Credit Suisse Report: NSE mid-cap index fall 26% from all-time highs

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Published: July 30, 2019 2:02 AM

Sensex, Nifty end at two-month lows amid heavy selling in auto stocks.

The NSE mid-cap index is down 10% in calendar 2019 so far and down a good 26% from all-time highs, which it had hit in January 2018.

The correction in the NSE mid-cap index seems far from over, even though the trailing price to earnings (P/E) multiple has fallen from the peak of 48 to 28 now, strategists at Credit Suisse wrote on Monday.

They pointed out the P/E multiple is still significantly higher than the 10-25 range seen in the years 2005-15.

The NSE mid-cap index is down 10% in calendar 2019 so far and down a good 26% from all-time highs, which it had hit in January 2018.

Having breached the October 2018 lows, the index is now at the levels seen in February 2017.

The premium to the Nifty and BSE500 on trailing P/E has also dropped meaningfully to 17% and 5%, respectively, the analysts wrote. The average between 2005 and 2015 was a discount of 10% and P/E tended to bottom at 25-40% discount levels.

As such, the strategists opined, support is still far.

Of the next 150 stocks outside the Top 100 (market cap $0.9-4.5 billion), for the 100 with analyst coverage>3, profits grew 31% in FY19, versus just 9% for the Top 100 set.

While financials (PSBs turning profitable) and materials drove 54% of the move, nearly a third of firms saw 30%-plus profit growth.

However, the strategists observed that revisions to FY20 earnings have been much worse, and for these stocks, FY20 growth estimates are already 17% vs 24% for the Top 100.

There are only a handful of stocks where the trailing P/E Z-score is negative but EPS is seeing upgrades, they said.

Markets end at two-month lows

On Monday, Sensex and Nifty resumed their weakening trend to settle around the levels seen two months ago, mainly due to heavy selling in auto stocks.

The Sensex ended 196.82 points, or 0.52%, lower at 37,688.28, while the broader Nifty fell 95.10 points, or 0.84%, to settle at 11,189.20.

The auto sector that was grappling with tepid sales numbers and growth concerns has to face a new challenge in the wake of the government’s announcement of new policy measures, including lower taxes, to push electric vehicles.

Auto stocks plummet up to 6.5%

One more hurdle came in the way of this traditional sector in form of the government’s proposal to hike registration fees for old and new vehicles, leading to heavy sell-offs in auto stocks.

Shares of Tata Motors plunged 6.52% — the biggest fall among Sensex constituents — followed by Apollo Tyres with a fall of 6%, Bajaj Auto 4.99%, Eicher Motors 4.56%, Motherson Sumi Systems 4.34%, TVS Motor 4.27%, Maruti Suzuki India 4.26%, Ashok Leyland 3.50%, Hero MotoCorp 2.61% and M&M 2.07% on the BSE.

Sectorally, BSE Auto tumbled 3.55%, metal dropped 3%, and telecom slipped 2.85% — the top three laggards.

On the contrary, BSE IT, bank and teck ended in the positive terrain.

The market breadth was tilted in favour of sellers on the BSE as 1,706 stocks declined and 766 advanced.

Among the gainers were ICICI bank, HCL Tech, IndusInd Bank, Tata Consultancy Services (TCS), Infosys, State Bank of India and Bharti Airtel — gaining as much as 3.32%.

—With PTI inputs

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