OMCs like IOC, BPCL and HPCL have lined up capex of INR2.2t
over FY17-21, driven by Bharat-VI upgrades and plans to
increase its refining capacity.
Companies like Tata Steel and JSW Steel have announced
capex plans, indicating early signs of pick-up in the capex cycle.
Capex from government PSUs remains robust and spending
continues to be upbeat in the T&D, road infrastructure and
railway sectors.
Sector Performance
MoM: -3%
ABB 42.7 63.5 -33 140 267 6.6 6.8 -3 151 164
BHEL 26.4 20.0 32 49 16 0.9 2.8 -67 -65 7
Blue Star 30.7 25.1 22 73 45 8.4 7.8 7 219 203
CG Power & Indl. 41.7 15.6 168 135 -10 1.1 1.1 0 -57 -56
Cummins India 22.6 23.9 -5 27 38 4.5 5.6 -19 72 115
GE T&D India 35.8 62.4 -43 102 261 7.5 7.1 5 185 174
Havells India 35.7 24.8 44 101 43 7.3 5.4 36 179 109
K E C Intl. 20.7 15.3 35 16 -11 4.4 2.2 100 66 -16
Larsen & Toubro 22.7 23.2 -2 28 34 3.0 3.2 -5 16 25
Siemens 35.3 47.1 -25 99 172 4.5 6.2 -27 74 141
Solar Inds. 36.2 19.8 83 104 14 6.9 3.9 79 163 49
Thermax 32.2 25.9 24 81 50 4.2 4.2 0 58 61
Voltas 29.1 20.1 45 64 16 4.8 3.2 48 83 26

Cement: Muted price hikes; quarter strong, but off a low base
Cement trades at EV/EBITDA of 10.6x, at a 14% premium to
historical average.
All-India cement prices are higher by 2% QoQ in January to
first half of March 2018, led by price hikes in the central and
east regions. West witnessed a QoQ increase in prices as
exit prices in Gujarat were higher than average prices in
3QFY18.
Higher QoQ prices can be attributed to a low base
(realizations for our coverage universe had declined 3%
QoQ in 3QFY18).
Demand continues to be healthy on a YoY basis, led by
healthy demand from the infrastructure segment and a
favorable base of demonetization in selected regions.
We note that cost curve has continued to deteriorate due to
higher diesel, petcoke and coal prices, as well as an increase
in import duty of petcoke.
Sector Performance
MoM: -7%
PE (x) PB (x) EV/EBIDTA (x)
P/E (%) P/B (%)
10 Yr Prem/Disc 10 Yr 10 Yr Prem/Disc 10 Yr Prem/Disc
Company Current Current Current Current 10 Yr Avg Current
Avg (%) Avg Avg (%) Avg (%)
ACC 24.3 24.5 -1 36 42 3.0 2.9 4 14 11 13.0 13.6 -5
Ambuja Cem. 27.9 25.7 9 57 48 2.2 2.6 -17 -17 1 18.9 14.1 34
Birla Corpn. 16.8 16.7 1 -5 -4 1.6 1.2 34 -41 -55 8.6 7.1 21
Grasim Inds 8.8 9.5 -7 -50 -45 1.3 1.0 24 -51 -60 4.6 4.5 2
India Cements 18.7 23.1 -19 5 34 0.8 0.8 7 -69 -71 7.7 9.7 -21
Sanghi Inds. 13.2 13.3 -1 -26 -23 1.7 0.9 93 -34 -65 10.2 8.1 26
Shree Cement 37.1 22.7 63 109 31 5.4 3.8 42 108 49 15.7 11.1 42
UltraTech
32.0 23.9 34 80 38 3.8 2.9 31 45 12 15.8 12.0 31
Cem.

