`

Equity Research
January 8, 2018 INDIA
Nifty 50: 10624
Strategy
ICICI Securities Limited
is the author and
distributor of this report Widening bond-earnings yield; positive outlook intact
India Equity Overview  Widening spread on bond – stock earnings yield implies rising interest rates
Outlook – Jan’18 and improving earnings growth outlook: Since Q3FY17, the bond yield –
earnings yield spread has moved from being zero to ~173bps currently. During this
period, the benchmark Nifty50 equity index rose by ~30% on expectation of revival
in earnings growth while bond yields rose from 6.5% to 7.3%, reflecting fear of rising
interest rates due to increase in: (a) inflation, (b) fiscal deficit, and (c) oil prices.
Indian equities continue to track other EMs and have shown no signs of
underperformance which makes us believe that the above listed fears of the
bond market are not having any major impact on Indian stocks (although India
bonds lagged most other EMs since Q3FY18).
 Earnings growth not materialising as implied by equity markets is the biggest
risk: Best case scenario for equities is that the growth recovery is robust due
Widening bond - earnings yield to pick up in aggregate demand along with moderate rise in inflation and
8.0 Bond Yield Earnings yield

7.5
interest rates. Oil price remains the key concern and a sustained rise could
7.0
negatively impact the growth story; but for now, equity market reaction to Brent at
6.5 $68/bbl assumes that the rise in oil prices is temporary, which is in sync with our
6.0 base case assumption for oil prices.
 Few pockets of reasonable valuation: Although most of the ‘quality – growth’
5.5

5.0

stocks are now in the expensive zone, sectors within the BSE200 which have a
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18

relatively higher proportion of reasonable-to-cheap valuations stocks currently are

Earnings Growth revival seen in Energy (91%), Utilities (80%), PSU banks (75%), Metals (67%), and IT (64%).
nifty50 companies
700 EPS (LHS) EPS growth(RHS) 30%  Incremental data showing improvement in growth as base effect kicks in:
 Manufacturing PMI rose to 54.7 in Dec’17 from 52.6 in Nov’17 while Services
600 25%
20%
500

400
15%
10%
PMI recovered to 50.9 in Dec’17 from 48.5 in Nov’17, resulting in the composite
300

200
5% PMI rising to 53.0 from 50.3. Commentary in the PMI press releases suggests
0%
100 -5% overall uptick in the form of new orders for manufacturers, hiring activity across
0 -10%
both manufacturers and service providers. Cost pressures continued to rise in
Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

the manufacturing sector while easing in the services sector. IIP growth slowed
Oil price rises
to its three-month low of 2.2% in Oct ’17 due to weak growth in manufacturing
70 Brent Oil
and consumer durables sectors.
65
 Based on company data, two-wheeler sales and tractor sales showed healthy
60
growth. The SIAM data for the month is awaited.
(US$/barrel)

55

50
 CPI inflation rose to its 15-month high of 4.9% in Nov’17, higher than RBI’s
45 medium-term target of 4% and Oct’17 print of 3.6%. WPI inflation accelerated to
40 its 8-month high of 3.9% in Nov’17 vs 3.6% in Oct’17. The rise in inflation was
Jan-17

Jun-17

Jul-17

Aug-17

Sep-17

Nov-17

Dec-17

Jan-18
Feb-17

Mar-17

Apr-17

May-17

Oct-17

driven by rising food prices.

 Flows into Equity Mutual funds for Dec’17 were recorded at Rs160bn, up 60%
Research Analyst: from Dec’16. Sequentially, it was below the Nov’17 inflows of Rs203bn.
Vinod Karki  Credit growth for the fortnight ending 22-Dec’17 was seen higher at 10.7% as
[email protected] base effects kicked in. Sectoral credit data for Nov’17 showed industry credit
+91 22 6637 7586
growth back in the green at 1% after 13 months of de-growth.
Ravin Kurwa
[email protected]  Fiscal deficit for Nov’17 rose sharply, reaching 112% of budgeted deficit. While
+91 22 2277 7653 government revenue came in at Rs8.04trn (53.1% of budget estimate),
Anagha Deodhar government’s expenditure stood at Rs14.78trn (68.9% of budget estimate).
[email protected]
+91 22 2277 7622  India's trade deficit narrowed marginally to $13.83bn in Nov’17 from $14.02bn in
Siddharth Gupta Oct’17. Exports rose 30% YoY to $26.20bn while imports rose 19.6% YoY to
[email protected] $40bn.
+91 22 2277 7607
 GDP first advance estimates for FY18 – GVA growth 6.1%, GDP 6.5%.
Please refer to important disclosures at the end of this report
 Strategy, January 8, 2018 ICICI Securities

TABLE OF CONTENTS

Widening bond yield and earnings yield spread .......................................................... 3 

Earnings growth not materialising as implied by equity markets is the biggest risk6 
High frequency indicators show improvement in growth ................................................ 7 
Few pockets of reasonable valuation ............................................................................ 9 
FPIs turn net sellers....................................................................................................... 10 
Lackluster capital raising activity in December, QIP was an exceptional. .............. 12 
Equity valuations above average ................................................................................. 14 
India relatively better placed amongst EMs ................................................................ 15 
Nifty50 remains hits all time high ................................................................................. 16 
GDP advance estimates ................................................................................................ 17 
Major economic indicators: A snapshot ..................................................................... 18 
CPI rises to its 15-month high ....................................................................................... 18 
Dearer veggies push WPI to its 8-month high of 3.93% ............................................... 19 
Slowing manufacturing drags industrial production growth down ................................. 20 
Trade deficit narrows marginally ................................................................................... 21 
Index of Tables and Charts ........................................................................................... 23 

2
Strategy, January 8, 2018 ICICI Securities

Widening bond yield and earnings yield spread

Since Q3FY17, the bond yield – earnings yield spread has moved from being zero to
~173bps currently. During this period, the benchmark Nifty50 equity index rose by
~30% on expectation of revival in earnings growth.

Chart 1: Widening spread between bond yield and Chart 2: Earnings Growth revival seen in nifty50
earnings yield in CY17 companies
8.0 Bond Yield Earnings yield 700 EPS (LHS) EPS growth(RHS) 30%

7.5 600 25%

20%
7.0 500
15%
400
6.5 10%
300
5%
6.0
200
0%
5.5 100 -5%

5.0 0 -10%

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19
Nov-16
Dec-16
Jan-17

Jun-17
Jul-17
Aug-17
Sep-17

Nov-17
Dec-17
Jan-18
Oct-16

Feb-17

Oct-17
Mar-17
Apr-17
May-17

Source: Bloomberg, I-Sec research Source: Bloomberg, I-Sec research

Bond yields rose from 6.5% to 7.3%, reflecting fear of rising interest rates due to
increase in: (a) inflation, (b) fiscal deficit, and (c) oil prices

