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

Chemicals & Petrochemicals

SECTOR | 08 Jun 2023

India may be the next big chemicals player, but margin pressures persist

By Shreesh Biradar

In the past five years, India’s chemical industry has come out of the shadows, with significant growth and an expanding number of listed companies. The global chemical market is in flux - while global consumption per capita has increased, China and Europe, the world’s largest chemical producers, have scaled back their production due to environmental concerns. This has created a …

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India’s chemical industry constitutes 7% of the country’s GDP and has a market size of $240 billion. In March 2023, India’s Index of Industrial Production (IIP) grew by 1.1%, while the chemical sector outperformed, rising 7% YoY.

After a robust first half in FY23 driven by pent-up demand and disruptions in China's production, the chemical industry entered a phase of consolidation in the latter half. However, the sector is expected to grow at a CAGR of 12% in the next two years, reaching a market size of $300 billion, while the overall economy is expected to grow at a CAGR of 6-7%. According to the Ministry of Chemicals and Petrochemicals, India’s chemical industry is expected to touch $1 trillion by 2040.

Government support has fueled growth in chemicals

The chemical industry thrives on research and development (R&D), as well as capacity integration and expansion. While Indian chemical firms have increased their R&D spending from 2.8% in CY10 to 3.8% by the end of CY22, global firms typically spend around 6%-8% of their revenue, giving them a significant advantage in the value chain. To bridge the funding gap and encourage growth, the Indian government has opened up 100% foreign direct investment in the chemical sector.

The government is also overhauling the Petroleum, Chemicals and Investment Region Policy (PCPIR) to provide additional support. The new policy will provide viability gap funding of up to 20% for infra projects. In the recent budget, the government also reduced customs duty on key raw materials from 21% to 13%. According to estimates by the government, this is expected to attract investments to the tune of $420 billion by 2035. This would enhance India’s global chemical manufacturing share from 3% to 12% by 2040.

Specialty chemicals and dyes drive Indian chemical exports

India's chemical sector has traditionally been a net importer, resulting in a widening trade deficit. The trade deficit in the sector increased from $6.4 billion in FY22 to $10 billion in FY23. The rise in imports can be attributed to higher domestic demand and increased production. However, specialty chemicals stand out as the only segment where India is a net exporter. Four key segments contribute to nearly 80% of the exports: agrochemicals, dyes and pigments, cosmetics and personal care, and food ingredient chemicals.

According to a report by Mckinsey, specialty chemicals will lead India’s export growth in the coming years. Net exports are projected to grow from $2 billion to $21 billion by 2040, with agrochemicals playing a key role. It is expected to account for 40% of overall chemical exports by 2040.

To increase the export of pesticides, the government has made an important change to reduce paperwork and compliance. Previously, exporters were required to provide toxicology reports for their pesticide products as part of the export documentation. However, if the necessary data has already been published, the government has now removed the need to submit these toxicology reports.

Petrochemicals lead India’s chemical industry in FY23

The petrochemical segment emerged as a major driver of India’s chemical industry in FY23. With nearly 80% of its petrochemical capacity integrated with petroleum refineries, this segment has enjoyed a significant advantage. During the Russia-Ukraine conflict, India capitalized on the availability of cheap Russian oil and became a major hub for refining Russian Ural crude and exporting it to the EU. However, limited production capacity has been a challenge in this segment, with most Indian refiners operating above 100% utilization.

The petrochemical industry in India is also currently facing challenges due to China's access to Russian oil. This has affected the industry's pricing power and resulted in lower profit margins. Additionally, the sector is seeing lower consumption, caused by the recession in Europe.

Margin pressure compromises revenue growth

The chemical industry has grown by a staggering 17.8% in the past two years. However, this growth was led by a low base effect and pent-up demand due to Covid. The industry's revenue is expected to grow steadily, at around 12% CAGR in FY24-FY25, with the specialty chemical segment expected to grow even faster at 19% during the same period.

