Quarterly Market Outlook and Strategy Review

July 2019

-Vijay Kumar Gaba

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This presentation does not contain any investment advice or equity research.
Please refer the important disclaimer given at the end of this presentation.
 Key message
• Overall domestic equity market outlook – marginally positive
• Currency outlook – Stable
• Rate outlook – expect more easing
• Asset allocation
• Equity - Overweight
• Debt – Underweight, mix of accrual and credit
• Gold – include in strategic allocation
• Strategy
• Equity: Prefer quality midcap to overvalued large cap. Invest in revival of corporate
lenders and infra builders & capital goods.
• Debt: A mix of accrual of credit

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 Market Outlook
Overall market outlook - Marginally Positive
Outlook for key market parameters
• Macroeconomic environment - Stable to positive
• Global markets and flows - Positive
• Technical positioning - Neutral
• Corporate earnings and valuations - Neutral
• Return profile and prospects for alternative assets like gold, real
estate, fixed income tec. - Neutral
• Greed and fear equilibrium - Positive
• Perception about the political establishment - Positive

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 1H2019 Indian Market Performance

• Fear remained dominant sentiment

• Equity flows drying up
• Market higher but performance highly skewed
• Bond yields lower
• INR stronger

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Fear remained the dominant sentiment

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Flows drying up

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Market breadth as narrow as it could

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 Market breadth as narrow as it could
Top Gainers (NIFTY50)
Company Value (24-06-19) YTD % Gain
Titan Company 1300.05 39.6%
Bajaj Fin. 3545.35 34.0%
Bajaj Finserv 8354.65 29.0%
UPL 936.55 23.5%
Axis Bank 762.85 23.1%
Bharti Airtel 345.1 20.3%
TCS 2275.5 20.2%
St Bk of India 353.2 19.4%
ICICI Bank 429.45 19.2%
Kotak Mah. Bank 1470.6 17.0%

Top Losers (Nifty50)

Company Value (24-06-19) YTD % Gain
Yes Bank 111.95 -38.4%
Zee Entertainmen 341.35 -28.4%
Indiabulls Hous. 619.1 -27.5%
M&M 634.85 -21.0%
Eicher Motors 19098.2 -17.5%
Vedanta 168.45 -16.7%
Hero Motocorp 2586.25 -16.7%
JSW Steel 257.8 -16.0%
GAIL (India) 306.7 -14.9%
Maruti Suzuki 6459.9 -13.5%
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Financial outperform; Auto, Consumers, Healthcare worst performers
Sectoral Performance
Sector Index Value (24-06-19) YTD % Gain
Nifty Realty 284.8 22.6%
Nifty Financial 13556.4 17.0%
Nifty Bank 31105.2 14.5%
Nifty Services 16846.85 12.8%
Nifty Pvt Bank 17197 12.5%
Nifty Energy 16046.8 11.9%
Nifty IT 15936.45 10.4%
Nifty PSE 3657.25 7.9%
Nifty Infra 3369.2 6.1%
Nfty Commodities 3635.5 6.0%
Nifty PSU Bank 3205.65 3.8%
Nifty FMCG 29546.05 -3.2%
Nifty Consumptin 4755.5 -4.7%
Nifty Metal 2980.2 -5.5%
Nifty MNC 13044.1 -6.4%
Nifty Pharma 8065.15 -9.1%
Nifty Auto 7928.05 -14.2%
Nifty Media 2039.8 -20.5%
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 Monthwise Mutual Fund performance 1H2019
Return (%) Absolute
Fund Category Jun-19 May-19 Apr-19 Mar-19 Feb-19 Jan-19
Equity Funds
Large Cap -0.92 1.52 0.4 7.28 -0.32 -1.1