Chart 3: Rise in bond yields… Chart 4: …reflecting fear in rising inflation

8.0 India 10Yr bond yield 6% CPI
7.8
5%
7.6
7.4
4%
7.2
7.0 3%
6.8
2%
6.6
6.4
1%
6.2
6.0 0%
Jul-16

Jul-17
Jan-16

Jan-17

Jan-18
Mar-16

Sep-16

Nov-16

Mar-17

Sep-17

Nov-17
May-16

May-17

Jul-17
Jan-17

Jun-17
Nov-16

Dec-16

Feb-17

Mar-17

Apr-17

Aug-17

Sep-17

Oct-17

Nov-17
May-17

Source: Bloomberg, I-Sec research Source: Bloomberg, I-Sec research

3
Strategy, January 8, 2018 ICICI Securities
Chart 5: …rising fiscal deficit Chart 6: …and rising Oil prices

FY18 FY17 70 Brent Oil

120 112
65
100
85.8
60

(US$/barrel)
(% of budget)

80
55
60

40 50

20 45

0
40
Jun-17

Jul-17

Aug-17

Sep-17

Nov-17
Apr-17

May-17

Oct-17

Jul-17
Jan-17

Feb-17

Jan-18
Mar-17

Apr-17

Jun-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17
May-17
Source: Bloomberg, I-Sec research Source: Bloomberg, Amfiindia, I-Sec research

Chart 7: Call rate nearing repo rate… Chart 8: and net absorption signal diminished
liquidity in the system

6.5 RBI: Call Money Rate: Weighted Average 9 MSS Net Absorption (including MSS)
6.4 8
Repo rate
6.3 7
6.2
6
6.1
5
(Rs trn)

6.0
5.9 4
5.8 3
5.7 2
5.6
1
5.5
-1
1-Nov
4-Nov
7-Nov
10-Nov
13-Nov
16-Nov
19-Nov
22-Nov
25-Nov
28-Nov
1-Dec
4-Dec
7-Dec
10-Dec
13-Dec
16-Dec
19-Dec
22-Dec

10-Oct
31-Oct
08-Nov
29-Nov
20-Dec

21-Nov
12-Dec
04-Apr
25-Apr

18-Jul
10-Jan
31-Jan

06-Jun
27-Jun

08-Aug
29-Aug
19-Sep

02-Jan
16-May
21-Feb
14-Mar

Source: Bloomberg, I-Sec research Source: Bloomberg, Amfiindia, I-Sec research

4
 Strategy, January 8, 2018 ICICI Securities
Indian equities continue to track other EMs and have shown no signs of
underperformance which makes us believe that the above listed fears of the bond
market are not having any major impact on Indian stocks (although India bonds lagged
most other EMs since Q3FY18)

Table 1: Performance across asset classes

Bond Yield (%) Currency Index
change
Country 30-Sep-17 8-Jan-18 30-Sep-17 8-Jan-18 % Change 30-Sep-17 8-Jan-18 % Change
in bps
Developed Market
Japan 0.07 0.06 (0.5) 112.5 113.2 -0.6% 20,356 23,715 16.5%
Singapore 2.15 2.03 (12.0) 1.4 1.3 2.0% 3,220 3,512 9.1%
USA 2.33 2.47 13.6 93.1 92.2 -0.9% 2,519 2,743 8.9%
Australia 2.8 2.7 (18.8) 0.8 0.8 0.0% 5,682 6,130 7.9%
Taiwan 1.0 1.0 (3.0) 30.3 29.5 2.7% 10,384 10,916 5.1%
United Kingdom 1.4 1.2 (14.0) 1.3 1.4 1.0% 7,373 7,727 4.8%
Canada 2.1 2.2 5.5 1.2 1.2 0.5% 15,635 16,349 4.6%
Germany 0.5 0.4 (3.5) 1.2 1.2 1.5% 12,829 13,364 4.2%
France 0.7 0.8 4.1 1.2 1.2 1.5% 5,330 5,490 3.0%
Spain 1.6 1.5 (10.3) 1.2 1.2 1.5% 10,382 10,435 0.5%
Italy 1.8 1.7 (8.1) 1.2 1.2 1.5% 22,696 22,805 0.5%
Average (2.7) 1.5% 5.83%
Emerging Market
Indonesia 6.50 6.13 (37.0) 13,472 13,429 0.3% 979 1,086 10.9%
Thailand 2.3 2.3 4.6 33.31 32.20 3.5% 1,069 1,164 8.9%
India 6.7 7.3 67.4 65.28 63.40 3.0% 9,789 10,617 8.5%
China 3.6 3.9 29.8 6.65 6.50 2.4% 3,837 4,160 8.4%
South Africa 8.6 8.7 16.0 13.56 12.38 9.5% 49,376 52,901 7.1%
Brazil 9.73 10.07 33.7 3.16 3.23 -2.1% 74,294 79,071 6.4%
Russia 4.0 3.9 (17.5) 57.55 57.08 0.8% 2,077 2,207 6.3%
Malaysia 3.9 3.8 (7.4) 4.22 4.00 5.6% 12,189 12,946 6.2%
Mexico 6.9 7.5 59.4 18.25 19.18 -4.8% 50,346 49,888 -0.9%
Average 16.6 2.0% 6.87%
Source: Bloomberg, I-Sec research

5
Strategy, January 8, 2018 ICICI Securities

Earnings growth not materialising as implied by

equity markets is the biggest risk
Best case scenario for equities is that the growth recovery is robust due to pick up in
aggregate demand along with moderate rise in inflation and interest rates. Oil price
remains the key concern and a sustained rise could negatively impact the growth story;
but for now, equity market reaction to Brent at $68/bbl assumes that the rise in oil
prices is temporary, which is in sync with our base case assumption for oil prices

Chart 9: Core Sector growth rising… Chart 10: …so does PMI
8 Core Sector Growth (YoY) Nikkei India Manfacturing PMI
56
7
55
6 54
5 53
52
(%)

4
51
3 50
2 49
48
1
47
0 46
Jul-17
Dec-16

Feb-17

Mar-17

Aug-17

Sep-17

Oct-17

Nov-17
Jan-17

Apr-17

Jun-17
May-17

Jun-15

Jun-16

Jun-17
Oct-15

Oct-16

Oct-17
Apr-15

Aug-15

Dec-15
Feb-16
Apr-16

Aug-16

Dec-16
Feb-17
Apr-17

Aug-17

Dec-17
Source: Bloomberg, I-Sec research Source: Bloomberg, I-Sec research

Chart 11: IIP growth remained positive Chart 12: GFCF growth moderated
6% 12% 36%
IIP growth (YoY) GFCF Growth GFCF as a % of GDP (RHS)

