Stock market analysis and stories by Shreesh Biradar

Shreesh Biradar

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Shreesh Biradar was a Senior Research Analyst at Trendlyne, specializing in the IT, banking and auto sectors.

Articles by Shreesh Biradar

Mutual Funds News

TREND | 16 Jan 2024

Smart money moves: Which stocks did mutual fund managers buy in December 2023?

By Shreesh Biradar

In December, the Nifty 50 closed at an all-time high of 21,731 and delivered an impressive 7.9% return. This surge was fueled by increased rural spending on account of the harvest and wedding seasons, which boosted consumption-driven spending overall.

Despite higher interest rates, the banking sector saw 16.5% credit growth YoY. The government’s election-driven spending has also driven infra, cement and steel stocks higher.

Indian equity mutual funds’ SIPs recorded a net inflow of Rs 17,000 crore in December, with sectoral funds registering the highest inflow of Rs 6,005 crore, followed by small-cap stocks at Rs 3,857 crore. As a result, Nifty Midcap 100 and Nifty Smallcap 100 rallied by 7.6% and 6.9%, respectively. The month also saw the launch of 14 new open-ended schemes, which together received funding of Rs 7,812 crore.

Bharat Heavy Electricals’ MF holdings increase to 2,146 lakh shares in December

BHEL: Order wins are key to growth

Bharat Heavy Electricals (BHEL), a general industrial firm, is into power plant equipment manufacturing for the engineering, industrial, and construction sector. It also produces complex electrical equipment for the power, oil & gas, defence, and aerospace sectors.

Recently, BHEL won orders worth Rs 15,000 crore from NLC India for the construction of three 800 MW thermal power plants. BHEL is also diversifying into defence and railways. BHEL has won a Rs 13,000 crore order for Vande Bharat trains. BHEL and Titagarh Rail Systems are set to supply 80 Vande Bharat train sets, along with a service contract of 35 years. The company is also expecting a naval gun order worth around Rs 3,000 crore from the defence ministry.

With the expansion of thermal power plants, BHEL is expected to secure 15-20 GW thermal power plant contracts worth around Rs 1.5 trillion in the coming years. The company’s total order book stood at Rs 1,15,000 crore in Q2FY24.

Fund managers who bought shares of BHEL

Fund managers who added shares of BHEL to their portfolios include Vasav Sahgal and Ankit A. Pande for Quant Tax Plan Fund, and Nimesh Chandan and Siddharth Chaudhary for Bajaj Finserv Flexi Cap Fund. Fresh buys were done by Sharwan Kumar Goyal and Ayush Jain for UTI Nifty200 Momentum 30 Index Fund, Shriram Ramanathan and Gautam Bhupal for HSBC Aggressive Hybrid Fund, and Abhishek Bisen for Kotak Balanced Advantage Fund.

Bandhan Bank: Shifting towards secured loans

Bandhan Bank (BANDHAN) started its journey as a microfinance institution based in West Bengal, but has since grown into a major banking and finance player with a pan-India presence. The bank currently has a loan book of Rs 1,07,630 crore, mainly serving MSMEs, micro-entrepreneurs, and retail borrowers.

Bandhan Bank aims to increase its secured loan books from the current 44% to 50% by FY26. It is expected to see a 20-25 bps increase in the cost of funds in FY24. Net interest margins are projected to moderate around 7-7.5%. However, the bank’s ongoing digital transformation and a reduction in network expansion to around 100 branches per year are expected to lower expenses. Its asset quality has seen higher slippages in the past two quarters. These slippages have been partly offset by better collection efficiency.

Fund managers who bought shares of Bandhan Bank

Fund managers who added shares of Bandhan Bank to their portfolios include Sanjeev Sharma and Vasav Sahgal for Quant Active Fund, and Kedar Karnik and Jay Kothari for DSP Equity Savings Fund. Fresh buys were done by Samir Rachh and Kinjal Desai for Nippon India Small Cap Fund, Raj Mehta and Rajeev Thakkar for Parag Parikh Flexi Cap Fund and Mahesh Chhabria and Neelotpal Sahai for HSBC Equity Savings Fund.

RBL Bank: Unsecured loans sustain margins

RBL Bank (RBLBANK), headquartered in Mumbai, is a banking and finance firm specializing in retail loans and credit cards. It is one of the largest credit card issuers in India with over 5% market share. The bank caters to 14.3 million customers through 528 branches. Around 58% of these branches are located in metro areas. The bank has a strong footprint in Maharashtra, Karnataka and Tamil Nadu, with a loan book size of Rs 76,324 crore.

Credit cards are the key revenue driver for RBL Bank, making up nearly 40% of its loan book. The bank has a credit-to-deposit ratio of 85% and aims to increase it further. However, the majority of RBL Bank’s deposits would be repriced in Q2FY24, leading to rising costs of funds and moderate yields. While the pressure on margins has affected the bank's profitability, stable NPAs have led to lower provisioning requirements. The management has guided for a credit growth of 20% CAGR and net interest income growth of 23% in FY24-25 (currently at 4.8%).

Fund managers who bought shares of RBL Bank

Fund managers who added shares of RBL Bank to their portfolios include Sanjeev Sharma and Vasav Sahgal for Quant Small Cap Fund, Laukik Bagwe and Rohit Singhania for DSP Dynamic Asset Allocation Fund, Manish Lodha and Abhinav Khandelwal for Mahindra Manulife Large & Mid Cap Fund and Harsha Upadhyaya and Abhishek Bisen for Kotak Balanced Advantage Fund. Fresh buys were done by Sanjay Chawla and Miten Vora for Baroda BNP Paribas Flexi Cap Fund.

Sonata Software: International venture to drive revenue growth

Sonata Software is an IT consulting and software company providing software products, development services, IT consulting, and business solutions, with a focus on digital transformation. Through alliances with global tech leaders such as Microsoft, Oracle and IBM, the company stays updated on new technologies, enabling it to offer innovative solutions for varied clients.

Sonata Software recently integrated with Quant Systems, which has unlocked partnership opportunities worth $150 million in the healthcare, life sciences, and BFSI verticals. The firm has also expanded its major deal pipeline by 38%. It expects a 25% revenue contribution from AI through Harmony. The management plans to expand its International IT Services division, with a revenue target of $1,500 million by FY26E, an increase of 118% from FY23. It is also focused on maintaining EBITDA margins of around 20%, a notable increase from the 11.5% in Q2FY24.

Fund managers who bought shares of Sonata Software

Fund managers who added shares of Sonata Software to their portfolios include Meeta Shetty for Tata Digital India Fund, Shreyash Devalkar and Karthik Kumar for Axis Nifty Smallcap 50 Index Fund, Himanshu Mange for Nippon India Nifty Smallcap 250 Index Fund, Swapnil Mayekar for Motilal Oswal Nifty Smallcap 250 Index Fund. Fresh buys were done by Piyush Baranwal and Ramesh Mantri for Whiteoak Capital Large & Mid Cap Fund.

Minda Corporation: EV parts and new product launches help growth

Minda Corporation, a manufacturer of automobile components like mechatronics, security systems, die casting, telematics, and instrument cluster sensors serves both the passenger and commercial vehicle sectors. While its manufacturing base is in India, the company caters to clients across Germany, China, Japan, Poland and Mexico.

Minda Corporation has won orders worth Rs 3,500 crore, with nearly 30% related to electric vehicles (EV), including Rs 700 crore for battery chargers. Its new product launches like smart key lock sets are gaining traction and helping revenue growth. Its smart key vertical received orders worth Rs 450 crore in Q2FY24. Minda is also expanding margins through product premiumization, streamlining fixed costs, and localization of component procurements.

Acquiring new customers and adding new products are expected to help Minda Corporation’s export revenue. The management expects the firm’s revenue to grow by 23% in FY24-25, with a 150 basis points expansion in EBITDA margins.

Fund managers who bought shares of Minda Corporation

Fund managers who added shares of Minda Corporation to their portfolios include Sanjeev Sharma and Vasav Sahgal for Quant Small Cap Fund, and Himanshu Mange for Nippon India Nifty Smallcap 250 Index Fund. Fresh buys were done by Dhaval Gala and Dhaval Joshi for Aditya Birla Sun Life Transportation and Logistics Fund, Sachin Relekar and Nishita Shah for Bandhan Infrastructure Fund and R Sivakumar and Nitin Arora for Axis Retirement Savings Fund.

Mankind Pharma's MF holdings stand at 299 lakh shares in December

Mankind Pharma: India-specific business eliminates competition

Mankind Pharma (MANKIND) is a leading Indian pharmaceutical manufacturer, with 91% of its revenue derived from branded formulations. The firm has a presence in the anti-infectives, cardiac, gastro, and respiratory segments. It is also into consumer healthcare, offering products like condoms, emergency contraceptives and pregnancy tests.

Mankind Pharma launched its IPO in April 2023, which was subscribed 15.3 times its issue size. As the fourth-largest pharmaceutical firm in India, Mankind Pharma's focus on the domestic market provides a barrier against intense competition in highly regulated international markets. It also shields the company from challenges like policy changes, currency risks and economic slowdowns. The firm is also looking to increase the revenue share of chronic drugs (diabetes and respiratory segments) by enhancing prescription volumes.

Fund managers who bought shares of Mankind Pharma

Fund managers who added shares of Mankind Pharma to their portfolios include Sohini Andani and Mohit Jain for SBI Bluechip Fund. Fresh buys were done by Sankaran Naren and Dharmesh Kakkad for ICICI Prudential Value Discovery Fund, Arjun Khanna and Harish Bihanifor Kotak Small Cap Fund, Pranav Gokhale and Shridatta Bhandwaldar for Canara Robeco Flexi Cap Fund and Taher Badshah and Hiten Jain Invesco India Focused 20 Equity Fund.

Sobha: Geo expansion and increased demand for premium segment to aid top line

Sobha (SOBHA), headquartered in Bangalore, is engaged in real estate construction, development, and sales. The company has developed townships, housing apartments and commercial real estate. It has also ventured into interior works, metal works and concrete products, providing backward integration.

Sobha has undertaken projects in Kerala, Delhi NCR, and Hyderabad. As a result, Bengaluru's sales share has dropped to 54% (from 65% a year ago) in H1FY24. Even though Bengaluru is a key region for the company, it aims to expand into other metros and Tier 1 cities. Sobha currently has a project pipeline of 8 million square feet outside of Bangalore. The escalating real estate values in metro cities also contribute to higher price realization. This diversification aligns well with the rising demand in the premium luxury segment.

Fund managers who bought shares of Sobha

Fund managers who added shares of Sobha to their portfolios include Pranav Gokhale and Shridatta Bhandwaldar for Canara Robeco Small Cap Fund, Aditya Khemani and Amit Ganatra for Invesco India Mid Cap Fund, and Manish Gunwani and Kirthi Jain for Bandhan Small Cap Fund. Fresh buys were done by Mahesh Patil and Chanchal Khandelwal for Aditya Birla Sun Life Equity Hybrid '95 Fund, and Dhimant Shah and Rohan Korde for ITI Multi Cap Fund.

