1
Please refer to important disclosures at the end of this report
1
1
Market view & outlook post unlock 1.0
Significant easing of restrictions by Government is positive for markets
The Ministry for Home Affairs (MHA) announced further relaxations in restrictions
on the 30
th
of May 2020. As a result we expect that restrictions will be lifted
significantly in most parts of the country which should lead to increased economic
activity from June onwards.
Markets have reacted positively to the Government’s announcement on unlock 1.0
especially on the back of a global risk on which is providing tailwinds to our
markets. The global risk on rally has been triggered by large fiscal and monetary
stimulus by major countries especially the US where the Fed has done
unprecedented monetary stimulus of USD 2.9tn since March 2020.
Easing of restrictions should help restart the economy
The Government had earlier extended the lockdown till the 31st of May 2020
though with greater relaxations which had led to increase in economic activities in
May as compared to April. The Government has now allowed more relaxations
which should provide further impetus to the economy. Some of the key changes
are listed below:
Unrestricted inter and intra state movement of people and goods except for
containment zones. Requirement of permission (e-pass) has been done away
with.
Resumption of passenger train service and domestic passenger air service.
Hotels, restaurants, other hospitality services and shopping malls will also be
allowed to open in the first phase from the 8
th
of June’20 except for
containment zones and subject to state approvals.
While there has been significant relaxations allowed by the Government some
section of the economy including cinema halls, educational institutions,
international air travel, gymnasiums, theaters bars auditoriums and metro rail
services will remain closed in the first phase of the unlocking. The central
Government in consultation with state Governments will take a call on further
opening up of the economy in the month of July.
Exhibit 1: US Fed stimulus driving global equity rally
Source: Company, Angel Research
3760
3858
4020
4053
4166
4152
4159
5812
6656
7037
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Apr-20
May-20
US Fed Balance Sheet (USD bn)
Market sentiments have turned
positive post announcement of
Unlock 1.0
US Fed induced global risk on rally
to provide tailwinds to Indian equities
Significant relaxations under unlock
1.0 will help restart the economy
Further relaxations will be allowed in
July if pandemic doesn’t worsen
Unprecedented Monetary stimulus of
USD 2.9tn by US Fed driving global
risk on rally
2
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sourc
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2
Market view & outlook post unlock 1.0
View and outlook
As restrictions will be eased significantly from June onwards we believe that the
economic recovery should gradually improve from here on. Given the US fed
fuelled liquidity driven rally globally we believe that Indian markets will outperform
in the near term after underperforming rest of the global markets in May 2020.
We expect the rally to be more broad based and expect cyclical sectors like Auto,
banking, construction, consumer goods to outperform in the near term given
beaten down valuations.
However there has been a mass movement of migrant workers from urban to rural
areas over the past few weeks as they returned to their hometown. This is leading
to an increase in new cases over the past few weeks which is coinciding with the
opening up of the economy. While rural areas have largely remain unaffected
from the virus there is a possibility that there could be further increase in new cases
down the line if there is a spread of the virus from urban to rural areas.
While India had managed to contain the virus by enforcing one of the strictest
lockdown globally there is a possibility of a jump in new cases down the line given
increased movement of people. In that case the economic recovery will get get
pushed back as the Government will be forced to roll back some of the
relaxations. This may result in increased market volatility especially in cyclical
sectors which are leading the current leg of the rally.
Exhibit2: Top Picks Performance
Return Since Inception (30
th
Oct, 2015)
Top Picks Return
41.4%
BSE 100
18.4%
Outperformance
23.0%
Source: Company, Angel Research
We expect cyclical sectors like Auto,
banking etc. to outperform given
beaten down valuations
Sharp increase in new Covid-19
cases in India is key risk for markets
going forward
Note: Top picks performance is as of 29
th
May, 2020
3
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June 2, 2020
3
Market view & outlook post unlock 1.0
Exhibit3: List of stock recommendations
CMP
(`)
Target
Price (`)
Sales
(`)
OPM (%)
PAT
(`)
ROE
(%)
P/E (x)
EV/Sales
(x)
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FMCG
Britannia Ind.
3,435
3,780
13,255
14,863
16.3
16.7
1622
1901
30.2
29.6
51.2
43.8
5.7
5.2
Colgate-Palmolive
1,381
1,620
4,566
4,931
26.6
27.9
786
900
40.4
37.7
47.8
41.7
8.1
7.5
Hindustan Unilever
2,106
2,364
40,778
44,855
24.6
24.8
7024
7809
64.3
61.7
63.0
56.7
12.0
10.9
Nestle India
17,157
20,687
13,235
14,558
23.3
23.4
2151
2382
66.9
50.4
67.7
61.2
12.4
11.3
P& G Hygiene
9,982
12,230
3,365
3,802
22.2
22.6
549
637
29.0
24.6
59.0
50.8
9.8
8.7
Other Consumer Goods
Avenue Supermarts
2,305
2,735
27,781
33,730
8.4
8.8
1419
1825
17.5
17.7
105.0
81.6
5.4
4.4
Chemicals/Agro Chemicals
Aarti Industries
981
1,284
4,822
5,886
21.7
22.2
538
711
16.8
19.6
32.5
24.5
3.5
2.9
Galaxy Surfacants
1,362
1,610
2,672
2,886
14.0
14.3
221
223
18.3
17.8
21.7
19.5
1.9
1.7
PI Industries
1,582
1,784
3,877
4,992
21.5
22.5
555
770
17.4
20.0
39.3
28.4
5.5
4.2
IT
Infosys
699
841
90,650
102,857
21.3
20.5
16200
17870
28.1
30.5
18.3
16.6
2.8
2.5
L&T Infotech
1,842
2,038
11,588
13,085
18.9
19.6
1611
1867
23.0
22.4
19.9
17.2
2.5
2.1
Pharma & Healthcare
Dr Reddy's Lab
3,950
4,570
18,840
20,855
23.5
24.8
2705
3137
30.5
31.7
23.7
20.5
3.4
3.1
IPCA Labs.
1,525
1,900
5,360
6,111
22.5
23.0
821
976
18.8
18.6
23.2
19.5
3.6
3.1
Telecom/ Others
Bharti Airtel
559
629
101,322
114,360
43.1
44.4
4046
8056
3.3
7.0
101.8
44.7
3.7
3.1
Reliance Industries
1,520
1,748
373,215
457,539
13.8
13.3
30272
37510
6.4
7.8
31.8
25.7
5.2
4.2
Larsen & Toubro
928
1,093
62,140
85,369
6.1
9.7
3589
7605
5.8
10.8
37.4
17.1
2.8
2.0
Banking
ICICI Bank
339
410
35,063
36,508
3.4
3.3
8,814
11,909
7.0
9.0
25.0
19.0
1.9
1.8
HDFC Ltd.
1,738
2,000
12,216
13,421
3.4
3.4
7,978
10,260
10.0
12.0
37.0
29.0
3.2
2.9
Auto
Escorts
972
1,150
5,825
6,628
11.0
11.5
526
615
20.3
22.5
22.6
19.3
1.9
1.6
Source: Company, Angel Research
Note: CMP is Closing price as of 1
st
June, 2020
For banking stock Price to book provided instead of Ev/sales
4
Error!
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4
Market view & outlook post unlock 1.0
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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