5% 10% 34%

4% 8% 32%

3% 6% 30%

2% 4% 28%

1% 2% 26%

0% 0% 24%

-1% -2% 22%

10/2016

11/2016

12/2016

01/2017

02/2017

03/2017

04/2017

05/2017

06/2017

07/2017

08/2017

09/2017

10/2017

-4% 20%
Sep-12

Mar-13

Sep-13

Mar-14

Sep-14

Mar-15

Sep-15

Mar-16

Sep-16

Mar-17

Sep-17

Source: Bloomberg, I-Sec research Source: Bloomberg, I-Sec research

6
Strategy, January 8, 2018 ICICI Securities
Chart 13: Total Asset growth

Total Assets growth Capex

20%

15%

10%

5%

0%

-5%

Media
Small Caps

IT

Industrials
Aggregate

Telecom

Trading
Real Estate

Transportation
Cement
Mid Caps

Energy
Autos

Cons. Disc

Cons. Goods
Materials

Metals
Healthcare
Large Caps

Utilities
Source: C-Line, I-Sec research

High frequency indicators show improvement in growth

Table 2: High frequency consumption indicators show positive trends…
(%) Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Oct-17 Nov-17 Dec-17
Consumption Indicator
Personal Loan growth 19% 15% 14% 14% 15% 16% 17% na
4W growth (PV Growth) 18% 2% 11% 4% 8% 8.10% 8.14% na
2W growth 21% -5% -2% 8% 11% 6.8% 8.4% na
Private final consumption exp 8% 11% 7.3% 6.7% 6.5% na na na
IIP - Primary Goods. 2% 6.0% 3.5% 2.2% 5% 2.5% na na
IIP Consumer Goods Durables 6% 1.1% -2.4% -1.2% -1% -6.9% na na
IIP Consumer Goods Non-
Durables 13% 2.9% 9.2% 7.8% 7% 7.7% na na
Consumer confidence index 104 102 99 97 95.50 na 91 na
Petrol Consumption 12% 12% 2% 11% 9% 6.9% 9.0% na
Nikkei India Services PMI (3m
avg) 53 49 50 52 48.03 51.70 48.50 50.90
CPI 5% 4% 4% 2% 3% 3.6% 4.9% na
Passenger - all airports 21% 19% 16% 16% 14% 15.8% 16.1% na
Foreign touris arrivals 13% 10% 14% 22% 13% 16% 17% na
Source: CEIC, Bloomberg, I-Sec research

Table 3: ….so does high frequency industrial indicators

Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Oct-17 Nov-17 Dec-17
Industrial Indicator
Industry loan growth 0.4% -3% -4% -2% -0.7% -0.31% 0.10% na
CV growth -0.2% -1% 6% -9% 12.1% 17.82% 24.79% na
Capacity utilisation 72.00 71.00 74.60 71.20 na na na na
Thermal plant Load factor 54.47 60.31 61.92 62.51 57.69 59.4 60.0 na
IIP growth 4% 4% 3% 2% 3% 2.2% na na
Core sector growth 4% 5% 3% 3% 4% 5.0% 6.8% na
GFCF 3% 2% -2% 1.6% 4.7% na na na
Diesel Consumption 1% 5% -3% 6% 7% 3% 7% na
Power demand 1% 1% 0% 5% 6% 5.4% 4.9% na
IIP Capital Goods 1% -2% 2% -4% 4% 6.8% na na
Nikkei India manufacturing
PMI 52.17 52.10 51.20 51.67 50.10 50.30 52.60 54.70
WPI Commodity price index 1% 2% 5% 2% 3% 3.6% 3.9% na
Cargo - Air 8% 11% 14% 16% 14% 13% 14% na
Cargo - ports 5% 12% 5% 5% 2% 2% 4% na
Freight traffic - railways -8% -5% 0% 3% 4% 6.0% 6.1% na
Finished Steel: Real
Consumption 7% 2% 1% 5% 4% 5% 5.6% na
Source: CEIC, Bloomberg, I-Sec research

7
Strategy, January 8, 2018 ICICI Securities
Table 4: Robust growth in retail credit; Industry credit turns positive
% 6/2017 7/2017 8/2017 9/2017 10/2017 11/2017
Non Food Credit Growth 4.8% 5.3% 5.5% 6.1% 6.6% 8.8%
Agriculture & Allied Activities 7.5% 6.8% 6.5% 5.8% 5.5% 8.4%
Industry -1.1% -0.3% -0.3% -0.4% -0.2% 1.0%
Infrastructure -2.5% -2.4% -1.7% -1.0% -1.5% -2.3%
Metals -1.0% -0.5% -0.1% 0.1% 0.7% 1.0%
Textiles -3.25% -2.18% -0.73% 0.45% 1.50% 4.59%
Services 4.7% 4.9% 5.0% 7.0% 9.4% 14.0%
Trade (wholesale + Retail) 5.3% 4.2% 4.7% 7.3% 8.6% 16.1%
NBFC -1.2% -1.4% 0.3% 4.4% 8.1% 13.8%
Real Estate -3.3% -2.3% -3.1% 2.9% 2.4% 3.2%
Retail Finance 14.1% 15.0% 15.7% 16.8% 16.0% 17.3%
Housing 11.4% 10.5% 13.2% 12.8% 11.4% 13.1%
Vehicles 9.7% 9.6% 9.2% 9.2% 7.4% 8.0%
Consumer Durables -7.7% -8.5% -9.8% -8.6% -9.4% -8.2%
Credit Card Outstanding 33.4% 32.5% 32.6% 38.7% 37.7% 37.5%
Source: CEIC, I-Sec research

Chart 14: loans to large corporate growth remained Chart 15: External borrowing ( ECB+FCCB+RDB) by
positive Indian corporates dipped
8.00% Loans to large corporates 5,000
External Borrowings
4,500
6.00%
4,000
4.00% 3,500
(US$ mn)

3,000
2.00%
2,500
0.00% 2,000
1,500
-2.00%
1,000
-4.00% 500
0
-6.00%

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

Jun-17

Aug-17
Sep-17
Oct-17
Nov-17
May-17
Nov-15

Nov-16

Nov-17
Aug-15

Feb-16

May-16

Aug-16

Feb-17

May-17

Aug-17

Source: CEIC, I-Sec research Source: CEIC, I-Sec research

Table 5: Robust 2 wheeler sales while Auto sales remained mixed

Auto sales(Units) YoY(%)
2 wheeler
Hero Motocorp 472000 43%
HMSI 363226 77%
Bajaj Auto 112930 6%
TVS 207778 35%
Eicher 65367 16%

4 wheeler
Maruti 130066 10%
Hyundai 40158 0%
Mahindra 15543 -7%
Tata Motors 14180 31%
Ford 5087 -8.6%
Toyota 10793 -15.3%
Source: Company Data,I-Sec research

8
Strategy, January 8, 2018 ICICI Securities

Few pockets of reasonable valuation

Although most of the ‘quality – growth’ stocks are now in the expensive zone, sectors
within the BSE 200 which have a relatively higher proportion of reasonable to cheap
valuations stocks currently are Energy ( 91%) , Utilities (80%), PSU banks (75%),
Metals (67%) and IT (64%).