Kaynes Technology: New semiconductor plant to open better avenues

Kaynes Technology (KAYNES) is an IoT solution provider and integrated electronics manufacturer, offering a range of services in electronics system design and manufacturing (ESDM) services. The firm operates eight manufacturing facilities across India (in Karnataka, Haryana, Himachal Pradesh, Tamil Nadu, and Uttarakhand). The automotive sector is a major segment that provides nearly 34% of its revenue.

As the company mostly caters to other industrial businesses, its primary market is business-to-business (B2B). This segment has lower competition and higher margins. The firm also has an order book of Rs 3,462 crore, providing revenue visibility for two years. Kaynes Technology has also launched a QIP for Rs 1,400 crore and has been acquiring smaller foreign firms to increase its international presence. According to Trendlyne Technicals, the stock has increased by 55.5% in the past six months.

Kaynes Technology plans to set up a Semiconductor Assembly and Testing (SAT) facility and a Printed Circuit Board (PCB) manufacturing plant at Rs 3,750 crore. The firm currently meets nearly 65% of its semiconductor requirements through imports.

Fund managers who bought shares of Kaynes

Fund managers who added shares of Kaynes Technology to their portfolios include Pranav Gokhale and Shridatta Bhandwaldar for Canara Robeco Small Cap Fund, and Sanjay Doshi and Kinjal Desai for Nippon India Power & Infra Fund. Fresh buys were done by Rajat Chandak and Sharmila D’mello for ICICI Prudential Flexicap Fund, Shreyash Devalkar and Hitesh Das for Axis Flexi Cap Fund, and Aditya Khemani and Amit Ganatra for Invesco India Mid Cap Fund.

Safari Industries: New manufacturing unit to boost margins

Safari Industries (SAFARI) is a textile and apparel manufacturing firm specialising in luggage and luggage accessories. The company operates production facilities in Mumbai and Halol, Gujarat, where it manufactures injection-molded and vacuum-formed plastic articles. However, the majority of its fabric products are imported.

Safari Industries recently expanded its distribution channels and has also improved inventory management by adding new stock-keeping units. The firm has also launched new products and implemented price hikes, while reducing discounts, resulting in increased price realizations. Also, the recent capacity addition of 1,25,000 units per month will help gross margins. This additional capacity will reduce the need for outsourcing and expand margins. The firm is expected to grow at a CAGR of 24% from FY24 to FY26.

Fund managers who bought shares of Safari Industries

Fund managers who added shares of Safari Industries to their portfolios include Himanshu Mange for Nippon India Nifty Smallcap 250 Index Fund, Swapnil Mayekar for Motilal Oswal Nifty Smallcap 250 Index Fund, Harsh Sethi for SBI Nifty Smallcap 250 Index Fund, and Kayzad Eghlim and Nishit Patel for ICICI Prudential Nifty Smallcap 250 Index Fund. Fresh buy was done by Nemish Sheth for Bandhan Nifty Smallcap 250 Index Fund.

Mahanagar Gas: Lower CNG prices to enhance margin

Mahanagar Gas (MGL) is a city gas distribution utilities firm operating in Mumbai, its adjoining areas, and the Raigad district of Maharashtra. Nearly 70% of the company’s revenue is from CNG sales. The firm has 319 CNG stations under its banner.

The acquisition of Unison Enviro (UEPL) for Rs 531 crore has helped the firm expand its geographical footprint. UEPL holds gas distribution rights across Ratnagiri, Chitradurga & Devangere, and Latur & Osmanabad. In a move aimed at benefitting consumers, MGL reduced CNG prices by Rs 3 per kg in October. Although this price reduction will impact the company's top line, the expected increase in CNG volumes is likely to offset the impact. Lower input costs for CNG are expected to improve its margins.

Mahanagar Gas has also launched card-based schemes for CNG users to expand its market share. The government plans to raise the share of natural gas in India’s energy mix to 15% by 2030, up from the current 6%. This is expected to boost MGL’s prospects.

Fund managers who bought shares of Mahanagar Gas

Fund managers who added shares of Mahanagar Gas to their portfolios include Kedar Karnik and Jay Kothari for DSP Equity Savings Fund, Shreyash Devalkar and Karthik Kumar for Axis Nifty Smallcap 50 Index Fund and Himanshu Mange for Nippon India Nifty Smallcap 250 Index Fund. Fresh buys were done by Amit Premchandani for UTI Value Fund and Nemish Sheth for Bandhan Nifty Smallcap 250 Index Fund

Construction Materials

SECTOR | 11 Jan 2024

Large cement players gain as smaller companies fight for survival

By Shreesh Biradar

The Indian cement sector is currently seeing a phase of rapid consolidation. Smaller players are either being acquired or struggling to survive, as large players threaten their margins with price wars. The recent infra boom has helped sustain volumes, even amid pricing pressure.

Major cement manufacturers are on an expansion spree, both organic and inorganic. Even though existing capacities are …

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Major cement manufacturers are on an expansion spree, both organic and inorganic. Even though existing capacities are not fully utilized, the race to gain market share is driving capex higher.

The rising costs of coal and freight are adding pressure to profit margins. In an industry that is highly sensitive to pricing, firms find it challenging to implement price hikes. As a result, firms are moving towards green energy to reduce dependence on coal and diesel.

A surge in infra projects ahead of the elections is driving volume growth in the cement industry for FY24. The industry typically sees a demand slowdown post-election.

Major acquisitions are reshaping the industry

Adani Group’s ACC Cements recently acquired Asian Concretes and Cements (ACCPL) for Rs 775 crore, adding 2.8 million tonnes per annum to ACC’s capacity. This acquisition is part of a larger industry trend, where big players are increasingly dominant and pushing smaller players toward consolidation. Ultratech Cement recently acquired Kesoram Cements in a share swap arrangement.

The drive for acquisitions is particularly notable in Adani-led firms like Ambuja Cements and ACC Cements. The Adani Group aims to expand its capacity from the current 76.1 MTPA to 140 MTPA by 2030. In the cement industry, higher capacity is key to gaining market share, and most large manufacturers have set ambitious capacity expansion plans in the medium and long term. While organic expansion is time-consuming and costly, acquisitions provide access to operational plants with an existing client base.

Ambuja and ACC exceed FY25 capacity expansion targets

This massive capacity expansion plan is unfolding even as the industry’s capacity utilisation has stayed below 70%. FY24 is expected to see a capacity utilisation of 69.8%, backed by an uptick in cement demand. The industry’s capacity utilisation is expected to come down in the next five years as new capacities come online and demand drops.

Cement manufacturers record highest capacity utilisation in eight years

Election-driven spending boosts volume

In 2023, elections were conducted in five large states (Karnataka, Chhattisgarh, Madhya Pradesh, Telangana and Rajasthan) and four smaller states (Mizoram, Meghalaya, Tripura and Nagaland). While most of these elections took place in November 2023, the election-related infra spending happened before the polls. This led to an increase in cement offtake in these respective states.

Typically, cement manufacturers lower production volumes during certain seasons. But, this year, due to lower rainfall and state elections, manufacturers maintained cement production above 32 MT.

Cement production remains high despite the monsoon season

The upcoming Lok Sabha elections in May 2024 are expected to drive another round of infra spending across India. The concretization of highways and large housing projects in rural areas by the government is contributing to volume growth. The central government is expected to spend around Rs 10 lakh crore on housing projects in FY24, a big boost to the cement industry.

Despite hikes, cement prices see minor shifts

In September, the cement industry implemented a price hike, which was reflected in the market in October 2023. However, these elevated prices have cooled off over the past two months. While the initial price hikes were around 3%, the subsequent decrease was lower at 1.2%.

All-India cement prices show decline in the past quarter

Following this trend, the impact on cement prices varied across different regions of India. The central and eastern regions of India saw a drop in cement prices, while the southern region experienced a 1% increase. Larger firms have gained the most from these price hikes, while local players were unable to sustain them.

Cement industry's margins moderate amid pricing battles

The intense pricing competition in the industry has pushed cement manufacturers to prioritise volumes over margins. But the recent demand uptick has enabled a slight increase in prices. EBITDA margins per tonne are expected to rise by around 1.2% QoQ in Q3FY24.

Manufacturers’ margins moderate over the past three quarters

However, the increase in coal prices has limited the margin expansion in Q3FY24. Australian coal prices (a major source of imports) jumped by 12% in December. Freight costs also increased in the same period, leading to higher import costs for Indian manufacturers. The effect of these hikes is expected to be visible in Q4FY24, as the low-cost inventory gets used up.

To mitigate these rising costs, manufacturers are exploring alternative coal sources like Indonesia and Russia to replace Australian coal.

Coal prices rise 12% MoM in December 2023

Cement manufacturers embrace green energy to reduce fuel dependency

Cement manufacturers are looking for alternatives to traditional coal and diesel, to address rising power and fuel costs that account for nearly 40% of the industry’s production expenses.

Dependence on coal imports, price volatility, logistical issues, and a shift towards green energy are driving manufacturers to invest in renewable energy sources like wind, solar and waste heat recovery systems (WHRS) to reduce their fuel and power costs.

According to Crisil, green energy met nearly 35% of the sector's energy needs in FY23. However, this number is expected to increase to around 45% by the end of FY27.

Ambuja Cement has announced an investment of Rs 6,000 crore for solar and wind power projects, while UltraTech Cement aims to raise its green energy usage from 22% to 60% by FY26.

Cement manufacturers invest in green energy to reduce fuel costs

Smaller players like JK Cement and Shree Cement have a higher share of green energy in their power mix. They have made ongoing investments in renewable energy, in proportion to their capacity expansions. While alternative fuels are increasingly replacing coal and pet coke, achieving full substitution remains a technical challenge as renewable energy is limited in guaranteeing constant power supply.

Green energy investments might help in improving margins, but the price wars among major players are likely to eat into these gains. Also, the huge capacity coming online in the medium term will keep prices under pressure. However, given the upcoming elections, India’s cement consumption in the second half of FY24 is expected to see a 10-12% volume growth. If the coal prices remain range-bound, margins might see a boost

KRChoksey released a Sector Update report for Construction Materials on 20 Mar, 2025.

The Baseline

30 Dec 2023

Global indices beat expectations in 2023 | Screener: Outperformers with rising FII holdings

By Shreesh Biradar

We started the year fearful and anxious. Goldman Sachs’ strategy group sent out a warning to its clients, regarding the economic outlook: “Caution: Heavy Fog.” January 2023 began ominously, with rising energy prices, high inflation, a global growth slowdown, a war of words between US and China, and recession fears.

Luckily for us, the pessimists lost this round.

We end the year with two ongoing wars, Russia-Ukraine and Israel-Gaza. But despite this, the fears of 2023 turned out to be more manageable than expected. Volatility fell, and most major global indices delivered high returns over the year. Japan's Nikkei 225 hit a 33-year high, and the US' S&P 500 is just 1% shy of its all-time high of 4,796 points. Even the broader MSCI World Index has given 21% returns year to date.