Mid Cap -1.36 2.02 -2.27 7.87 -0.34 -4.15

Small Cap -2.82 2.58 -2.46 9.38 -1.56 -4.22

Value Oriented -1.64 1.68 -1.07 7.79 -0.33 -2.97

ELSS -0.87 2.19 -0.19 7.53 -0.79 -2.24

Banking -0.66 5.81 -1.96 13.47 -2.44 -1.4

Sectoral-Infrastructure -1.32 5.58 -1.72 11.35 -0.71 -5.04

Sectoral-Pharma -1.64 -5.23 0.82 3.95 -1.56 0.24

Sectoral-Technology -0.54 -3.16 3.11 0.2 1.26 6.08

Thematic-PSU 0.52 4.23 -1.36 12.84 -0.21 -3.93

Thematic-Consumption -0.91 0.59 -1.08 6.06 -1.27 -3.14

Debt Funds
Long Duration 2.58 4.25 -0.45 2.36 -0.36 -0.23

Medium Duration -1.85 0.95 -0.31 1.51 0.06 0.39

Short Duration -2.43 1.16 0.09 1.29 0.44 0.61

Low Duration -3.96 0.67 0.37 0.97 0.5 0.68

Liquid 0.52 0.59 0.56 0.62 0.52 0.59

Credit Risk -4.08 0.44 -0.13 1.21 0.25 0.22

Gilt 1.75 2.79 -0.01 1.44 0.26 0.02

Hybrid Funds
Balanced -0.81 1.52 -0.13 4.41 -0.29 -1.21

Arbitrage 0.24 0.74 0.73 0.47 0.35 0.52

Multi Asset Allocation 0.02 1.38 -0.06 3.76 -0.14 -0.46

Commodity funds
Gold 6.57 0.71 0.38 -5.12 0.63 4.57 10
Source: Value Research (Data as on June 30, 2019)
 1H2019 Macro performance

• Growth slows down, trend stable

• Fiscal improvement stagnating
• External vulnerability rises a tad
• Household stress rises
• Inflation remains benign

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 0.035
0.045
0.055
0.065
0.075
0.085
0.095
FY97 8.0%
FY98 4.3%
FY99 6.7%
FY00 6.0%
FY01 4.4%
FY02 5.8%
FY03 3.8%
FY04 8.5%
FY05 7.6%
FY06 9.5%
FY07 9.6%
FY08 9.3%
Real GDP Growth (%,yoy) FY09 6.7%
FY10 8.4%
FY11 8.4%
FY12 6.7%
FY13 5.5%
5yr CAGR

FY14 6.4%
FY15 7.5%
Long term growth trend remains flat

FY16 8.0%
Economic Growth Trend stable, no acceleration seen in near term

FY17 8.2%
FY18 7.2%
FY19E 6.8%
FY20E 7.0%
FY21E 7.3%
FY22E 7.6%
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Recent weakness driven by poor investment growth

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Economic activity slows down in recent months

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Fiscal improvement stagnate

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External vulnerability rises a tad

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Household stress rising

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Inflation remains benign, signs of bottoming

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Monetary easing continues, as growth remains below potential

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 1H2019 Corporate Performance

• Earnings fail to match expectation again

• Demand slowdown embraces almost all sector
• Financials outshine
• Recovery seen imminent
• Financial and Infra appear positively positioned to lead overall earnings recovery

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 Nifty earnings remain disappointing, seen bottoming

Nifty Earnings Q4FY19:

• Nifty top-line growth slowed to 10% yoy in Q4 FY19. Muted demand sentiment.
• EBITDA Margin improved to 19% in Q4 against 17% in Q3.
• PAT growth stood at 19% yoy in Q4, led by banks. Ex. BFSI the PAT growth was 6% yoy.

• 12/50 companies beat estimates while 14/50 companies missed estimates in Q4.
Nifty Earnings for full year FY19
• Nifty revenue grew by 18% yoy in FY19 while PAT grew by 12% yoy.
• EBITDA Margin for Nifty universe came to 18% in FY19.
• Nifty FY19 diluted EPS from continued operations came to INR 488.
NSE 500 earnings
• Broad markets earnings were also driven by financials.
• Revenue growth in 4QFY19 was ~11%.
• EBIDTA margins, ex financials, improved ~18%.
• PAT growth was negative at -5%. However, ex BFSI, PAT growth came at healthy 30%.

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Nifty earnings remain disappointing, recovery seen

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Demand slowdown widespread, as trend normalizes

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Earnings downgrades accelerate, financials key to recovery

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Bank asset quality begins to improve

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Margins show early signs of improvement

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Strong order back log, deleverage to drive infra sector earnings

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Nifty Valuations high but nor alarming, midcap reasonable

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Bonds yields fell sharply despite stronger INR

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 1H2019 Global Market Performance

• US and Chinese equities best performer despite trade shenanigans

• USD, Bonds, Gold, Cyrptoes, Crude all gain
• Over $13trn bonds trading with negative yield

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 Global Equities: China & US best despite all trade war shenanigans

YTD Performance of country’s primary equity index

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USD, Bonds, Gold, Cryptoes, Crude all gain

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USD, Bonds, Gold, Cryptoes, Crude all gain

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Important Disclaimer

It is important to note that Vijay Kumar Gaba does not offer any portfolio management , brokerage, money management,
equity research or investment advisory services of any kind. Please take advise of a qualified and registered investment
advisor before taking any investment decision.

This presentations provide a general market overview for academic purposes.

This is definitely not intended to provide investment advice and these do not take into account the specific investment
objectives, financial situation and the particular needs of any specific person. Investors should seek financial advice
regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed in
the reports.

Material from these reports may be copied freely, without any need for permission from the author/publisher. This is
however subject to copyright consideration of the contents of third parties.

Copyrights of all the third parties whose material has been used in preparation of this presentation is gratefully
acknowledged and respected.

The reports provide general information only. The contents should NOT be considered research analysis or advise.

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