Table 6: Sectorwise distribution of stocks into value, neutral and overvalue category
no of stocks % of stocks Average PAT Average ROE
Sector Value Neutral Overvalue Value Neutral Overvalue growth (FY17-19) (FY17-19)
Automobile & Components 1 5 10 6% 31% 63% 17% 19.44
Cement 0 0 5 0% 0% 100% 29% 12.02
Consumer Discretionary 0 2 12 0% 14% 86% 14% 23.14
Consumer Staples 0 0 17 0% 0% 100% 14% 26.95
Energy 7 3 1 64% 27% 9% 15% 20.64
Financial Services 5 6 10 24% 29% 48% 23% 17.44
Healthcare 0 6 16 0% 27% 73% 15% 17.41
Industrials 1 1 21 4% 4% 91% 18% 14.25
IT 1 6 4 9% 55% 36% 9% 22.80
Materials 0 2 2 0% 50% 50% 26% 20.31
Media 0 0 4 0% 0% 100% 14% 21.56
Metals & Metals Products 4 2 3 44% 22% 33% 26% 12.56
Private Banks 2 3 5 20% 30% 50% 22% 10.38
PSU Banks 2 4 2 25% 50% 25% 17% 4.42
Real Estate 0 0 2 0% 0% 100% 34% 6.26
Telecom 0 1 4 0% 20% 80% 9% 7.00
Transportation 1 1 4 17% 17% 67% 0% 18.92
Utilities 6 2 2 60% 20% 20% 19% 8.13
Grand Total 30 44 124
Source: Bloomberg, I-Sec research
Note : we consider value, if stock is trading below 40% MILTGV and overvalued if its trading above 60% MITLGV. MILTGV (Market implied long term
growth value) refers to the unknown value or speculative value in the market price. MILTGV is the difference between the market price and the
perpetuity of current earnings and incremental earnings

9
Strategy, January 8, 2018 ICICI Securities

FPIs turn net sellers

Post two months of consecutive inflows, FPIs turned net seller in December. FPIs sold
equity to the tune of US$ 739 mn while DIIs bought US$ 1.3bn.

Flows into equity schemes for the month of December also remained robust (US$
2.3bn

Chart 16: FPI flows turns negative Chart 17: FPI debt flows weakens
FPI equity flow MF equity flow DII equity flow 5,000 FPI Debt

5,000 4,000
4,000 3,000
3,000 2,000
2,000

(Rs mn)
($mn)

1,000
1,000
-
-
(1,000) (1,000)

(2,000) (2,000)
(3,000) (3,000)
Jul-16

Jul-17
Jun-16

Aug-16
Sep-16

Nov-16
Dec-16
Jan-17

Jun-17

Aug-17
Sep-17

Nov-17
Dec-17
Apr-16
May-16

Oct-16

Feb-17
Mar-17
Apr-17
May-17

Oct-17

(4,000)

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17

Aug-17

Oct-17

Dec-17
Jun-16

Jun-17
Source: Bloomberg, I-Sec research Source: Bloomberg, I-Sec research

Chart 18: Robust retail participation in equity MF Chart 19: MF deployment in markets lower than
schemes retail inflows
Retail participation through MF schemes incl ELSS (US$ bn)
Equity flow in mutual funds 3 months Average flow
MF deployment in markets (US$ bn)
250 3.5

200 3.0
2.5
150
2.0
(Rs bn)

100 1.5
1.0
50
0.5
0 -

(50) (0.5)
Nov-16
Dec-16
Jan-17

Jun-17
Jul-17

Nov-17
Dec-17
Oct-16

Feb-17
Mar-17
Apr-17
May-17

Aug-17
Sep-17
Oct-17
Dec-15

Jun-16

Dec-16

Jun-17

Dec-17
Sep-15

Mar-16

Sep-16

Mar-17

Sep-17

Source: Bloomberg, I-Sec research Source: Bloomberg, Amfiindia, I-Sec research

10
Strategy, January 8, 2018 ICICI Securities
Chart 20: Mobilization of long term funds has Table 7: Recent Country wise EM Equity Flows
remained stable
Long term fund as a % of total FPI holding Country Equity flows (US$ mn)
22.0%

Oct-17 Nov-17 Dec-17 Q3

21.0%
Brazil -563 -972 1,097 -437

20.0%
Turkey 105 -15 74 164

Thailand -220 -581 -274 -1,076

19.0%

South Africa 821 271 1,965 3,057

18.0%
Nov-14

Feb-15

May-15

Aug-15

Nov-15

Feb-16

May-16

Aug-16

Nov-16

Feb-17

May-17

Aug-17

Nov-17
Indonesia -459 -1,376 -319 -2,154

India 296 2,952 -739 2,508

Source: Bloomberg, I-Sec research Source: Bloomberg, I-Sec research

Chart 21: Most of EMs saw net outflow in Dec’17 Table 8: Recent Country wise EM Debt Flows

Country Debt flows (US$ mn)

1.5

1.0 Oct-17 Nov-17 Dec-17 Q3

0.5
Brazil 2,329 -2,045 0 284
(US$ bn)

0.0
Turkey 41 -390 -14 -363
(0.5)

(1.0) Thailand -554 1,355 1,173 1,974

(1.5) South Africa -747 -282 -4 -1,034

South Korea

Taiwan

India

Thailand

Phillipines

Brazil
Indonesia

Turkey

Indonesia -1,710 2,561 58 910

India 2,757 -221 379 2,915

Source: Bloomberg, I-Sec research Source: Bloomberg, I-Sec research

11
 Strategy, January 8, 2018 ICICI Securities

Lackluster capital raising activity in December, QIP

was an exceptional.
Table 9: Recent QIPs
Company DATE AMOUNT (Rs. crore)
Bank Of Maharashtra 12/4/2017 313.55
Ncl Industries Ltd. 12/7/2017 201.88
Punjab National Bank 12/11/2017 5000.00
Natco Pharma Ltd. 12/11/2017 915.00
Syndicate Bank 12/12/2017 1150.80
Lt Foods Ltd. 12/18/2017 399.31
Kridhan Infra Ltd. 12/20/2017 128.78
Srikalahasthi Pipes Ltd. 12/20/2017 250.00
Control Print Ltd. 12/29/2017 30.00
Source: prime database, i-sec research