The Indian stock market has mirrored this global trend, with the benchmark Nifty 50 delivering around 20% returns over the year and reaching an all-time high of 21,779.

In this week’s Analyticks:

Global indices soar: Major markets make big gains in 2023
Screener: Stocks outperforming Nifty 50, with rising FII holdings and strong financials

Let’s get into it.

Inflation soared, but markets made a big comeback

Inflation peaked at the start of 2023, and central banks scrambled to pin it down with interest rate hikes. The US started the year with an inflation rate of 6.4%, way over the Federal Reserve's target of below 2%. Despite the Fed raising interest rates to a 22-year high, US inflation was stubborn for most of the year, thanks to rising energy prices and a hot job market.

The Fed's rate hikes claimed victims early in 2023 – regional banks like Silicon Valley Bank and First Republic Bank toppled. Higher rates also resulted in ballooning debt for economies like Argentina, leading to the Argentinian peso’s collapse againstthe US dollar and hyperinflation, with 161% inflation in November 2023.

Inflation in Argentina rose so fast that restaurant menus and shops used peel-off stickers for prices, since they went up every week.

China was an inflation outlier. Its economy failed to take off post-COVID, resulting in low demand and inflation. China’s inflation even hit the negative zone at -0.5% in November, a deviation from its historical range of 1.5% to 2.5%.

India has been trying to balance its interest rate and inflation. While RBI kept inflation in the targeted range of 4%-6%, it held the interest rate at 6.5%. The RBI has made a hike of just 250 bps since April 2023, compared to a 450 bps increase in the US.

Most of the gains for major indices came in the last quarter of 2023, as inflation tapered down and global central banks finally signaled a pause in rate hikes.

AI gives US indices a boost, while China struggles

The West is in the throes of a new Cold War. The trade war between the US, Europe and China - on everything from chips to cars - has escalated in 2023. The US imposed sanctions on chip exports to China. China retaliated by limiting exports of rare earth materials needed for chip manufacturing. This led to chip shortages and cost increases that affected industries from automobiles to televisions.

Rising chip demand and advances in AI were a boost to American semiconductor/chip companies and AI players, whose stocks (NVidia, Intel, Microsoft, Google) saw huge gains. The Nasdaq 100 delivered 54.3% returns YTD as momentum built around AI. Among the largest markets, the S&P 500 index was the outperformer.

S&P 500 delivered the highest returns in 2023 in USD

China is a different story. There are so many empty houses in China right now that these can accomodate 3 billion people. The country's real estate meltdown, as major companies defaulted on their debt, has spooked investors. The trade war and sanctions also hurt China a lot more than the US.

Anyone trying to predict oil prices in 2023 got their fingers burned. The OPEC cartel tried to keep prices high but failed, as Russia undercut their prices and US ramped up oil exports. Oil briefly traded above $85 per barrel when Hamas attacked Israel. But for most of the year oil prices stayed below that level, despite OPEC+ production cuts.

Lower oil prices limited the Middle East’s revenue. Consequently, the benchmark indices of UAE (ADX General) and Kuwait (BK Main 50) fell 6.8% and 5.2% YTD, respectively.

UK FTSE delivered the highest returns across major indices

India comes out on top

2023 was the year India put a rover on the moon, hosted the G20, and Modi's hugs got international coverage. We were very visible on the global stage, and the Indian economy had a lot of good news as well. The country recorded one of the highest GDP growth rates for the year (7.6% in the first half of 2023). The realty and automobile sectors in India saw the biggest gains in 2023.

India is the fastest-growing economy among large countries

While China struggled with a real estate crisis, the Indian realty sector boomed. The housing sales value in the top seven metros for the first nine months of 2023 exceeded 2022’s total. Nifty Realty was the biggest gainer of the year with 78% YTD returns.

India’s robust GDP growth has been driven by rising domestic consumption. The country recorded its highest-ever automobile sales in November, surpassing Japan and becoming the third-largest market after the US and China. The Nifty Auto index also saw an increase of 42% YTD.

IT stocks focused on services were badly hit due to global reductions in IT spending by major financial institutions. However, new geos and sectors have helped bridge this gap, leading to Nifty IT delivering 25% returns.

India also benefited from an FII inflow of Rs 146,721.1 crore into the Indian equity market. This has positioned the Nifty50 among the top 10 best-performing indices among major economies.

2024 looks more promising at the start, compared to 2023. Let's hope the optimists keep winning.

Screener: Stocks outperforming Nifty 50 with increased FII holdings and strong financials

HDFC Bank has the highest FII change

This screener consists of stocks outperforming both their respective industries and the Nifty 50 index, with increased Foreign Institutional Investor (FII) holdings in the past quarter and strong financial performance.

The stocks are from industries like banks, electric utilities, housing finance, electrical equipment, IT consulting & software, department stores and cement & cement products. Major stocks in the screener are HDFC Bank, Adani Power, LIC Housing Finance, KEI Industries, Sonata Software, Trent and Ultratech Cement.

HDFC Bank tops the list of outperformers with the highest rise in FII holding, which increased by 18.8% QoQ to reach 52.1% in Q2FY24. The Government of Singapore and Invesco Developing Markets Fund have bought 2.3% and 1.2% stakes respectively. The company’s stock price has risen by 11.2% over the past month.

You can find more screeners here.

Metal and Mining

SECTOR | 26 Dec 2023

Steel industry has to battle cheap imports and rising costs, but expects volume-led growth

By Shreesh Biradar

The Indian steel industry is on the path of revival, as the government’s infrastructure push has provided a much-needed impetus for a struggling sector. Despite global challenges, this sector is finding its feet and recorded increased production volumes in the first half of FY24.

But problems still shadow Indian steelmakers: a sharp rise in Chinese steel production has put a …

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But problems still shadow Indian steelmakers: a sharp rise in Chinese steel production has put a ceiling on prices for the industry while increasing coke prices are adding to cost concerns. Dilip Oommen, President of the Indian Steel Association and CEO of ArcelorMittal Nippon Steel India stated that, “India faces the highest threat of cheap steel imports flooding its domestic market if action isn't taken in time to curb the import threat.”

Bullish projections for India’s economic growth would help the industry, in the form of a wave that lifts all boats, including steel. Already, infra-spending by the government and rising retail consumption have increased domestic demand. Reflecting this positive trend, the Nifty Metal index rose 20.4% in the past six months, outperforming the broader Nifty 50’s 12% increase.

Election year spending set to boost steel demand in FY24

Amid global challenges, the Indian steel industry stands out as one of the fastest-growing sectors, thanks to government spending on infrastructure. The budgetary allocation for infrastructure rose by 33% to 10 lakh crore in FY24.

India’s finished steel consumption hit a five-year high from April to October. Increased construction activity, as well as higher industrial manufacturing and automobile production, were major drivers. The construction sector, in particular, has grown by 7.9% QoQ in Q2FY24.

This momentum is expected to continue as the country’s incumbent government pushes for election-led infra spending, building bridges, roads and railways that they hope will convince voters to reward them with another term.

Post-elections, however, India's steel consumption is expected to drop. According to Fitch ratings, India’s finished steel consumption for FY24 is estimated to grow by 12% and drop to 9% in FY25.

India’s steel industry set to beat FY24 projections

India’s steel consumption grew by 15% in the first half of FY24, beating the Indian Steel Association’s earlier estimates of 7.5% total growth in FY24. According to the National Steel Policy, India’s per capita steel consumption is expected to increase from 87 kg currently to 158 kg by 2031.

Most of India’s steel consumption is domestic, but China has always loomed large for Indian steel. China controls 55% of the world's production and plays a major role in setting international steel prices.

China’s increased steel exports hit the global market

China has ramped up its steel production in the first half of FY24. However, a slowdown in its own infrastructure and real estate sectors resulted in a stockpile of inventory. This excess steel has been dumped in the international market in search of buyers. China has been dumping nearly 10% of its monthly production volumes in the international market, And its steel exports have been on the higher side for the past three months after moderating between June and July. From January to November 2023, Chinese exports surged by 35.6% to 82.7 million tonnes, the highest in the past five years.

China ramps up steel exports over the past three months

The excess influx of Chinese steel into the international market has caused global steel prices to decline from $670/tonne in March 2023 to $529/tonne in December 2023.

While most of India’s steel production is dedicated to captive consumption, around 5-10% is exported. However, rising domestic consumption and declining steel prices have forced India to increase its steel imports.

India turns net importer amid global market shifts

Over the past three months, India has transitioned to being a net importer of steel. India imported 4.3 million tonnes of finished steel from April to November, an increase of 13.4% YoY. In contrast, exports have dropped by 6.2% to 4 million tonnes during the same period. According to Crisil, India is expected to import around 6 million tonnes by the end of FY24.

India becomes net importer of steel over the past three months

Domestic manufacturers have been pushing for the government to raise taxes on imported steel. However, the Centre has been reluctant, considering the impact it could have on the manufacturing and construction sectors. Nearly 23% of domestic steel is consumed by the automobile sector.

However recent price trends suggest that domestic steel prices are now lower than international prices, which could limit steel imports going forward.

Domestic steel prices underperform international steel prices

The export market, previously a profitable avenue for China, has been affected by the global slowdown, impacting steel consumption. The lower steel prices in the international market have also adversely affected the profitability of Chinese manufacturers. In response, China reduced its production from a peak of 95.6 million tonnes in March 2023 to roughly 76 million tonnes by the end of November 2023.

India ramps up steel production as China slows down

In contrast, Indian steel manufacturers have ramped up their production. India’s steel output increased from 10.4 million tonnes in April 2023 to 12.1 million tonnes in October 2023. This reversal in trend is reflected in the pricing trends.

Historically trading at a premium compared to international prices, domestic steel prices have been at a discount since October 2023. This discount further widened to 5.7% by December.

Indian steel priced below international rates since November 2023

Also, China’s recent announcement of a $137 billion capital infusion into urban village renovation and affordable housing programs is expected to absorb the excess steel production there. This will result in lower steel supply in the international market and influence international prices.

Higher fuel costs to squeeze margins

In India, nearly 78% of steel production relies on blast furnaces, which use thermal coal. This dependence has made India the largest importer of coking coal, with the steel sector being its major consumer. Fuel costs account for nearly 40% of the total production cost for steel. Any increase in coking coal prices will result in margin contraction.

Coking coal prices rise above $300 for the first time in 10 months

Coking coal prices have seen an uptrend over the past six months, consistently trading above $300 per tonne due to increased demand. These prices are expected to remain within this range for a while. Lower domestic prices and increased coal prices might squeeze margins for steel manufacturers.