Consumer: Valuations not relenting
Consumer sector P/E remains above its historical average
(24% premium). Rural growth has been doing better than
urban, but still no kicker seen to rural demand.
3QFY18 had the benefit of a low base, which would be
missing in 4QFY18. There were no major new launches in
the quarter in the FMCG industry. Ad spend intensity in the
market was almost flattish during the quarter.
Worries on both wholesale and CSD sales are receding – the
situation is expected to be back to normal by 1QFY19.
Urban-focused companies like Nestle and Glaxo Consumer
have also reported healthy sales growth, albeit off a weak
base. The much-vaunted earnings revival in the sector
appears poised to come through, and rural-dependent plays
are likely to be at the vanguard. Impact of government
schemes like extension of DBT, higher rural outlay in the
Union Budget, and MSP increase to 1.5x of production cost
will be keenly watched.
Sector Performance
MoM: -2%
Asian Paints 44.1 33.3 33 148 92 12.3 10.3 19 368 298
Britannia Inds. 47.3 29.1 63 166 68 15.7 11.3 40 500 336
Colgate-Palm. 37.4 32.4 16 111 87 20.1 24.6 -18 667 851
Dabur India 36.2 29.5 23 104 71 9.2 9.1 1 249 251
Emami 34.1 27.7 23 92 60 10.6 9.6 11 305 269
GlaxoSmith C H L 33.2 27.7 20 87 60 6.8 7.4 -8 161 186
Godrej Consumer 45.4 29.4 55 155 70 9.6 6.5 49 267 150
Hind. Unilever 47.8 33.9 41 169 96 43.8 28.9 52 1571 1017
ITC 25.1 25.5 -1 42 47 5.7 7.1 -19 119 173
Jyothy Lab. 35.7 31.9 12 101 84 6.5 3.5 84 149 37
Marico 43.0 30.0 43 142 74 15.1 9.4 61 476 263
Nestle India 51.6 39.8 29 190 130 23.1 23.7 -3 779 817
P & G Hygiene 55.1 36.2 52 210 109 31.3 13.9 126 1092 436
Page Industries 54.6 33.9 61 207 96 24.3 15.4 58 828 494
Pidilite Inds. 44.5 27.7 61 151 60 10.2 6.9 48 289 166
United Breweries 54.3 69.1 -21 206 299 8.2 8.2 0 213 217
United Spirits 55.0 90.7 -39 209 425 12.3 10.3 19 368 298

Healthcare: Decline in US base business and regulatory woes continue to de-rate sector
Healthcare trades at a P/E of 20.5x – lower than its historical
average P/E of 23x.
Companies with significant exposure to US business are
trading at a discount to their long-term average P/E
(Aurobindo, Cadila, Cipla, Dr. Reddy’s, Lupin, Sun Pharma,
Strides Shasun). Companies with relatively high exposure to
domestic formulation are trading at a premium to their long-
term average P/E (Ajanta Pharma, Sanofi India).
 Niche launches in US would not only offset the decline,
but also aid growth in US business over medium term.
 Domestic formulation business remains on growth path on
a low base of past year and smoothening of systems post
implementation of GST.
Pricing pressure in base business of US market remains a key
concern due to increased pace of ANDA approval by USFDA.
Timing of niche approvals remains critical to arrest the decline.
Increased list of drugs remains
key concern in the domestic
formulation space . Sector Performance
MoM: -7%
Aurobindo Pharma 11.5 12.5 -8 -36 -28 2.2 2.6 -15 -14 2
Ajanta Pharma 21.4 12.9 66 20 -25 5.0 3.9 30 92 50
Biocon 54.5 22.5 143 207 30 6.3 2.7 132 142 6
Cadila Health. 18.0 20.2 -11 1 17 3.9 4.9 -20 49 89
Cipla 20.1 25.9 -22 13 50 2.7 3.4 -21 4 33
Divi's Lab. 24.8 21.3 16 39 23 4.7 4.9 -4 79 90
Dr Reddy's Labs 18.4 25.9 -29 3 50 2.4 3.8 -38 -9 48
Fortis Health. 44.8 56.3 -20 152 226 1.0 1.6 -38 -62 -39
Glaxosmit Pharma 38.0 43.4 -13 114 151 11.6 10.3 13 342 297
Glenmark Pharma. 16.0 27.9 -43 -10 61 2.4 4.4 -45 -7 71
Granules India 13.0 10.8 21 -27 -38 1.7 1.5 13 -34 -41
Ipca Labs. 22.4 23.6 -5 26 36 2.8 3.0 -8 5 16
Jubilant Life 13.4 13.0 3 -25 -25 2.6 1.6 60 0 -37
Lupin 18.3 22.1 -17 3 28 2.1 4.5 -53 -20 74
Sanofi India 31.9 26.7 19 80 55 5.4 4.3 25 105 65
Sun Pharma.Inds. 22.7 28.1 -19 27 62 2.9 4.8 -40 10 86
Strides Shasun 16.5 55.2 -70 -7 219 1.9 3.3 -43 -28 29
Shilpa Medicare 17.5 20.7 -15 -1 20 3.1 2.7 11 17 6
Torrent Pharma. 20.4 16.2 26 15 -7 3.8 4.0 -3 46 53