Table 10: Recent Trends in Capital raising activities

(Rs crore)
Main SME FPO OFS Public Rights QIPs IPPs Debt ADRs / Overse FCCB Preferential
Board IPOs s (SE) Debt Issues Private GDRs as Equity
IPOs Issues Placemen Bonds Issues
ts (Listed At
NSE)
2016
January 410 8 - 645 3,627 154 - - 29,752 - 3,399 - 3,641
February 875 25 - 5,041 3,300 - 150 - 40,879 - 3,439 - 1,365
March 1,170 63 - 1,172 7,739 454 - - 73,660 399 4,692 - 2,261
April 3,538 32 - 2,770 665 - - - 33,702 - - - 3,733
May 751 20 - 263 1,235 83 262 - 47,453 - - 741 4,922
June 1,439 75 - - - - 117 - 42,473 - 6,036 1,358 1,874
July 1,648 11 - 424 500 - 180 - 38,632 - 13,567 - 1,042
August 2,106 29 - 0 14,200 500 87 - 64,636 - 10,083 - 333
September 7,443 206 - 440 7,293 43 3,673 - 71,454 - 4,806 - 5,679
October 5,274 12 - 2,226 - - - - 53,595 - 7,089 - 4,982
November 510 9 - 21 - 679 12 - 44,083 - 341 - NA
December 1,331 48 - 54 3,204 - 232 - 57,568 - 67 - NA
2017
January 1,243 8 - 494 2,167 100 102 52,834 11,543 - -
February - 109 - 1,688 - 631 323 41,357 7,700 - -
March 2,942 266 - 0 220 1,387 8,684 131,164 5,303 - -
April 729 128 - 1,207 1,969 368 879 29,815 6,309 - -
May 1,421 42 - - - - 6,419 56,196 4,996 - -
June 5,438 69 - 211 - 120 17,506 76,987 3,237 - -
July 816 93 - 538 1,713 199 269 49,284 6,149 - -
August 1,595 104 - 9,605 215 - 700 874 55,183 5,732 - -
September 16,666 447 - 151 21 4,803 3,794 37,939 - - -
October 16,246 45 - 732 - 2,403 7,917 - 40,451 - 3,256 - -
November 18,824 203 - 3 - 564 2,096 - 41,088 - 1,421 - -
December 1,224 160 - 1,265 115 847 10,389 - 36,549 - 8,361 - 1,224
Source: Prime database, I-Sec research

12
 Strategy, January 8, 2018 ICICI Securities
Table 11: List of IPOs/FPOs/OFS announced in the month of December
Sno. Company Offer Date Date Estimated Issue Industry
Type Offer Doc Sebi Issue Intention
Filed With Approval Amount Last
Sebi Received (Rs.Crore) Announced
1 Punjab & Sind Bank FPO / OFS 1000.00 1/3/2018 Banking/Term Lending
2 Lemon Tree Hotels Ltd. IPO 9/20/2017 12/22/2017 1000.00 1/3/2018 Hotels, Resorts, Restaurants & Tourism
3 Galaxy Surfactants Ltd. IPO 11/14/2017 1000.00 1/2/2018 Chemicals
4 Bandhan Bank Ltd. IPO 12/30/2017 2500.00 1/2/2018 Banking/Term Lending
5 Nacl Industries Ltd. FPO 3000.00 1/2/2018 Agrochemicals/Pesticides
6 Canara Robeco Asset Management Co.Ltd. IPO 12/30/2017 Financial Services/Investments
7 Gokaldas Exports Ltd. FPO 125.00 12/29/2017 Textiles
8 Centrum Capital Ltd. FPO 12/28/2017 Financial Services/Investments
9 National Insurance Co.Ltd.,The IPO 500.00 12/28/2017 Financial Services/Investments
10 Kolte-Patil Developers Ltd. FPO 55.00 12/27/2017 Housing/Civil Construction/Real Estate
11 Punjab Chemicals & Crop Protection Ltd. FPO 150.00 12/27/2017 Agrochemicals/Pesticides
12 Barbeque-Nation Hospitality Ltd. IPO 8/14/2017 700.00 12/27/2017 Hotels, Resorts, Restaurants & Tourism
13 Aster Dm Healthcare Ltd. IPO 8/9/2017 10/27/2017 775.00 12/27/2017 Hospitals/Diagnostic Services
14 Prince Pipes & Fittings Ltd. IPO 9/27/2017 11/3/2017 800.00 12/27/2017 Plastics
Indian Renewable Energy Development
15 IPO 12/22/2017 900.00 12/27/2017 Banking/Term Lending
Agency Ltd.
16 Cms Info Systems Ltd. IPO 9/27/2017 11/30/2017 1300.00 12/27/2017 Information Technology-Software
17 Reliance General Insurance Co.Ltd. IPO 10/9/2017 11/29/2017 1600.00 12/27/2017 Financial Services/Investments
18 Hindustan Aeronautics Ltd. IPO 9/29/2017 10/27/2017 1600.00 12/27/2017 Engineering
19 Srei Equipment Finance Ltd. IPO 11/28/2017 2000.00 12/27/2017 Financial Services/Investments
20 Acme Solar Holdings Ltd. IPO 9/28/2017 12/15/2017 2200.00 12/27/2017 Power Generation & Supply
21 Renew Power Ventures Pvt.Ltd. IPO 3900.00 12/27/2017 Power Generation & Supply
22 National Stock Exchange Of India Ltd.,The IPO 12/28/2016 10000.00 12/27/2017 Financial Services/Investments
23 Hdfc Asset Management Co.Ltd. IPO 4000.00 12/26/2017 Financial Services/Investments
24 Devi Seafoods Ltd. IPO 1000.00 12/25/2017 Food & Food Processing
25 Vishwaraj Sugar Industries Ltd. IPO 12/21/2017 374.00 12/23/2017 Sugar
26 Lodha Developers Pvt.Ltd. IPO 2800.00 12/22/2017 Housing/Civil Construction/Real Estate
27 Corporation Bank FPO / OFS 3500.00 12/22/2017 Banking/Term Lending
28 G.R.Infraprojects Ltd. IPO 400.00 12/21/2017 Roads & Highways
29 Kesoram Industries Ltd. FPO 650.00 12/21/2017 Financial Services/Investments
30 Stovekraft Pvt.Ltd. IPO 12/19/2017 Household & Personal Products
31 Energy Efficiency Services Ltd. IPO 200.00 12/19/2017 Power Generation & Supply
32 H.G.Infra Engineering Ltd. IPO 9/28/2017 12/13/2017 500.00 12/19/2017 Roads & Highways
33 Jm Financial Ltd. FPO 12/18/2017 Financial Services/Investments
34 Reliance Jio Infocomm Ltd. IPO 12/16/2017 Telecommunications
35 Indiamart Intermesh Ltd. IPO 500.00 12/16/2017 Trading(Incl.Exports)
36 Amber Enterprises India Ltd. IPO 9/29/2017 12/5/2017 555.00 12/15/2017 Electric/ Electronics Equipment
Continental Warehousing Corp.(Nhava Travel/Transportation/Courier(Passenger/Cargo
37 IPO 1000.00 12/15/2017
Seva) Ltd. )
38 Majesco Ltd. FPO 250.00 12/14/2017 Information Technology-Software
39 Ncc Ltd. FPO 550.00 12/13/2017 Housing/Civil Construction/Real Estate
40 Krishna Institute Of Medical Sciences Ltd. IPO 12/11/2017 600.00 12/12/2017 Hospitals/Diagnostic Services
41 Lite Bite Foods Pvt.Ltd. IPO 12/11/2017 Hotels, Resorts, Restaurants & Tourism
42 Baroda Pioneer Asset Management Co.Ltd. IPO 12/11/2017 Financial Services/Investments
43 Boi Axa Investment Managers Pvt.Ltd. IPO 12/11/2017 Financial Services/Investments
44 Idbi Asset Management Co.Ltd. IPO 12/11/2017 Financial Services/Investments
45 Sbi Funds Management Pvt.Ltd. IPO 12/11/2017 Financial Services/Investments
46 Union Asset Management Co.Pvt.Ltd. IPO 12/11/2017 Financial Services/Investments
Principal Pnb Asset Management
47 IPO 12/11/2017 Financial Services/Investments
Co.Pvt.Ltd.
48 Sandhar Technologies Ltd. IPO 12/8/2017 375.00 12/9/2017 Automobile Components/Ancillaries
49 Nath Bio-Genes (India) Ltd. FPO 160.00 12/8/2017 Floriculture/ Tissue Culture/ Biotech/ Agriculture
50 Gayatri Projects Ltd. FPO 1000.00 12/6/2017 Roads & Highways
Source: Prime database, I-Sec research