Indian manufacturers to see volume-led growth with near-term margin moderation

Indian firms like JSW Steel are set to benefit from domestic demand, while others like Tata Steel are facing difficulties in volume uptake in international markets. Recent trends suggest JSW Steel has depleted its low-cost coking coal inventory. Despite price hikes in Q3, manufacturers have been offering discounts to maintain volume levels. An increase in iron ore prices is expected to put more pressure on margins due to rising input costs. Tata Steel has also taken insurance cover for pension liabilities amid its long-standing tussle with labor unions in the UK.

Leading Indian manufacturers are focusing on capacity expansion to meet domestic demand. The sector is also consolidating, with larger players acquiring profitable smaller units. JSW Steel is planning to increase its capacity from 28 million tonnes (MT) to 37 MT by next year and 50 MT within the next three years. Similarly, Tata Steel aims to expand its capacity in India from 21.6 MT to 40 MT by 2030. However, these expansion plans are likely to add more debt to already highly leveraged firms.

The Indian steel industry is set to see a volume uptick in the near term. However, lower prices, increased fuel costs, and higher iron ore prices might impact margins.

On the brighter side, a cut in Chinese production and increased domestic consumption of China (due to its renewed infra push) could strengthen international prices. This could help Indian millers allocate a portion of their production for exports and realize higher margins

IDBI Capital released a Sector Update report for Metal and Mining on 07 Mar, 2025.

Mutual Funds News

TREND | 18 Dec 2023

Smart money moves: Which stocks did mutual fund managers buy in November 2023?

By Shreesh Biradar

In November, the Nifty 50 breached the 20,000 mark and delivered a 5.5% return for the month. November’s festive season with Diwali and other major festivals, gave the Indian economy a major boost. Consumers were bullish: auto sales volumes hit an all-time high, real estate firms saw record bookings, and banks experienced an uptick in retail loans despite higher interest rates. Oil prices also dropped below $80, providing relief to the exchequer.

Indian equity mutual funds recorded a net inflow of Rs 15,536 crore in November, with small-cap stocks registering the highest inflow of Rs 3,699 crore, followed by mid-cap stocks at Rs 2,665 crore. As a result, Nifty Midcap 100 and Nifty Smallcap 100 saw rallies of 10.6% and 12% in November.

Zomato’s MF holdings increase to 9,707 lakh shares in November

Zomato: acquisition Blinkit to fuel future growth

Zomato (ZOMATO), a software & services firm, is a fee-based online platform that connects customers to restaurants and delivery partners. It also offers B2B services, dining-out booking services, and grocery deliveries, connecting local stores with end customers.

Zomato’s subsidiary Blinkit, had contributed positively to gross margins in Q2FY24 for the first time. Most of Zomato’s future growth prospects are tied to Blinkit ( its quick-commerce vertical). In this ‘all eggs in one basket’ situation, Zomato is counting on Blinkit to grow at 116% CAGR in FY24-FY25. The competitive pressures in the quick-commerce sector have eased, with smaller players facing funding constraints.

Zomato has increased its revenue through advertising and platform fees. However, it is crucial to fine-tune the platform fees, as customers may seek cheaper alternatives. The management aims to achieve a 4%-5% EBITDA margin for its food delivery business, which is projected to grow at a 32% CAGR in FY24-25.

Fund managers who bought shares of Zomato

Fund managers who added shares of Zomato to their portfolios include Harsha Upadhyaya and Arjun Khanna for Kotak Flexicap Fund, Ajay Argal and Sandeep Manam for Franklin India Focused Equity Fund, Kinjal Desai and Ashutosh Bhargava for Nippon India ELSS Tax Saver Fund. Fresh buys were done by Dhaval Gala and Dhaval Joshi for Aditya Birla Sun Life Transportation and Logistics Fund, and Alok Bahl and Apurva Sharma for Helios Flexi Cap Fund.

GAIL (India): Easing LNG and natural gas prices to help profitability

GAIL (India) is a utilities firm and the largest state-owned natural gas processing and distribution company in India. It has interests in sourcing and trading natural gas, the production of LPG, liquid hydrocarbons and petrochemicals, the transmission of natural gas and LPG through pipelines, etc.

The decline in liquefied natural gas (LNG) prices due to the easing of global supply conditions has driven up GAIL's profitability. Natural gas prices also fell by 25.3% in November. In Q2FY24, GAIL’s net profit increased by 85.8% YoY to Rs 2,444.1 crore, despite a 14.7% decline in revenue. This margin improvement was on account of higher trading and distribution revenue.

GAIL has also filed an arbitration case against SEFE Marketing & Trading Singapore, a former unit of Russia's Gazprom, seeking $1.8 billion in damages for not receiving the supply of LNG.

Fund managers who bought shares of GAIL

Fund managers who added shares of GAIL to their portfolios include Dinesh Balachandran and Mohit Jain for SBI Contra Fund, Laukik Bagwe and Dhaval Gada for DSP Dynamic Asset Allocation Fund, Dhaval Joshi and Kunal Sangoi for Aditya Birla Sun Life Pure Value Fund. Fresh buys were done by Sanjeev Sharma and Vasav Sahgal for Quant Multi Asset Fund, and Hiten Shah and Abhishek Bisen for Kotak Balanced Advantage Fund.

Bandhan Bank: Watch for margin pressure and NPA slippages

Bandhan Bank Ltd (BANDHAN) started its journey as a microfinance institution based in West Bengal but has since grown into a major banking and finance player with a pan-India presence. The bank currently has a loan book of Rs 1,07,630 crore, mainly serving MSMEs, micro-entrepreneurs, and retail borrowers.

Bandhan Bank is expected to see a 20-25 bps increase in the cost of funds in FY24. Net interest margins are projected to moderate around 7-7.5%. However, the bank’s digital transformation and a reduction in network expansion to around 100 branches per year are expected to lower expenses. Its asset quality has seen higher slippages in the past two quarters. The slippages have been partly offset by better collection efficiency. The bank is actively trying to increase the share of secured loans from the current 44% to 50% by FY26.

Fund managers who bought shares of Bandhan Bank

Fund managers who added shares of Bandhan Bank to their portfolios include Harshal Joshi and Daylynn Pinto for Bandhan Multi Cap Fund, Swapnil Mayekar for Motilal Oswal Nifty Bank Index Fund, and Mehul Dama for Axis Nifty Midcap 50 Index Fund. Fresh buys were done by Hiten Shah and Abhishek Bisen for Kotak Balanced Advantage Fund, and Vasav Sahgal and Sanjeev Sharma for Quant Active Fund.

Delhivery: Contract renegotiation may help make the business EBITDA positive

Delhiveryprovides supply chain, transportation and logistics services to e-commerce segments across the board. It is India’s largest e-commerce logistics provider with 2,880 delivery centres across the country.

In Q2FY24, the firm saw moderate revenue growth of 8.8% YoY. Delhivery has renegotiated some of its long-term contracts, which will help in margin expansion. While the EBITDA margins are still in the negative zone of -0.6%, there is optimism that EBITDA will turn positive by the end of FY24. The firm is also looking to expand its infrastructure in Chennai, Hyderabad and Noida.

Fund managers who bought shares of Delhivery

Fund managers who added shares of Delhivery to their portfolios include Neelesh Surana for Mirae Asset ELSS Tax Saver Fund, S Bharath and Ratish Varier for Sundaram Mid Cap Growth Fund, Mohit Jain and R Srinivasan for SBI Flexicap Fund, Ashish Naik and Vinayak Jayanath for Axis Business Cycles Fund, and Mehul Dama for Nippon India ETF Nifty Midcap 150 Fund.

Exide Industries: Venturing into lithium-ion battery manufacturing

Exide Industries (EXIDEIND) is a Kolkata-based auto part & equipment manufacturer with expertise in lead-acid and lithium-ion storage batteries and inverters. Its batteries find applications in automobiles, industries, home appliances and submarines. The firm generates 74% of its revenue from the automotive space.

As a market leader in the storage battery space, Exide is focusing on EV batteries to gain first-mover advantage. The firm has a capex of Rs 6,000 crore planned, for developing 12 MWh lithium-ion batteries. It currently has an order book of Rs 600 crore for lithium-ion batteries. Exide Industries has partnered with China-based SVOLT Energy to ensure a steady supply of raw materials for this venture. Its debt-free balance sheet and Rs 5,000 crore investment in HDFC Life will provide its capex plans the cushion they need.

Fund managers who bought shares of Exide

Fund managers who added shares of Exide Industries to their portfolios include Arjun Khanna and Harsha Upadhyaya for Kotak Equity Opportunities Fund, Dhaval Gada and Laukik Bagwe for DSP Dynamic Asset Allocation Fund, Pranav Gupta and Haresh Mehta Aditya Birla Sun Life Nifty Smallcap 50 Index Fund, and Shreyash Devalkar and Karthik Kumar for Axis Nifty Smallcap 50 Index Fund. Fresh buys were done by Gargi Banerjee and Deepak Ramaraju for Shriram Multi Asset Allocation Fund.

Lemon Tree Hotel's MF holdings stand at 1,001 lakh shares in November

Lemon Tree Hotels: Asset-light model key to margins

Lemon Tree Hotels (LEMONTREE) operates in the hotel business with various brands like Aurika Hotels, Lemon Tree Hotels, Red Fox and Keys. The firm currently manages 100 hotels, offering 9,700 rooms across 64 locations. It plans to add 26 hotels with 2,540 rooms in the next two years.

The firm has been on an expansion spree and recently signed two new properties in Somnath and Dehradun. These properties are expected to be operational by FY25 and FY27, respectively. The firm’s asset-light model through franchised hotels will accelerate its growth with lower capex. The recent uptick in leisure travel, international events, corporate events, and exhibitions is also contributing to increased room occupancy.

Fund managers who bought shares of Lemon Tree Hotels

Fund managers who added shares of Lemon Tree Hotels to their portfolios include Gautam Bhupal and Sonal Gupta, for HSBC Consumption Fund, Mehul Dama for Nippon India Nifty Smallcap 250 Index Fund, Harsh Sethi for SBI Nifty Smallcap 250 Index Fund, and Arun Agarwal and Nirman Morakhia for HDFC Nifty Smallcap 250 Index Fund. Fresh buys were done by Apurva Sharma and Alok Bahl for Helios Flexi Cap Fund.

RBL Bank: Unsecured loans sustain margins

RBL Bank Ltd (RBLBANK), headquartered in Mumbai, is a banking and finance firm that specialises in retail loans and credit cards. It is one of the largest credit card issuers in India with a 5% market share. It caters to 13.6 million customers through 520 branches. Around 58% of its branches are located in metro areas. The bank has a strong footprint in Maharashtra, Karnataka and Tamil Nadu, with a loan book size of Rs 73,087 crore.

Credit cards are the key revenue driver for RBL Bank, making up nearly 40% of its loan book. The bank has a credit-to-deposit ratio of 85%, which it plans to increase further. The majority of RBL Bank’s deposits are expected to be repriced in Q2FY24, leading to rising costs of funds and moderating yields. The pressure on margins has affected the bank's profitability, but the good news is that stable NPAs have led to lower provisioning requirements. The management has guided for a credit growth of 20% CAGR and net interest income growth of 23% in FY24-25 (currently at 4.8%).

