Yo­gesh Me­hta, Vp-re­tail Re­search, MOSL

Dalal Street Investment Journal - - COVER STORY -

Lack of earn­ings vis­i­bil­ity in the near term, cou­pled with mod­er­a­tion in macros, amid rich val­u­a­tion, crimps any ma­te­rial up­side for the mar­ket in the near term. The im­pact of GST im­ple­men­ta­tion on trade and sup­ply chain will be a key mon­i­tor in the forth­com­ing earn­ings sea­son – any in­di­ca­tion of pro­long­ing of GST pain will im­pact FY18 earn­ings es­ti­mate. Ex­pect the mar­ket to re­main in a range, al­beit with higher volatil­ity, as we en­ter the 2QFY18 earn­ings sea­son. The val­u­a­tions are around 10-year av­er­age on 12-month for­ward earn­ings mul­ti­ple. The Sen­sex trades at P/E of 18.6x, P/B at 2.7x. Mar­ket cap-to-gdp ra­tio is 78% (FY18E GDP) at its long-term av­er­age. Val­u­a­tions look at­trac­tive as we ex­pect Sen­sex EPS to grow at 19% CAGR over FY17-19E as com­pared to 5.5% CAGR wit­nessed dur­ing FY08-17. Thus, we re­main very op­ti­mistic about earn­ings re­cov­ery in the com­ing quar­ters, which is de­pen­dent on another good mon­soon that will sup­port and drive growth for the ru­ral econ­omy which drives con­sump­tion. In­vestors should pre­fer stocks with earn­ings vis­i­bil­ity, struc­tural pos­i­tive trig­gers and rea­son­able val­u­a­tions.

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