13
Strategy, January 8, 2018 ICICI Securities

Equity valuations above average

Chart 22: India Market to GDP Chart 23: Nifty 1 year forward PE
Market Cap to GDP Nifty Index (RHS) 30 1yr fwd PE Avg
110% 12,000 +1 Stdev -1 Stdev
101%
97% 11,000 25
100% 95%
10,000
88%
90% 9,000 20
82% 81% 80% 8,000
80%
72% 7,000
69% 15
70% 66% 6,000
63%
5,000
60% 10
54% 4,000
50% 3,000
5
Jan-18
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17

Jul-03

Jul-11
Dec-01

Sep-06

Dec-09

Sep-14

Dec-17
May-00

May-08

May-16
Feb-05

Feb-13
Chart 24: Bond yield and earnings yield rises Chart 25: Nifty trailing PE

Bond Yield Earnings yield 28 Trailing PE Mean

13.0
12.0 26
11.0 24
10.0 22
9.0 20 Mean-17x
8.0 18
7.0 16
6.0 14
5.0 12
4.0 10
3.0
8
Jun-00

Dec-02

Aug-04
Jun-05

Dec-07

Aug-09
Jun-10

Dec-12

Aug-14
Jun-15

Dec-17
Oct-03

Oct-08
Apr-01
Feb-02

Apr-06
Feb-07

Apr-11
Feb-12

Oct-13

Apr-16
Feb-17

Jul-07
Oct-01
Dec-02

Apr-05
Jun-06

Sep-08
Nov-09
Jan-11

Apr-13
Jun-14
Aug-15
Oct-16
Dec-17
Feb-04

Mar-12

Source: Bloomberg, I-Sec research,

Chart 26: Nifty cyclically adjusted PE ratio

40 Cyclically adjusted P/E Mean +1 Std Devn -1 Std Devn

35

30

25

20

15

10
Jul-11
Jun-07

Jan-08

Jun-14

Jan-15
Nov-06

Aug-08

Oct-09

Dec-10

Sep-12

Apr-13

Nov-13

Aug-15

Oct-16

Dec-17
Mar-09

May-10

Feb-12

Mar-16

May-17

Source: Bloomberg, I-Sec research

14
Strategy, January 8, 2018 ICICI Securities

India relatively better placed amongst EMs

Table 12: India well placed amongst emerging markets
Market
Current Short EPS 2yr
Implied 10 yr RoE PE
Country Business Term Rating forward Index PB
Long Term yield FY+1 FY+1
Value Value growth
Value
(%) (%) (%) (%) (%) (X) (X)
India 32% 10% 58% 7.3% BBB-u 13 18.15% 10,505 21.2 3.0
Brazil 28% 18% 54% 10.3% BB 12 33.57% 78,733 10.9 1.6
Mexico 34% 10% 57% 7.5% BBB+ 17 16.41% 49,782 14.6 2.3
Indonesia 34% 8% 58% 6.2% BBB- 19 13.60% 1,067 16.2 2.9
Turkey 67% 17% 16% 6.5% BBu 15 14.75% 116,415 7.7 1.3
South Africa 30% 10% 59% 8.7% BB 13 12.55% 52,351 15.4 2.1
Thailand 53% 10% 37% 2.4% BBB+ 11 9.91% 1,167 14.8 2.1
Malaysia 60% 5% 35% 3.9% A- 10 5.10% 12,687 15.4 1.6
China 47% 16% 37% 3.9% A+ 12 18.68% 4,129 12.0 1.8
Source: Bloomberg, I-Sec research

Chart 27: INR well placed among other CAD Chart 28: PMI services and manufacturing PMI
stressed EMs improves

70% INR vs. Other CAD stressed EM currencies India Services PMI Manfacturing PMI
56
60% 55
54
50%
53
40%
52
30% 51
20% 50
10% 49
48
0%
47
-10% 46
-20% 45
Jun-15

Dec-15

Jun-16

Dec-16

Jun-17

Dec-17
Oct-15

Oct-16

Oct-17
Apr-15

Aug-15

Feb-16
Apr-16

Aug-16

Feb-17
Apr-17

Aug-17
Jan-13

Sep-13

Jul-16

Dec-17
May-14

Feb-15

Oct-15

Mar-17

Source: Bloomberg, I-Sec research Source: Bloomberg, I-Sec research

15
Strategy, January 8, 2018 ICICI Securities

Nifty50 remains hits all time high

Chart 29: Nifty50 remains hits all time high Table 13: Nifty: Top performers and
underperformers in Dec‘17
10600
Sr No Companies Performance

Top performer
10300
1 Vedanta Ltd 19.0%

2 Hindalco Industries Ltd 17.2%

10000
Top Under Performer

1 State Bank Of India -3.0%

9700
2 Bharat Petroleum Corp Ltd -2.4%

9400
Jul-17
Jun-17

Aug-17

Sep-17

Nov-17

Dec-17

Jan-18
Oct-17

Chart 30: Delivery based buying falls Chart 31: On MoM basis, metals outperformed

450 Total Market turnover Deliverable volume

52
400 15.7%
50
11.7%
20%

11.1%
10.9%
350 48

8.2%
15%

7.9%
7.6%
7.1%
6.6%
5.2%
300

4.2%
46

2.1%
10%
(Rs Bn)

1.7%
1.8%
250
(%)

44 5%
200
42 0%
150

PSU Banks -2.7%

40 -5%
100
50 38
Realty

IT
Power

Media
Cons. durables

Energy
Telecom

Infra

Auto
Pharma

FMCG

Finance
Bank Index
Metal

- 36
Jun-15

Nov-15

Sep-16

Jul-17

Dec-17
Apr-16

Feb-17

Source: Bloomberg, I-Sec research

Chart 32: Small cap and Midcap outperform Chart 33: India Volatility rises

18 India NSE VIX

Nifty NSE Midcap NSE small cap
17
112.0
110.0 16
108.0 15
106.0
104.0 14
102.0 13
100.0
98.0 12
96.0 11
94.0
10
92.0
1-Dec-17
3-Dec-17
5-Dec-17
7-Dec-17
9-Dec-17
11-Dec-17
13-Dec-17
15-Dec-17
17-Dec-17
19-Dec-17
21-Dec-17
23-Dec-17
25-Dec-17
27-Dec-17
29-Dec-17
31-Dec-17
2-Jan-18
4-Jan-18