Fund managers who bought shares of RBL Bank

Fund managers who added shares of RBL Bank to their portfolios include Sanjeev Sharma and Vasav Sahgal for Quant Small Cap Fund, Devender Singhal and Abhishek Bisen for Kotak Multi Asset Allocation Fund, and Krishna Sanghavi and Kush Sonigara for Mahindra Manulife Business Cycle Fund. Fresh buys were done by Mohit Jain and Milind Agrawal for SBI Banking & Financial Services Fund, and Shiv Chanani for Baroda BNP Paribas Value Fund.

Ceat: Lower input costs help margin expansion

Ceat Ltd (CEATLTD) is a prominent tyre manufacturer catering to cars, SUVs, two-wheelers, commercial vehicles and tractors. The company has OEM partnerships with 27 vehicle manufacturers and a presence in 110 countries. It is also in the replacement market through a network of 4,500 dealers and 51,000 sub-dealers.

??In Q2FY24, Ceat experienced a positive trend, with volume growth from the OEM segment and lower raw material prices contributing to a 10.8 percentage point expansion in gross margins. However, raw material prices have seen an uptick in Q3, which could contract margins. The firm is exiting from smaller tyres in favour of larger ones, to boost margins.

Additionally, the company stands to benefit from lower crude prices (below $80), which will boost margin expansion. Ceat also plans to expand its Ambernath plant’s capacity from 105 tonnes per day to 160 tonnes. The additional capex in FY24 is expected to add revenue to the tune of Rs 2,000 crore.

Fund managers who bought shares of Ceat

Additional shares of Ceat were added by Harsh Sethi for SBI Nifty Smallcap 250 Index Fund, Mehul Dama for Nippon India Nifty Smallcap 250 Index Fund, and Nirman Morakhia and Arun Agarwal for HDFC Nifty Smallcap 250 Index Fund, and Swapnil Mayekar for Motilal Oswal Nifty Smallcap 250 Index Fund. Fresh buys were done by Sharmila D’mello and Rajat Chandak for ICICI Prudential Transportation and Logistics Fund.

Minda Corporation: EV parts and new product launches to drive growth

Minda Corporation, a manufacturer of automobile components like mechatronics, security systems, die casting, telematics, and instrument cluster sensors, serves both the passenger and commercial vehicle sectors. While its manufacturing base is in India, the company caters to clients across countries like Germany, China, Japan, Poland, Mexico.

Minda Corporation won orders worth Rs 3,500 crore, of which nearly 30% is related to electric vehicles (EV), including Rs 700 crore for battery chargers. Its new product launches like smart key lock sets are gaining traction and helping revenue growth. Its smart key vertical received orders worth Rs 450 crore in Q2FY24.

Fund managers who bought shares of Minda Corporation

Fund managers who added shares of Minda Corporation to their portfolios include Sanjeev Sharma and Vasav Sahgal for Quant Small Cap Fund, Dhimant Shah and Rohan Korde for ITI Flexi Cap Fund, Mehul Dama for Nippon India Nifty Smallcap 250 Index Fund, Harsh Sethi for SBI Nifty Smallcap 250 Index Fund, and Arun Agarwal and Nirman Morakhia for HDFC Nifty Smallcap 250 Index Fund.

CDSL: Unlocking growth through demat of private limited companies

Central Depository Services (India) (CDSL) facilitates the holding of securities in dematerialized form and enables securities transactions. It is an intermediary for exchanges, clearing corporations, depository participants and investors. CDSL has more than eight crore investor accounts.

In Q2FY24, CDSL saw a 39.2% YoY increase in revenue, driven by higher transaction volumes and annuity income. Annuity income, being non-market linked, helps maintain revenue streams in the down cycle. Margins expanded by 850 bps QoQ to 62.4% in Q2FY24.

The compulsory demat of non-small private limited companies will have revenue potential. There are roughly 1.4 million private limited companies. The firm is also venturing into the insurance repository sector, subject to regulatory approvals.

Fund managers who bought shares of CDSL

Fund managers who added shares of CDSL to their portfolios include Shridatta Bhandwaldar and Pranav Gokhale for Canara Robeco Small Cap Fund, Hardick Bora and Sanjay Bembalkar for Union Small Cap Fund, and Taher Badshah and Hiten Jain for Invesco India Focused 20 Equity Fund. Fresh buys were done by Trideep Bhattacharya and Sahil Shah for Edelweiss Mid Cap Fund and Amey Sathe for Tata Banking & Financial Services Fund

Chemicals & Petrochemicals

SECTOR | 12 Dec 2023

India’s chemical sector faces tough competition from rising Chinese imports

By Shreesh Biradar

India’s chemical industry today is at a crossroads – on one side, the weather has turned unpredictable, with thunderstorms and dry patches coming unexpectedly, and the El Nino driving temperatures up worldwide. This has taken a toll on agrochemical consumption.

On the other side, the reopening of Chinese chemical manufacturing has resulted in cheaper imports to India, putting pressure on …

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On the other side, the reopening of Chinese chemical manufacturing has resulted in cheaper imports to India, putting pressure on prices for domestic producers. The global economic slowdown has only added to the pain. The unfavorable conditions have contributed to lower exports of specialty chemicals from India and hit chemical stocks.

India’s chemical industry constitutes 7% of the country’s GDP and has a market size of $240 billion. India’s Index of Industrial Production (IIP) has grown by 0.6% since April 2023 but the chemical sector has not matched this trend,contracting by 2.1% during the same period.

Chemical industry’s IIP drops by 7.4% in the past four months

The first half of FY24 saw a drop in production volumes as dealers and end-users had higher inventory. Chemical manufacturers have also struggled with margin pressures due to high-priced inventory impacting profitability. This problem is likely to persist till the end of FY24. However, contract manufacturers and export-oriented producers should recover faster than their industry peers.

Chinese dumping has affected Indian manufacturers

The Chinese chemical industry, whose production exceeds domestic demands, has turned its focus to exports. Countries like India, with significant demand for chemicals, are among its favoured destinations. But this is creating pricing pressures for Indian manufacturers.

India's chemical sector is traditionally a net importer, resulting in a trade deficit. But it has been a net exporter of dyes and intermediates. However, for the first time in 22 months, India has become a net importer in this segment too. Low-cost imports from China have resulted in end-manufacturers preferring these over pricier Indian alternatives.

India turns net importer of dyes and intermediates in September

Indian companies rely on China for their raw material needs. Often, imported finished chemicals from China are cheaper than domestic products. According to Manish Kiri, MD of Kiri Industries, Benzene prices in India are around $920 per tonne, whereas Aniline (which uses Benzene as raw material) is sold for $1,700 per tonne. In contrast, Chinese Aniline comes at $1,400. This kind of competition makes the Indian business unviable.

Raw material prices increased in September owing to planned shutdowns in China for the seven-day Golden Week holiday. However, prices dropped again as Chinese capacities resumed.

Major chemicals in India see average price decline of 40% from peak

The prices of major chemicals sold in India have corrected by around 40% from their peak, impacting margins.. As a result, manufacturers are resorting to lower sales rather than cutting their prices in line with Chinese competition.

Margin pressure compromises revenue growth

The chemical industry has faced many challenges over the past two quarters, marked by a 13.9% YoY degrowth in Q2FY24. This decline was on account of lower volumes and lower price realisations. A stock buildup among Indian consumers in H2FY23 led to lower volume offtake in H1FY24.

For instance, UPL reported a 7% decline in volumes and a 15% drop in price realisations, driven by the availability of cheaper Chinese chemicals in the market. Also, the Indian agrochemical sector was affected by delayed rainfall, resulting in reduced consumption of chemicals during the quarter.

Only a few specialty chemical manufacturers like Rossari Biotech, Neogen Chemicals, Navin Fluorine and Sudarshan Chemicals were able to achieve positive YoY growth in the quarter.

Operating profits in chemical industry remain below Q4FY23 levels

Note: This data includes consolidated earnings of 19 listed companies: SRF, Galaxy Surfactants, Rossari Biotech, Sudarshan Chemicals, Atul Ltd, Vinati Organics, Navin Fluorine, Supreme Petrochem, Balaji Amines, Anupam Rasayan, UPL, Aarti Industries, Deepak Nitrite, Neogen Chemicals, NOCIL, Gujarat Alkali, Sumitomo Chemicals, Tata Chemicals and Fine Organics

The industry has also been grappling with shrinking profit margins. Net profit margins have dropped from 9.6% in Q2FY23 to 5.4% in Q2FY24. The margin hit was due to high-cost inventory and a lack of pricing power. While the specialty chemicals segment has benefited from a stronger dollar due to exports, the overall industry has been impacted by pricing issues.

Chinese chemicals are being dumped in India at a 20-25% discount, while Indian manufacturers have only reduced their prices by 10-15%. This disparity has led to lower volumes but limited the margin hit.

Raw material costs rise, impacting margins

Currently, chemical manufacturers are focused on destocking their high-cost inventory. Even with the drop in raw material prices, the existing high-cost inventory has resulted in lower margins for manufacturers. This is evident in the declining cost of raw materials as a percentage of revenue and contracting operating margins.

Industry seeks government support amid global pressures

The chemical industry is looking for support from the government to impose import duties on Chinese chemicals. However, the government has yet to act on this request as the price of these commodities directly impacts the agriculture and pharmaceutical industries.

Recessionary fears in key markets like Europe and the US, and higher output from China continue to pressure Indian exports. Even chemicals supplied to pharmaceutical APIs (Active Pharmaceutical Ingredients) are facing pricing pressure.

At this point, Indian chemical manufacturers are unable to benefit from domestic demand. However, once the Chinese imports slow down, specialty chemicals and export-oriented manufacturers will recover faster than the industry

The Baseline

07 Dec 2023

India’s electronics Industry set for eye-popping growth | Screener: Manufacturers benefiting from PLI schemes

By Shreesh Biradar

As electronics manufacturers like Foxconn move their factories to India, they are running into some cultural differences. 'We are taught not to mention religion or politics, and to say please,' one Chinese engineer training Indian workers says, 'Chinese people talk in a blunt way. But with Indians, we should be more polite.'

The Foxconn engineers also complain that Indians take too many holidays and are late to meetings. But that's not stopping companies from investing.

The winds of manufacturing, which have long blown east towards China, are changing direction. As China grows more assertive - some would say argumentative - under Xi Jinping, US and Europe are scrambling to curb its growth through sanctions. These sanctions have already had the effect of slowing down China’s annual exports of electrical and electronic equipment, valued at $955 billion.

Enter India. With China losing favour, countries like India, South Korea and Vietnam are receiving new investments in semiconductors, electronics and technology.

Recent data shows China’s FDI turning negative in Q3 2023 for the first time since 1998, with more money flowing out than coming in. This shift is evident in the latest iPhones coming with a “Made in India” tag rather than “Made in China”.