Infrastructure: NHAI’s project awarding picks up significantly
Infrastructure trades at a 9% premium to its historical P/B
average and an 18% premium to its historical P/E average.
Post subdued ordering until December 2017, awarding as

well as construction activity has picked up significantly in
the road sector.
Construction activity is progressing at 25km per day in FY18
and awarding has also picked up and reached 23km per day.
80% of the awarding till March 2018 has been on the HAM
mode.
The first toll operate transfer project got awarded in March
2018, with Macquire emerging as the highest bidder
(INR97b as against NHAI’s benchmark cost of INR63b).
Bharatmala program envisages to award road projects
worth INR5.3t over the next two years and execute the
same by 2022.
IRB Infra trades at a discount to historical P/B, whereas
Ashoka and KNR trade at a premium.
Ashoka Buildcon 35.2 22.3 58 98 29 2.3 1.5 53 -11 -41
IRB Infra.Devl. 9.1 12.3 -27 -49 -29 1.2 1.9 -39 -56 -27
KNR Construct. 20.3 8.1 149 14 -53 3.0 1.2 146 16 -52
Sadbhav Engg. 24.7 24.7 0 39 43 3.2 2.8 16 22 6

Media: Renewed growth prospects drive overall sector premium
Media sector P/E continues to command premium
(12%) to its historical average. This can be attributed to
the renewed growth prospects for both broadcasters
and print companies, according to the recent FICCI-EY
2018 report.
Waning impact of GST has led to a recovery of ad

spends across sectors, and a favorable base is expected
to provide a boost to broadcasters as well as
print/radio companies.
Sector Performance
MoM: -2%
Ent.Network 45.2 35.1 29 155 103 3.7 3.0 23 40 15
H T Media 7.0 17.3 -60 -61 0 0.7 1.6 -56 -73 -38
Jagran Prakashan 13.0 15.3 -14 -27 -12 2.4 3.5 -32 -10 34
PVR 32.6 42.2 -23 83 144 4.6 3.0 54 77 16
Prime Focus 14.5 26.2 -45 -19 51 2.2 2.9 -24 -15 13
Sun TV Network 23.6 20.0 18 33 16 7.0 5.1 36 165 98
Zee Entertainmen 32.8 26.1 25 84 51 6.1 5.2 17 132 101

Metals: Trade war concerns drive metal sector re-rating
Metals trades near its historical average P/B of 1.4x.
EV/EBITDA is at 5.0x, a 13% discount to historical
average.
Concerns of a trade war – as US aims to protect its
domestic market and impose tariff restrictions – drove
the de-rating of the metals sector. Global steel prices
have weakened amid concerns about weakening
demand in China. Aluminum was also weak on over-
supply concerns.
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: -12%
PE (x) PB (x) EV/EBIDTA (x)
P/E (%) P/B (%)
10 Yr Prem/Disc 10 Yr 10 Yr Prem/ Disc Prem/
Company Current Current Current Current 10 Yr Avg Current 10 Yr Avg
Avg (%) Avg Avg (%) Disc (%)
Hind.Zinc 10.8 8.7 25 -39 -50 2.9 1.9 51 12 -25 6.4 5.0 29
Hindalco Inds. 8.3 9.7 -15 -53 -44 1.2 1.4 -13 -53 -45 5.6 7.1 -21
Jindal Steel NA 14.9 -14 0.7 1.8 -63 -74 -29 6.7 10.6 -37
JSW Steel 12.0 13.2 -9 -32 -24 2.1 1.3 65 -19 -50 4.5 3.0 47
Natl.
13.0 19.7 -34 -27 14 1.2 1.4 -9 -53 -47 6.2 9.2 -33
Aluminium
NMDC 8.4 14.2 -40 -52 -18 1.4 3.5 -61 -47 37 5.1 9.4 -45
Rain
9.2 3.3 182 -48 -81 2.4 0.7 236 -8 -72 6.3 4.9 29
Industries
SAIL NA 13.9 -20 0.8 1.1 -30 -71 -57 9.4 11.8 -20
Tata Steel 8.2 14.7 -44 -54 -15 1.2 1.9 -36 -53 -25 2.9 3.0 -3
Vedanta 8.3 9.3 -10 -53 -46 1.6 2.1 -27 -40 -17 4.0 3.5 15