9
Jan-17

Jun-17

Jul-17

Aug-17

Sep-17

Nov-17

Dec-17

Jan-18
Feb-17

Mar-17

May-17
Apr-17

Oct-17

Source: Bloomberg, I-Sec research

16
Strategy, January 8, 2018 ICICI Securities

GDP advance estimates

The CSO released first advance estimates of GDP growth for FY18. According to the
estimates, the CSO expects GVA to grow 6.1% y/y in FY18 while it expects GDP to
grow 6.5% y/y. GVA growth in H1FY18 was 5.8%, hence, CSO’s estimates imply
H2FY18 GVA growth to be sub-7%

The agency used GST as well as non-GST revenue for calculating first advance
estimates. Surprisingly, it expects the wedge between GVA and GDP to widen to 40
bps in FY18 which given low GST revenue mobilization seems difficult

CSO expects agriculture growth rate to less than halve to 2.1% in FY18 from 4.9% in
FY17. It also estimates slowdown in manufacturing (4.6% in FY18 from 7.9% in FY17),
and public administration (9.4% in FY18 from 11.3% in FY17). However, growth in
financial services (7.3% in FY18 from 5.7% in FY17), trade (8.7% in FY18 from 7.8% in
FY17) and construction (3.6% in FY18 from 1.7% in FY17) is expected to pick up

From the expenditure side, government expenditure is estimated to slow down sharply
(8.5% in FY18 from 20.8% in FY17) while deceleration is also expected in private
consumption (6.3% in FY18 from 6.7% in FY17). Investment growth, on the other hand,
is expected to pick up to 4.5% in FY18 from 2.4% in FY17

17
Strategy, January 8, 2018 ICICI Securities

Major economic indicators: A snapshot

CPI rises to its 15-month high

 CPI inflation rose to its 15-month high of 4.88% in Nov ’17, much higher than the
RBI’s medium-term target of 4%. The rise in inflation was primarily driven by sharp
rise food prices. CPI inflation was at 3.58% in Oct ’17 and 3.63% in Nov ‘16
 Consumer Food Price Index (CFPI) rose to 4.42% from 1.90% sequentially. In Nov
’16, CFPI was 2.03%. The previous high was 5.05 per cent in August last year.
Industrial output was recorded at 4.1 per cent in September and 4.2 per cent in
October last year.
 Other components of CPI also registered high inflation. Housing inflation rose to
7.36% from 6.68% sequentially while core inflation rose to its 8-month high of
4.9%. Fuel and lighting inflation rate rose to 7.92% in Nov ’17 from 6.36% in the
previous month
Table 14: CPI Components
(%) 10/2017 11/2017
CPI 3.58% 4.88%
Consumer Food price Index 1.90% 4.42%
Pan, Tobacco and Intoxicants 6.91% 7.75%
Clothing and Footwear 4.68% 4.96%
Housing 6.68% 7.36%
Fuel and Light 6.36% 7.92%
Miscellaneous 3.48% 3.63%
Source: Eaindustry, I-Sec research

Chart 34: CPI rises on account of vegetables prices

CPI Vegetables (Rhs)
7.00% 30%
24%
6.00%
18%
5.00% 12%
6%
4.00%
0%
3.00% -6%
-12%
2.00%
-18%
1.00% -24%
Nov-15
Dec-15
Jan-16

Jun-16
Jul-16

Nov-16
Dec-16
Jan-17

Jun-17
Jul-17

Nov-17
Oct-15

Oct-16

Oct-17
Aug-15
Sep-15

Feb-16
Mar-16

May-16

Aug-16
Sep-16

Feb-17
Mar-17

May-17

Aug-17
Sep-17
Apr-16

Apr-17

Source: CEIC, I-Sec research

18
Strategy, January 8, 2018 ICICI Securities

Dearer veggies push WPI to its 8-month high of 3.93%

 WPI inflation accelerated to its 8-month high of 3.93% in Nov ‘17 as dearer onions
and other vegetables pushed up inflation. In Oct ’17, WPI inflation was 3.59% while
in Nov ’16 it was 1.82%
 Onion prices soared 178% in Nov ‘17 while seasonal vegetables recorded ~60%
inflation. However, inflation for protein items (eggs, meat & fish) slowed to 4.73% in
Nov ’17 down from 5.76% in the preceding month. Overall food inflation rose to
4.1% from 3.23% in the previous month
 Fuel & power inflation increased sharply to 8.8% in Nov ’17 up from 2.11% in Nov
’16. In Oct ’17, fuel inflation was 10.5%
Chart 35: WPI rises due to higher food and fuel prices
6.0% Wholesale Price Index (WPI)

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%
Jul-16

Jul-17
Jan-17

Jun-17
Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Feb-17

Mar-17

Apr-17

Aug-17

Sep-17

Oct-17

Nov-17
May-17

Source: CEIC, I-Sec research

19
Strategy, January 8, 2018 ICICI Securities

Slowing manufacturing drags industrial production

growth down
 IIP growth slowed to its three-month low of 2.2% in Oct ’17 due to weak growth in
manufacturing and consumer durables sectors. Industrial production for the first
seven months of FY18 stood at 2.5% sharply down from 5.5% in the corresponding
period last year
 Manufacturing growth in Oct ’17 slowed down to 2.5% from 4.8% in the same
month last year. During Apr – Oct FY18, manufacturing growth came in at 2.1%,
down from 5.9% in Apr – Oct FY17. Electricity generation rose 3.2% in Oct ‘17
against a growth of 3% in Oct ’16. Mining sector growth was flat at 0.2% in Oct ‘17
against 1% growth in Oct ‘16
 Consumer durables output contracted by 6.9% in Oct ‘17 against a growth of 1.5%
in Oct ’16

Chart 36: IIP growth slows down Table 37: IIP components
15% IIP Mining
(%) 08/2017 09/2017 10/2017
Electricity Manufacturing
IIP 4.5% 4.1% 2.2%

10% Mining 9.2% 7.8% 0.2%

Manufacturing 3.4% 3.8% 2.5%
Electricity 8.3% 3.4% 3.2%
5%

(%) Aug 17 Sep 17 Oct 17

0% Primary Goods 7.1% 6.6% 2.5%
Capital goods 5.2% 8.2% 6.8%
Intermediate Goods -0.7% 2.1% 0.2%
-5%
Infrastructure / Construction goods 2.7% 0.4% 5.2%
Jul-16

Jul-17
Jan-17
Apr-16

Jun-16

Aug-16
Sep-16
Oct-16
Nov-16
Dec-16

Feb-17
Mar-17
Apr-17

Jun-17

Aug-17
Sep-17
Oct-17
May-16

May-17

Consumer Durables Goods 3.4% -3.4% -6.9%

Consumer Non Durables Goods 7.3% 10.3% 7.7%
Source: CEIC, I-Sec research

20
Strategy, January 8, 2018 ICICI Securities

Trade deficit narrows marginally

 India's trade deficit narrowed marginally to $13.83 bn from $14.02 bn in the
previous month. Exports for Nov ’17 rose 30% y/y to $26.20 bn while imports rose
19.6% y/y to $40 bn. Trade deficit, as a result, came in at $13.83 bn
 Rising engineering goods and petroleum products contributed to rebound in
exports after prolonged negative prints. Exports of engineering goods grew
massive 43.8% y/y to $7.1 bn while gems and jewelry exports rose 32.7% percent
to $3.3 bn
 Oil imports increased 39% y/y to $9.5 bn while gold imports fell 26% y/y to $3.2 bn