While other manufacturing centers like South Korea are more advanced in electronic and electrical manufacturing, India lags due to technological and infrastructural hurdles. The Indian government has implemented the National Electronic Policy (NEP) and production-linked incentive schemes to fix this.

India’s electronic system design and manufacturing (ESDM) industry is expected to grow at a remarkable 32% CAGR over the next five years, driven by increased per capita spending, higher rural penetration of electronics, shift to electric vehicles and increased use of electronics in the medical field.

In this week’s Analyticks:

India’s Electronics Industry: Preparing for a major growth leap
Screener: Electric and Electronic companies that are benefiting from PLI schemes

Let’s get into it.

India’s electronics industry is on the cusp of dramatic growth

As India’s rural population adopts technology, growth in the electronic industry is expected to be exponential. 37.2% of India's new smartphone purchases in Q1 2023 were by rural families. As electronics buying rises across consumer groups, India’s electronics industry is expected to far outpace its global peers.

And let's not forget the talking fridge. Modern versions of refrigerators and washing machines are changing from mechanical devices to ‘smart’ machines, equipped with sensors and user memory. India’s huge population is a rising consumer base for these.

India’s electronics industry is set to grow at 18% CAGR for the next five years. However, if we look at the overall ESDM sector (including outsourcing and exports), the expected growth rate is at an even higher 32.5%.

India’s ESDM industry poised for a CAGR of 32.5% by FY27

Valued at $34 billion in 2023, India’s ESDM industry is expected to reach $80 billion by 2026, with most of the growth coming from auto (29.4% CAGR), aerospace and defense (38.3%), and the medical field (40.3%). Auto industry growth will be driven by new sensor and technology-based features. For example, an electric two-wheeler has 9X more electrical components than a regular internal combustion engine (ICE) two-wheeler.

But compared to its global peers, India’s electronic consumption is still low. India’s per capita electronic consumption is $78 per annum, while the global average stands at $324 per annum.

India has the lowest per capita consumption of electronics

India has never been a manufacturing powerhouse. Can that finally change?

India is being celebrated as the 'next big hub' for electronic manufacturing. But if we look at India’s GDP, only 17.7% comes from the manufacturing sector, while China’s is nearly 27.7% as of 2022.

India’s low manufacturing growth has always been a problem. The lack of skilled labour, high product costs (raw materials, land costs, taxes), bureaucratic hurdles, local politics, and labour unions make it difficult for foreign firms to invest in India.

The government is battling these problems with PLI schemes, special economic zones, and relaxation of FDI criteria. Nearly 98% of mobile phones shipped locally are now being manufactured in India.

The government has also provided incentives to high-end mobile phone manufacturers to boost local production. For instance, it provided tax breaks to Foxconn to set up Apple’s manufacturing unit in India, and Karnataka revised the permitted number of working hours from eight to twelve.

Mobile phone production drives Indian electronics industry

India is also looking at custom policies to attract specific investors. Elon Musk's Tesla is in talks with the government to invest $2 billion in India, provided the government drops the import tax on Tesla vehicles from 70% (for cars priced below $40,000) to 15% for the first few years.

No startups here: Opportunity is mainly for Indian players with deep pockets

The electronic industry in India has so far, been limited to manufacturing low-end devices. Some Indian manufacturers are collaborating with foreign companies to implement high-tech manufacturing As Indian companies build tech expertise and foreign market access, the Indian electronic industry, is expected to turn export-positive in FY25.

The Indian electronics industry is set to become a net exporter by FY25

Indian companies have been buying foreign-owned manufacturing units or developing partnerships to boost their production capabilities. For instance, Tata Electronics has taken over Wistron’s (Taiwan-based Apple iPhone manufacturer in India) manufacturing facilities to gain access to Apple’s technology.

Dixon Technologies has partnered with China’s Xiaomi and Reliance Jio to manufacture smartphones, while Kaynes Technologies has partnered with Intel to produce laptops. The trend suggests that global electronics majors are partnering with established Indian manufacturers.

Large manufacturers who have the ability to quickly upscale are the winners in India's current electronics manufacturing boom. This route takes many risks out of the equation for global manufacturers. But the real success for India will come with better infrastructure and easier rules for everyone, so that new entrants and smaller players are able to ride the wave and compete.

Screener: Electric and electronic companies benefiting from government PLI schemes

Blue Star leads in quarter change among stocks benefitting from PLI schemes

Keeping with the manufacturing theme, this week we have a screenerthat shows Indian-listed companies from the IT hardware, consumer electronics, heavy electrical equipment, other electrical equipment and electric utilities industries that are benefiting from the Indian government’s PLI schemes. Production Linked Incentive schemes provide incentives to companies as a percentage of their net incremental sales from the base year.

Major stocks from these industries that appear in the screener are Blue Star, Bharat Heavy Electricals, Kaynes Technologies, JSW Energy, Dixon Technologies, PG Electroplast.

Blue Star has risen by 37.9% over the past quarter and 42.2% over six months since the announcement of the government's PLI Scheme 2.0 for the IT hardware and electronics industries. Under this scheme, the government has given an incentive of Rs 16,939 crore for the next six years.

Dixon Technologies is another consumer electronics company that has risen by 17.7% over the past quarter post the announcement of the scheme. The company was declared eligible under the PLI scheme after it promisedon November 19 a total production value of Rs 45,000 crore over the next six years.

You can find more popular screeners here.

Tata Technologies Ltd.

27 Nov 2023

685.75

2.97%

With Tata Technologies, Tata Group has revived IPO drive after long hiatus

By Shreesh Biradar

After a 19-year hiatus, the Tata Group is back with its Tata Technologies IPO. The IPO was subscribed 69.4 times at the close of the issue. Known for a diverse portfolio that spans from salt to software, the Tata conglomerate has been a key player in India's growth story, boasting 17 listed companies and a staggering market capitalization of 25 …

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Promoted by Tata Motors, Tata Technologies specialises in engineering services, digital solutions, and product development in the automotive space. Catering mainly to major OEMs and Tier-1 suppliers, the company is a leader in Engineering Research & Development (ER&D), covering the entire spectrum from design to servicing.

The offer for-sale IPO, valued at Rs 3,042 crore, aims to dilute the promoter group’s holdings from 66.8% to 55.4%. The higher price band of Rs 500 per share puts Tata Technologies’ market cap at around Rs 20,283 crore.

Tata Technologies derives major revenue from the Tata group

Tata Technologies operates in the software and services sector with key competitors being KPIT Technologies, L&T Technology Services and Tata Elxsi. As of Q2FY24, Tata Technologies derived nearly 57.4% of its revenue from its top five clients, which include Tata Motors and its subsidiaries (JLR, TAMO, VinFast). However, this figure marks a decrease from 64% in Q2FY23. The company's client portfolio extends beyond the Tata group and includes global giants like AirBus, McLaren, Honda, Ford and Cooper Standard. It is currently engaged with 35 traditional OEMs and suppliers, alongside 12 new energy vehicle (partially or fully powered by electricity) companies.

The firm’s footing in key automotive manufacturing hubs like Europe and North America gives it access to a broad client base and newer technology. Its presence in emerging markets also plays a crucial role in catering to a large customer base.

India and Europe account for nearly 60% of Tata Technologies' revenue

Massive ER&D expenditure to help Tata Technologies

Tata Technologies is one of the few global companies specializing in Engineering R&D, and it has an impressive portfolio of marquee customers. With its presence in the US and Europe, the company is expected to benefit from upcoming ER&D spending in these regions. The automotive industry in the US alone invested $180 billion in ER&D in 2022, with service providers like Tata Technologies handling nearly $110 billion of this outsourced work. This spending is expected to grow at a 7% CAGR from FY22 to FY26, putting firms like Tata Technologies in the sweet spot.

US set to invest $1,459 billion in ER&D by 2026

Expanding into other industries with high R&D spending will enable Tata Technologies to add more verticals into its revenue streams.

An impressive growth story with good visibility

Tata Technologies derives nearly 79% of its revenue from its service segments. The remainder is split between its other segments: products (9%) and education (12%). It has revenue and profit CAGR of 36% and 62%, respectively, over FY21-23.

Tata Technologies reports around 35% YoY growth in revenue and profits in H1FY24

As the auto industry shifts to electric vehicles, Tata Technologies looks poised to take advantage. The company is involved in developing new automotive technologies like autonomous systems, hybrid electric mobility, infotainment & connected platforms, safety systems, and traditional powertrain and body engineering.

Given that nearly 71% of its revenue in FY23 came from the auto industry, and with expected increases in R&D spending by auto manufacturers, Tata Technologies is likely to maintain strong revenue visibility. Also, the firm is looking to venture into the aerospace and heavy machinery manufacturing segments to provide its engineering services.

Margins to expand on lower attrition rates and rising utilisation levels

Tata Technologies has lower margins compared to its peers like KPIT Technologies (18.9%), L&T Technology Services (21.4%) and Tata Elxsi (30.6%). In H1FY24, margins contracted by 130 bps YoY due to higher spending on employee salaries and new purchases in design technologies. However, as these costs stabilise by the end of FY24, margins are expected to expand.

Tata Technologies' H1FY24 margins moderate by 20 bps amid rising employee expenses

The technology sector saw margins contract due to high attrition rates in FY22 and FY23. However, in FY24, the industry is seeing a decrease in attrition rates. Margins are expected to expand as attrition rates settle below 15% and capacity utilisation moderates around 90%.

Tata Technologies' margins poised for expansion with lower attrition and higher utilisation

Tata Tech has been a leader in technology and product development for the EV industry, a sector known for high margins and growth. Any additional deal wins in this area are likely to further help margin expansion.

Is the Tata Technologies IPO at an affordable valuation?

Tata Technologies currently holds a price-to-earnings (PE) ratio of 32.5, which is lower than its peers like KPIT Technologies (82.4), Tata Elxsi (66.4), and L&T Technology Services (38.9). This is due to its lower margins in comparison to the industry average and the concentration risk associated with its client base, primarily within the Tata Group. While peer comparisons may not be an exact match, given Tata Technologies’ significant revenue from engineering R&D services for auto firms, the valuation seems modest considering the company’s growth avenues, global presence, and domain expertise

In a recent transaction, Tata Motors offloaded a 10% stake in Tata Technologies to TPG Rise Climate SF Pte and Ratan Tata Endowment Foundation at Rs 402 per share. The IPO's upper price band is set at Rs 500 per share in the current issue, a 25% premium over the recent sale price. Despite this premium, investor enthusiasm is evident, as the IPO was oversubscribed by 69.4 times by the third day of its offering. This indicates market confidence in the company's prospects.

This analysis by Trendlyne is meant for investor education - to help understand companies and make informed investment decisions on their own. It should not be considered an investment recommendation.

Tata Technologies Ltd. is trading at high day volume of 4.2M.

Mutual Funds News

TREND | 16 Nov 2023

Smart money moves: Which stocks did mutual fund managers buy in October 2023?