Oil & Gas: Volatility rises in crude oil prices
Oil & Gas trades in line with its historical averages –
P/B of 1.5x (v/s 10-year average of 1.6x P/B) and P/E of
11.5x (v/s 10-year average of 11.5x).
Brent crude oil price was highly volatile during the
month; price saw a sharp rise from USD65/bbl to
+USD70/bbl. Volatility, combined with the upcoming
elections, has kept OMCs’ stock performance under
stress.
ONGC and Oil India’s stock performance has also been
under stress due to possibility of levy of subsidies.
GAIL’s stock performance has been under pressure due
to a delay in clarity on unified tariffs and expected
unbundling/sale of government stake.
Singapore complex GRMs remained at ~USD7.4/bbl
during the month, almost flat MoM.
Petronet continued its strong utilization at Dahej
facility.
Sector Performance
MoM: -6%
Aegis Logistics 26.6 18.0 48 49 4 8.4 3.4 150 222 31
BPCL 10.4 10.4 -1 -42 -40 2.1 1.6 36 -20 -40
GAIL (India) 14.3 13.1 9 -19 -24 1.7 1.7 -3 -36 -33
Guj.St.Petronet 14.2 11.6 22 -20 -33 1.9 1.8 5 -28 -30
HPCL 10.9 8.6 28 -38 -50 2.1 1.2 76 -21 -55
IOCL 10.1 8.8 14 -43 -49 1.4 1.0 38 -47 -61
Indraprastha Gas 25.2 11.4 120 42 -34 4.8 2.4 103 84 -8
MRPL 9.4 10.2 -7 -47 -41 1.4 1.7 -14 -45 -35
ONGC 7.6 11.1 -31 -57 -36 1.0 1.5 -38 -64 -40
Petronet LNG 14.4 10.9 32 -19 -37 3.1 2.1 43 17 -18
Reliance Inds. 13.3 12.9 3 -25 -25 1.6 1.5 3 -39 -40

Retail: Rich valuations of 46x do not factor in downside risk
Retail sector trades at a P/E of 45.7x, a 73% premium
to historical average.
Titan’s jewelry sales growth momentum of 30%+
(which was witnessed in November/December) was
sustained in January as well. PC Jeweller also reiterated
its outlook for robust growth in the domestic jewellery
segment, while its exports are likely to be muted
because of higher indirect tax in the UAE.
Recent events in the industry have hurt India’s
jewellery sector, but in the long run, organised
jewellery players will only benefit.
QSR players all reported robust SSSG growth. JUBI’s
SSSG growth of 17% was a positive surprise, even
adjusted for a weak base. Management, however, did
not call out any demand revival overall, and believed
growth was more because of its own efforts on ‘Every
Day value’ and ‘All new Domino’s.’
Jubilant Food 59.2 65.7 -10 233 280 17.6 12.5 41 572 384
PC Jeweller 16.4 13.3 23 -8 -23 2.8 2.1 33 7 -18
Titan Inds. 59.1 31.6 87 233 83 14.8 8.8 67 463 242