Chart 38: Trade deficit narrows marginally Chart 39: Oil and Non Oil imports
Trade balance (LHS) Exports Growth Imports: USD: Oil Imports: USD: Non Oil
Imports Growth 35,000
0 60%
50% 30,000
(2)
(4) 40% 25,000

(USD mn)
30%
(USD bn)

(6) 20,000
20%
(8)
10% 15,000
(10)
0% 10,000
(12) -10%
(14) 5,000
-20%
(16) -30% 0 Nov-14
Jan-15

Jul-15

Nov-15
Jan-16

Jul-16

Nov-16
Jan-17

Jul-17

Nov-17
Sep-14

Mar-15
May-15

Sep-15

Mar-16
May-16

Sep-16

Mar-17
May-17

Sep-17
(18) -40%
Aug-14
Nov-14

Aug-15
Nov-15

Aug-16
Nov-16

Aug-17
Nov-17
Feb-15
May-15

Feb-16
May-16

Feb-17
May-17

Source: CEIC, I-Sec research

Table 15: Trade data Summary

US$ bn Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 MoM YoY
Exports 23.13 22.39 23.57 28.64 23.10 26.20 13.4% 30.5%
Imports 36.96 33.95 35.53 37.60 37.12 40.02 7.8% 19.6%
Trade Balance -13.84 -11.56 -11.96 -8.97 -14.02 -13.83

Oil Imports 7.69 7.76 7.75 8.19 9.29 9.55 2.8% 39.1%
Non Oil Imports 29.27 26.19 27.77 29.41 27.83 30.47 9.5% 14.6%
Source: CEIC, I-Sec research

21
Strategy, January 8, 2018 ICICI Securities

Fiscal deficit
 India's fiscal deficit breached the full year target by the end of Nov ’17 and touched
112% of the budget estimate due to lower revenue mobilization under GST and
higher expenditure. In rupee terms, fiscal deficit stood at Rs 6.12 trn in Nov ‘17-
against the budgeted Rs 5.46 trn. By the end of Nov ’16, fiscal deficit had touched
85.8% of full year target for FY17
 While government revenue came in at Rs 8.04 trn (53.1% of budget estimate),
governments expenditure stood at Rs 14.78 trn (68.9% of budget estimate)
 Revenue expenditure fared better than capital expenditure. Revenue expenditure
during Apr – Nov FY18 stood at 70.5% of budget estimate, up from 66.1% in the
corresponding period last year. Capital expenditure, on the other hand, came in at
59.5% of full year target by the end of Nov ’17, up from 57.7% in the same period
of the previous fiscal

22
Strategy, January 8, 2018 ICICI Securities

Index of Tables and Charts

Tables
Table 1: Performance across asset classes ......................................................................................... 5 
Table 2: High frequency consumption indicators show positive trends… ............................................. 7 
Table 3: ….so does high frequency industrial indicators....................................................................... 7 
Table 4: Robust growth in retail credit; Industry credit turns positive .................................................... 8 
Table 5: Robust 2 wheeler sales while Auto sales remained mixed ..................................................... 8 
Table 6: Sectorwise distribution of stocks into value, neutral and overvalue category.......................... 9 
Table 7: Recent Country wise EM Equity Flows ................................................................................. 11 
Table 8: Recent Country wise EM Debt Flows ................................................................................... 11 
Table 9: Recent QIPs ......................................................................................................................... 12 
Table 10: Recent Trends in Capital raising activities .......................................................................... 12 
Table 11: List of IPOs/FPOs/OFS announced in the month of December .......................................... 13 
Table 12: India well placed amongst emerging markets ..................................................................... 15 
Table 13: Nifty: Top performers and underperformers in Dec‘17 ........................................................ 16 
Table 14: CPI Components ................................................................................................................ 18 
Table 15: Trade data Summary .......................................................................................................... 21 

Charts
Chart 1: Widening spread between bond yield and earnings yield in CY17.......................................... 3 
Chart 2: Earnings Growth revival seen in nifty50 companies................................................................ 3 
Chart 3: Rise in bond yields… .............................................................................................................. 3 
Chart 4: …reflecting fear in rising inflation ............................................................................................ 3 
Chart 5: …rising fiscal deficit ................................................................................................................ 4 
Chart 6: …and rising Oil prices ............................................................................................................. 4 
Chart 7: Call rate nearing repo rate… ................................................................................................... 4 
Chart 8: and net absorption signal diminished liquidity in the system ................................................... 4 
Chart 9: Core Sector growth rising… .................................................................................................... 6 
Chart 10: …so does PMI ...................................................................................................................... 6 
Chart 11: IIP growth remained positive ................................................................................................. 6 
Chart 12: GFCF growth moderated ...................................................................................................... 6 
Chart 13: Total Asset growth ................................................................................................................ 7 
Chart 14: loans to large corporate growth remained positive ................................................................ 8 
Chart 15: External borrowing ( ECB+FCCB+RDB) by Indian corporates dipped .................................. 8 
Chart 16: FPI flows turns negative ...................................................................................................... 10 
Chart 17: FPI debt flows weakens ...................................................................................................... 10 
Chart 18: Robust retail participation in equity MF schemes ................................................................ 10 
Chart 19: MF deployment in markets lower than retail inflows ............................................................ 10 
Chart 20: Mobilization of long term funds has remained stable .......................................................... 11 
Chart 21: Most of EMs saw net outflow in Dec’17 .............................................................................. 11 
Chart 22: India Market to GDP ........................................................................................................... 14 
Chart 23: Nifty 1 year forward PE ....................................................................................................... 14 
Chart 24: Bond yield and earnings yield rises ..................................................................................... 14 
Chart 25: Nifty trailing PE ................................................................................................................... 14 
Chart 26: Nifty cyclically adjusted PE ratio ......................................................................................... 14 
Chart 27: INR well placed among other CAD stressed EMs ............................................................... 15 
Chart 28: PMI services and manufacturing PMI improves .................................................................. 15 
Chart 29: Nifty50 remains hits all time high ........................................................................................ 16 
Chart 30: Delivery based buying falls ................................................................................................. 16 
Chart 31: On MoM basis, metals outperformed .................................................................................. 16 
Chart 32: Small cap and Midcap outperform ...................................................................................... 16 
Chart 33: India Volatility rises ............................................................................................................. 16 
Chart 34: CPI rises on account of vegetables prices .......................................................................... 18 
Chart 35: WPI rises due to higher food and fuel prices....................................................................... 19 
Chart 36: IIP growth slows down ........................................................................................................ 20 
Table 37: IIP components ................................................................................................................... 20 
Chart 38: Trade deficit narrows marginally ......................................................................................... 21 
Chart 39: Oil and Non Oil imports ....................................................................................................... 21 

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Strategy, January 8, 2018 ICICI Securities

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