Yogesh Mehta, Vp-retail Research, MOSL
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.