By Shreesh Biradar

In October, the Nifty 50 and Nifty Midcap 100 indices declined by 2.8% and 4.3%, respectively. This volatility, especially in mid-cap stocks, has shifted the focus back to value and growth investing. Tensions in the Middle East, particularly the Hamas-Israel conflict, have led to a surge in oil prices to $92 per barrel, However the oil prices reverted back to $81 in the first half of November. India’s retail inflation eased to a five month low of 4.9% in October further.

Despite these fluctuations, Indian equity mutual funds have recorded a net inflow of Rs 12,932 crore in October. Large-cap funds saw an inflow of Rs 724 crore after six months of outflows. Small-cap stocks registered the highest inflow of Rs 4,495 crore, followed by mid-cap stocks at Rs 2,409 crore.

Aurobindo Pharma’s MF holdings increase to 740.2 lakh shares in October

Aurobindo Pharma sees growth with US market stabilization

Aurobindo Pharma (AUROPHARMA) is pharmaceutical firm and a major manufacturer of active pharmaceutical ingredients (APIs), branded drugs, and generic pharmaceuticals. US and European markets account for nearly 75% of its revenue. The firm has received 466 Abbreviated New Drug Approvals (ANDAs) from the US Food and Drug Administration (USFDA) so far.

Aurobindo Pharma’s Q2FY24 revenue increased by 25.8% YoY and net profit by 83.2%. The profit growth was aided by margin expansion due to lower raw material costs and price stabilization of high-margin drugs. The company’s overall growth was led by antiretroviral (ARV) drugs and oral drugs. The firm plans to launch Eugia, a generic injectable with a potential revenue stream of $520 million, and has other drugs in the pipeline, including Trastzumab biosimilar, Pen–G injectable, and gRevlimid.

Aurobindo Pharma recently launched a greenfield facility for injectables in Visakhapatnam and has entered into a partnership with Singapore-based Hilleman Labs for pediatric vaccines. With drug shortages in the US and falling competition, the company expects prices to stabilize. The firm is expected to grow at an 11% CAGR from FY24 to FY25 and will also be aided by lower raw material costs, leading to margin expansion.

Fund managers who bought shares of Aurobindo Pharma

Fund managers who added shares of Aurobindo Pharma to their portfolios include Chirag Setalvad and Dhruv Muchhal for HDFC Mid-Cap Opportunities, Daylynn Pinto and Nishita Shah for Bandhan Sterling Value Fund, Sankaran Naren and Dharmesh Kakkad for ICICI Prudential Value Discovery Fund, Vasav Sahgal and Ankit A Pande for Quant Tax Plan Fund, and Manish Lodha and Abhinav Khandelwal for Mahindra Manulife Mid Cap Fund.

InterGlobe Aviation eyes growth with infra boost

InterGlobe Aviation (INDIGO) is a major player in the air transportation business, offering both passenger and cargo services. Dominating the domestic market with a 54% share, IndiGo serves 78 domestic and 32 international destinations with a fleet of 320 aircraft.

IndiGo reported a 19.6% increase in revenue in Q2FY24, led by higher volumes. The airline clocked an 83.3% load factor (79.1% in Q2FY23), and saw margin expansion aided by higher ticket prices. The Indian government's push for aviation infrastructure and the rising number of airports have boosted passenger traffic. Capitalizing on its low-cost model and network, IndiGo holds a 26% market share in the international passenger market. The company plans to double its fleet size to 600 by 2030, aiming to boost connectivity, attract more passengers, and drive double-digit growth in the medium term.

Fund managers who bought shares of InterGlobe Aviation

Fund managers who added shares of InterGlobe Aviation to their portfolios include Anish Tawakley and Vaibhav Dusad for ICICI Prudential Bluechip Fund, Abhishek Bisen and Devender Singhal for Kotak Multi Asset Allocation Fund, Sankaran Naren and Anuj Tagra for ICICI Prudential Multi-Asset Fund, Neelesh Surana for Mirae Asset Tax Saver Fund, and Pranav Gokhale and Shridatta Bhandwaldar for Canara Robeco Flexi Cap Fund.

CSB Bank targets market share expansion through new branches

CSB Bank (CSBBANK), owned by Fairfax, is one of the oldest private sector banks in India. With roots in Kerala, the bank specializes in gold and small and medium enterprise (SME) lending. It caters to 2.2 million customers through 704 branches. Around 58% of its branches are located in semi-urban and rural areas. The bank has a major presence in South India and a loan book size of Rs 22,468 crore.

CSB’s net interest margin contracted by 60 bps QoQ in Q2FY24. This led to a 5.5% decrease in its net interest income. However, the bank managed to partly offset this decline through its fee income from insurance distribution. Facing stiff competition in gold loans from nationalized banks and slowing growth in SME lending due to rising interest rates, CSB Bank is trying to diversify into retail banking. The bank plans to double its branch count by FY30. The bank has so far been able to balance the increase in the cost of funds with higher yields.

Fund managers who bought shares of CSB Bank

Fund managers who added shares of CSB Bank to their portfolios include Karthikraj Lakshmanan for UTI MNC Fund, R Srinivasan and Mohit Jain for SBI Magnum Global Fund, and Mehul Dama for Nippon India Nifty Smallcap 250 Index Fund. Fresh buys were done by Piyush Baranwal and Ramesh Mantri for WhiteOak Capital Flexi Cap Fund, and Shiv Chanani and Miten Vora for Baroda BNP Paribas Small Cap Fund.

CreditAccess Grameen Bank expands reach and loan portfolio

CreditAccess Grameen (CREDITACC), a finance firm specializing in services for women, operates across 14 states and 1,826 branches. The NBFC has a gross AUM of Rs 22,488 crore, catering to 45.9 lakh customers. The firm has a strong rural presence and is expanding into non-microfinance businesses.

The company reported a net income growth of 49.6% YoY in Q2FY24. Its AUM grew by 36% YoY, helped by higher customer addition and increasing ticket size. While the firm's net interest margins are expected to moderate in the future, its competitive lending rates (200-400 bps lower than its peers) have played a key role in customer retention. Branch expansions have contributed to its wider reach and customer additions.

CreditAccess Grameen plans to increase its AUM to Rs 50,000 crore in the next five years and expand its non-microfinance loan book to 25% from the current 10%. It also aims to add new categories like loan against property (LAP), vehicle loans and gold loans to non-microfinance loans.

Fund managers who bought shares of CreditAccess Grameen Bank

Fund managers who added shares of CreditAccess Grameen to their portfolios include Shreyash Devalkar and Vinayak Jayanath for Axis Small Cap Fund, Taher Badshah for Invesco India Smallcap Fund, and Shridatta Bhandwaldar and Amit Nadekar for Canara Robeco Emerging Equities Fund. Fresh buys were done by Vishal Mishra and Shridatta Bhandwaldar for Canara Robeco Equity Taxsaver Fund, and Shreyash Devalkar and Hitesh Das for Axis Growth Opportunities Fund.

Sobha expects robust launch pipeline and geo expansion to aid top line

Bangalore-based Sobha (SOBHA) is engaged in real estate construction, development, and sales. The company has developed townships, housing apartments and commercial real estate. It has also ventured into interior works, metal works and concrete products, providing backward integration.

Sobha’s Q2FY24 operational data indicated that it hit a lifetime high in pre-sales, reaching Rs 1,720 crore, with an average price realization of Rs 10,223 per square foot. The entire sales of Q2FY24 were in existing inventory, as the company did not have any new launches during this period.

But with a 15-million-square-foot launch pipeline planned for the next two years, the company is set for substantial revenue growth. The escalating real estate values in metro cities also contributes to higher price realization.

Sobha faces a legal challenge over allegations of forging a no-objection certificate from the municipal corporation, with home buyers claiming misappropriation of Rs 1,040 crore.

The firm's expansion into cities like Kochi and Gurugram has broadened its geographical footprint and contributed to its margin growth. This diversification is timely, coinciding with rising demand in the premium luxury segment.

Fund managers who bought shares of Sobha

Fund managers who added shares of Sobha to their portfolios include Ravi Gopalakrishnan and Rohit Seksaria for Sundaram Small Cap Fund, Vishal Gajwani and Dhaval Joshi for Aditya Birla Sun Life Small Cap Fund, and Satish Ramanathan and Asit Bhandarkar for JM Value Fund. Fresh buys were done by Daylynn Pinto and Nishita Shah for Bandhan Sterling Value Fund, and Ratish Varier and Sudhir Kedia for Sundaram Multi Cap Fund.

Granules India's MF holdings stand at 110.3 lakh shares in October

Granules India to boost future sales with higher capex

Granules India (GRANULES), based in Hyderabad, is a key player in the pharmaceutical industry, a specialist in the manufacture and sales of Active Pharmaceutical Ingredients (APIs), Pharmaceutical Formulation intermediates (PFIs), and Finished Dosages (FDs). The company has seven manufacturing facilities and has filed 71 ANDA applications. The US accounts for nearly 53% of its total sales.

Currently, Granules India is undergoing a major capex cycle by investing in R&D and capacity expansion. It is also focusing on improving security systems around its technology, following a cyber security attack that resulted in revenue loss. Granules India plans to file complex products with high entry barriers in the US and Europe to boost its revenue streams. It also plans to commercialize its manufacturing facilities for Metformin and Paracetamol by FY25.

Fund managers who bought shares of Granules India

Fund managers who added shares of Granules India to their portfolios include Sanjeev Sharma and Vasav Sahgal, for Quant Business Cycle Fund, Mehul Dama for Nippon India Nifty Smallcap 250 Index Fund, and Kayzad Eghlim and Nishit Patel for ICICI Prudential Nifty Healthcare ETF. Fresh buys were done by Vasav Sahgal and Ankit A. Pande for Quant Tax Plan Fund, and Sanjeev Sharma and Vasav Sahgal for Quant Flexi Cap Fund.

Nazara Technologies prioritises inorganic expansion for revenue growth

Nazara Technologies (NAZARA), is a software & services firm offering a diverse gaming & sports media platform, operates across India, Africa, and North America. The company has offerings across the interactive gaming, eSports, ad-tech, and early learning ecosystems. The firm earns revenue through subscriptions and services. It generates nearly 52% of its revenue from the eSports segment.

The firm recently announced a plan to raise Rs 100 crore by issuing just over 14 lakh shares to Kamath Associates and NKSquared for Rs 714 per share. The funds are for capital requirements and acquisitions and investments in other companies.

The firm reported a 12.7% YoY growth in revenue for Q2FY24, aided by margin expansion due to lower spending on advertising. Its eSports and gamified early learning segments led the top-line expansion with 26% and 31% YoY growth, respectively.