Technology: Now at a premium
Technology sector trades at a P/E of 17.2x, a 9%
premium to its historical average of 15.8x.
Valuations reflect a premium compared to the 10-year
historical average, and relative to Sensex: 3% discount
versus 8% historically. All companies in our coverage
universe are trading at a premium to their historical
averages (except Infosys).
Post 3Q earnings, returns have been sanguine as
companies exhibited a beat on profitability, and on the
back of improved expectations on performance
heading into FY19, keeping stocks buoyant even in the
recent market correction.
Premium on Tier-II companies (40-100%) is significantly
steeper than that for Tier-I vendors (0-25%).
Sector Performance
MoM: -3%
Cyient 17.0 11.4 49 -4 -34 3.0 1.9 59 15 -27
HCL Technologies 15.1 13.2 15 -15 -24 3.5 3.1 13 32 19
Hexaware Tech. 20.4 12.1 68 15 -30 4.9 2.8 78 88 7
Infosys 16.0 16.8 -5 -10 -3 3.5 4.0 -12 34 54
KPIT Tech. 16.3 10.0 63 -8 -42 2.1 1.8 15 -19 -29
MphasiS 16.7 11.3 49 -6 -35 3.0 2.1 46 14 -20
NIIT Tech. 16.6 8.8 87 -7 -49 2.8 1.5 87 5 -43
TCS 19.3 17.5 11 9 1 5.9 5.8 2 126 124
Tech Mahindra 15.6 12.3 27 -12 -29 2.8 2.7 3 7 6
Wipro 15.3 14.7 4 -14 -15 2.3 2.9 -20 -11 13
Zensar Tech. 14.1 7.9 77 -21 -54 2.2 1.6 33 -17 -37

Telecom: War continues despite fund raising
Continuous drop in sectorial EV/EBITDA to 9.7 in Mar-
18 (from 10.1 in previous month) is a testimony to 1)
prolonged APRU recovery owing to fierce price wars
and 2) challenge in FCF resurgence due to high capex
intensity.
Albeit some solace provided by the cabinet by way of

relaxing the spectrum caps (leading to less hurdles in
consolidation) and increase in tenure of deferred
spectrum liability (proving financial relief to the debt-
laden telcos), funds raising by RJio post that of Bharti
(Mar-18) and Idea (Feb-18) continued to mount
pressure in the sector.
Current valuations of 20% premium to historical 10-

year average of EV/EBITDA might remain under
pressure in the near term.
Sector Performance
MoM: -8%
Bharti Airtel 217.8 47.6 358 1126 175 2.3 2.6 -11 -11 1
Idea Cellular NA 28.2 - - 63 1.6 2.0 -24 -40 -21
Tata Comm 53.5 73.7 -27 201 326 10.3 7.5 36 291 191

Utilities: Electricity generation growth at ~3% YoY in February
Utilities trade at a P/B of 1.4x, at a 19% discount to
historical average.
Coal India and CESC 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 up ~1% MoM to
INR3.3/kWh.
Conventional electricity generation grew 2.6% YoY in
February 2018. YTD growth was ~3.9% YoY.
Sector Performance
MoM: -4%
CESC 10.2 16.9 -40 -43 -2 1.0 0.9 11 -61 -65
Coal India 10.7 14.9 -28 -40 -14 7.1 6.1 16 169 136
JSW Energy 20.3 16.0 27 14 -7 1.1 1.6 -33 -58 -37
NHPC 8.9 11.6 -23 -50 -33 0.9 0.9 0 -64 -63
NTPC 11.2 14.6 -23 -37 -16 1.3 1.7 -28 -52 -33
Power Grid Corpn 9.4 13.7 -32 -47 -21 1.6 1.9 -19 -41 -26
Tata Power 10.9 22.8 -52 -38 32 1.5 2.1 -30 -44 -19

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2 - Bulls Bears - India Valuations Handbook

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* Sectors in order of premium /

BULLS & BEARS | April 2018 2

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Source: MOSL, Bloomberg for Midcap valuation.

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10 Year Avg: 17.3x

12-month forward Sensex RoE (%) Trend in Sensex RoE (%)

103 Average of 78% for the period

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India (Sensex) v/s other markets

US 2,641 29.4 -1 -1 21.4 16.9 -5 -4 3.2 3.0 13.7 17.8 Russia 0

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3.0 Korea 26 1.8

Average of 2.5% 2.7

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Snapshot: Nifty companies’ valuations

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PV and 2W retails remain healthy, supported by festive

CVs continue to see healthy momentum in wholesales, driven

Rural-centric OEMs are witnessing healthy retail growth of 8-

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Post subdued ordering until December 2017, awarding as

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Waning impact of GST has led to a recovery of ad

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Albeit some solace provided by the cabinet by way of

Current valuations of 20% premium to historical 10-

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Disclosure of Interest Statement Companies where there is interest

Regional Disclosures (outside India)

For Hong Kong:

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