Fund managers who bought shares of Nazara Technologies

Fund managers who added shares of Nazara technologies to their portfolios include Nimesh Chandan and Siddharth Chaudhary for Bajaj Finserv Flexi Cap Fund, Hardick Bora and Sanjay Bembalkar for Union Innovation & Opportunities Fund, and Mehul Dama for Nippon India Nifty Smallcap 250 Index Fund. Fresh buys were done by Rama Srinivasan and Mohit Jain for SBI Multicap Fund, and Ankit Agarwal and Deepesh Agarwal for UTI Innovation Fund.

Dixon Technologies India to boost revenue visibility through customer acquisition

Dixon Technologies (India) (DIXON) operates in the consumer electronic manufacturing space and offers design solutions for consumer durables, home appliances, lighting, mobile phones, medical equipment, etc. Dixon has 18 manufacturing facilities in India, spread across Uttar Pradesh, Uttarakhand and Andhra Pradesh.

Dixon Technologies is benefitting from the government’s PLI scheme, which covers its various manufacturing facilities. It derives 65% of its revenue from the consumer electronics and mobile divisions. The company has partnered with China-based mobile companies Xiaomi and Itel to manufacture smartphones in India, with operations expected to start in Q3FY24. Dixon has also added customers like Voltas Beko, which will aid revenue growth. The firm is also planning to design and develop its own products.

Fund managers who bought shares of Dixon Technologies

Additional shares of Dixon Technologies were added by Chirag Setalvad and Priya Ranjan for HDFC Mid-Cap Opportunities Fund, Kinjal Desai and Amar Kalkundrikar for Nippon India Vision Fund, and Shridatta Bhandwaldar and Amit Nadekar Canara Robeco Emerging Equities Fund, Niket Shah and Ankush Sood for Motilal Oswal Midcap Fund, and Ajay Tyagi for UTI Flexi Cap Fund.

BSE to diversify revenue with new derivative products

BSE (BSE) is one of India’s top two leading exchange groups. It facilitates capital-raising and trading in a range of financial instruments including equity, debt, derivatives, and mutual funds. It also provides a trading platform for small and medium enterprises (SMEs).

BSE reported a 46% YoY increase in its Q2FY24 revenue, led by a surge in transaction and clearing revenue. The exchange’s derivatives market share grew to 7.4% in September 2023 from 0% in April 2023. Its average daily trading volume in options, which was non-existent between January and May 2023, rose to Rs 26 lakh crore in September 2023. The launch of Bankex (Monday expiry) will cater to a larger addressable volume, potentially leading to further gains in market share.

Fund managers who bought shares of BSE

Fund managers who added shares of BSE to their portfolios include Sanjeev Sharma and Vasav Sahgal for Quant Small Cap Fund, and Nimesh Chandan and Siddharth Chaudhary for Bajaj Finserv Flexi Cap Fund. Fresh buys were done by Manish Lodha and Fatema Pacha for Mahindra Manulife Multi Cap Fund, Niket Shah and Rakesh Shetty for Motilal Oswal Long Term Equity Fund, and Mohit Jain and Milind Agrawal for SBI Banking & Financial Services Fund.

Mahanagar Gas aims for margin growth with lower CNG prices

The acquisition of Unison Enviro (UEPL) for Rs 531 crore has helped the firm in enhancing its geographical footprint. UEPL holds gas distribution rights across Ratnagiri, Chitradurga & Devangere, and Latur & Osmanabad. The firm reported 0.5% YoY revenue growth in Q2FY24. This modest increase is on account of a reduction in CNG prices. However, lower raw material costs have improved its margins.

Mahanagar Gas has also launched card-based schemes for CNG users to expand its market share. The government’s plan to raise the share of natural gas in India’s energy mix to 15% by 2030, up from the current 6%, is expected to boost MGL’s prospects.

Fund managers who bought shares of Mahanagar Gas

Fund managers who added shares of Mahanagar Gas to their portfolios include Amit Premchandani for UTI Dividend Yield Fund and Yogesh Patil and Dikshit Mittal for LIC MF Large & Mid Cap Fund. Fresh buys were done by Viral Shah and Dhaval Patel for NJ ELSS Tax Saver Fund, Kedar Karnik and Jay Kothari for DSP Equity Savings Fund, and Sumit Bhatnagar and Pratik Shroff for LIC MF Equity Savings Fund

The Baseline

15 Nov 2023

Domestic investors unseat FIIs as the market movers | Screener: Outperformer stocks with rising FII holdings

By Shreesh Biradar

For a long time, Foreign Institutional Investors (FIIs) ruled Dalal Street. Their mood decided which way the Nifty and the Sensex swung, and they were the main players in the market.

That has changed recently - FIIs equity AUM in India is around $586 billion, while DIIs are roughly around $580 billion. The gap between FIIs and domestic investors has narrowed by around $140 billion in just two years.

The rise of mutual funds, pension funds, insurance schemes and discount brokers has helped increase domestic and retail investments into equities. The Indian population’s equity exposure has more than doubled from 1.3% in 2011 to 3% in 2023. While this penetration rate is still peanuts compared to the US market's 55%, the jump has been enough to skew the markets towards domestic investors.

The surge in domestic institutional investor (DII) money has taken a bite out of FII dominance – domestic inflows have outpaced FIIs in the past 18 months. DIIs have invested $39 billion in the equity market, while FIIs have withdrawn $24 billion. DIIs have been the wall against potential declines for the Nifty 50 .

What is driving FII money out? Higher bond yields in the US, cheaper equity valuations, and a stronger dollar have been major reasons.

In this week’s Analyticks:

FII sour on India, for now: Should retail investors worry about FII outflows?
Screener: Stocks with rising FII holdings and strong Q2FY24 performance

Let’s get into it.

Smallcaps jump, FIIs withdraw from large caps

Since the beginning of 2023, FIIs have withdrawn nearly Rs 52,188 crore from the Indian equity market. In the same period, DIIs invested around Rs 1,55,861 crore.

DIIs sustain Indian markets amid FII outflow over the past 18 months

DII money has compensated for FII outflows, but the investment preferences of these two sets of investors are very different.

The Nifty 50 has risen by 6.8% since the start of 2023. In contrast, the Nifty Midcap 100 and Nifty Smallcap 100 have jumped 30.1% and 39.9%, respectively. The growth in smallcap and midcap stocks is disproportionately high, thanks to DII interest in these stocks. FII investments have been mainly in large, and some mid-cap companies.

In largecaps, the damage from FII outflows has been cushioned a bit by DII inflows. But in smallcap stocks, the sheer volume of DII investments has resulted in remarkable returns. The low market cap of the Smallcap index also means that it benefits from even modest DII inflows.

For example, an inflow of Rs 100 crore into a company with a market cap of Rs 1,00,000 crore is unlikely to move its stock price much. But the same amount can do wonders for a stock with a Rs 10,000 crore market cap.

Higher US interest rates pull FII money from India

With US treasury yields near a 16-year high of 5%, FIIs are pulling money out of Indian stock markets. Since April 2022, when US interest rates began to rise, FIIs have taken out nearly Rs 2,00,269 crore. Rising US interest rates make it expensive to borrow money for Indian investments.

Historically, Indian indices fall with a rise in US treasury bond yields, due to FII outflows. However, the recent DII inflows have cushioned the impact this time. DIIs have invested Rs 3,27,858 crore from April 2022 to October 2023.

DII investments buffer the impact of FII selling

The dollar also recently breached its previous high of Rs 83 against the rupee. A stronger dollar makes investments in Indian equities more expensive, as a depreciating rupee reduces gains. The dollar-adjusted returns of the Nifty 50 stand at 6.1% for 2023. The relatively cheaper valuation of US equities compared to their Indian counterparts also makes the US market more attractive for FIIs.

With lower PEs, stocks in the US are cheaper than in India

For instance, Nifty IT is expensive at 26 PE, higher than Nasdaq 100’s 23.2. US stocks also have the advantage of a global presence, while Indian stocks are limited to domestic markets (except for IT)

Despite outflows, India remains a top choice for fund managers

The IMF projects India’s GDP growth at 6.3% for 2023 and 2024, the highest among emerging markets. Even China is expected to trail behind India, with a growth of 5% and 4.2% in 2023 and 2024. India’s inflation, currently at 4.5%, is expected to decline further thanks to falling vegetable and crude oil prices.

This is particularly significant as many countries are struggling with price increases, economic slowdowns, and political tensions. In contrast, India’s huge domestic consumer market has helped the global recovery, making it a significant player. These factors make India an attractive option for foreign fund managers.

India tops as the leading FPI destination in 2023

Unlike FIIs, selling from foreign portfolio managers has been limited as they largely invest in indexes (like ETFs) rather than single stocks, and are governed by weightages.

Foreign portfolio managers invested nearly $12.2 billion into India from January 2023 to October 2023. In contrast, China fell out of favor with recent US sanctions and complex rules around foreign investments, and saw FPI outflows of $7.8 billion.

Capital goods sector leads in FPI inflow since January 2023

India's capital goods sector, especially the FMCG segment, has seen the highest FPI inflows. Increased market penetration in rural areas and the premiumization of products have made capital goods a favoured sector for FPIs. However, India’s extensive imports of Russian oil, which risk attracting US sanctions, have made some FPIs take out money from the oil&gas sector.

While foreign portfolio managers show confidence in the Indian market, FIIs have been more fickle. DIIs have been sticking around, actively investing without any signs of slowing down.

Once the US Fed starts to reduce interest rates, as expected in the second half of 2024, the Indian equity market will likely see an influx of FII funds again, pushing the market to new heights. Until then, it seems that DIIs will run the show.

Screener: Stocks with increased FII holding, strong performance in Q2FY24 and outperforming the Nifty 50

Five-Star Business Finance has the highest FII change

As the shareholding data for Q2FY24 rolls out, we take a look at stocks with the highest rise in foreign institutional investor (FII) holdings. This screener consists of stocks that have seen a rise in FII holdings over the past quarter with strong financial performance in Q4FY23, outperforming both their industries and the Nifty 50 index.

The stocks in the screener are from industries like banks, IT consulting & software, auto parts & equipment, pharmaceuticals and non-banking finance companies (NBFCs). Major stocks in the screener are Five-Star Business Finance, Medplus Health Services, Adani Power, Blue Star, CreditAccess Grameen and CE Info Systems.

Five-Star Business Finance tops the list with the highest rise in FII holding. It increased by 41.5 percentage points QoQ to reach 50.2% in Q4FY23. Funds like Tpg Asia Vii Sf Pte, Sirius Ii Pte and Norwest Venture Partners X - Mauritius have bought 14.3%, 6% and 5.3% stakes, respectively, in the NBFC. The company’s stock price has risen by 6.6% over the past month, boosted by strong Q2FY24 results.

Medplus Health Services has also seen its FII holding rise by 7.5 percentage points QoQ to 12.4% during the quarter. While major buyers of the healthcare supplies stock were the Steadview Capital Mauritius and the Government of Singapore, which bought 1.7% and 1.5% stakes, respectively, Fidelity Funds - India Focus Fund increased its stake by 1.4%. The stock has risen by 6.6% over the past month, owing to strong Q2FY24 results.

You can find more screeners here.

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