Note: The data includes consolidated earnings of 19 listed companies, including 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

Despite the growth in revenue, the industry has faced challenges with shrinking profit margins. The margin hit was due to increased input costs and a lack of pricing power. The industry's margins have declined from a peak of 22% in Q3FY22 to 18% by the end of Q4FY23. While the specialty chemicals segment has benefited from a stronger dollar, the overall industry has been impacted by higher raw material costs.

But chemical manufacturers have managed to lessen the impact of higher input costs by improving inventory and cost management. Over the past three years, these manufacturers have invested heavily in debottlenecking and vertical integration of plants.

Recessionary fears in key markets like Europe and US, and high raw material costs, have slowed down the export market. According to the CEO of Deepak Nitrite, Maulik Mehta, “The operating environment continues to be highly dynamic. Global supply chains have recalibrated over the last year, due to moves such as the sanctions on Russia.”

Also, the increased availability of chemical supplies from China has put pricing pressure on the Indian chemical industry. However, the effect of this is expected to lessen as demand grows. The industry’s margins are likely to remain at current levels in FY24, with the moderation of growth rates in the top line

BP Wealth released a Sector Update report for Chemicals & Petrochemicals on 08 Jul, 2025.

The Baseline

08 Jun 2023

Indian equities a bright spot for global investors | Stocks FIIs are buying and selling

By Shreesh Biradar

When the bulls arrive, it sometimes becomes a stampede. And this time India is at the center. The Nifty 50 benchmark index closed on Wednesday above the 18,700 mark, less than 1% away from its all-time high of 18,887.6. Morgan Stanley predicts that the Sensex will hit 68,500 by December, 10% higher than where it is now.

So 2023 is turning out to be an interesting year for the India story. The country is building closer ties with the US and Europe, and PM Modi is meeting Joe Biden in Washington on June 21 to finalize a defense partnership. The writer Fareed Zakaria put it well when he said last week, "India is becoming a master of its own destiny for the first time in a very long while."

How has this happened? India is coming to the forefront as the global economy battles a slowdown. India is the only large Asian economy that is growing at a fast pace, and analysts give it a 'zero chance' of recession.

In FY23, India achieved a GDP growth rate of7.2%, surpassing China's 3% in 2022. India’s CPI inflation dropped to 4.7% in April, one of the lowest among emerging markets, trailing behind only Brazil (4.18%) and China (0.1%).

For many years, China has been the brightest star in Asia's sky, outshining the rest. But its slowing economy and abrupt policy changes under Xi Jinping have hurt investor sentiment. South Korea, Japan and India are emerging as new investment hotspots. India in particular, has become a promising alternative to China, and the world is counting on it to drive global growth.

In this week’s Analyticks:

India: A bright spot in global equity markets?
Screener: Big changes up or down in FII holding

Let’s get into it.

Taming inflation is key to economic growth

The flow of money into and out of equity markets is typically decided by inflation and interest rates. These two numbers have not been very pretty for the EU and the US.

The Eurozone CPI for April was at 7%, while the US recorded 5%. India's inflation, on the other hand, stood at 4.7% during the same month, and has been falling at a faster pace.

Developed economies have also increased interest rates by more than 4% over the past 12 months, while the Reserve Bank of India (RBI) raised rates only by 2.5%.

Not so cool anymore: the declining appeal of China

According to the IMF, India and China have accounted for half of global growth in 2023. However, China’s growth rate isprojected to slow to 5.2% over the year, and 4.5% in 2024, marking a significant deceleration compared to its impressive 9% CAGR growth from 1989 to 2022.New changes to China’s counter-espionage law, granting extra powers to state agencies to investigate foreign businesses, have also raised concerns among foreign investors.

China’s worsening relationship with developed nations is putting pressure on its growth story. The US has stepped up restrictions on a long list of Chinese companies, including gaming and entertainment apps, server makers, and chip manufacturers. Europe is reviewing products from Chinese giants like Huawei and ZTE. As a result, investments into China have slowed down, with a 40% decline inFDI from the USbetween 2020 and 2022. In the same period, FDI inflows from Europe to China dipped by 19.7%.

India's equity markets stand out in an uncertain global economy

India has shown remarkable resilience in the face of global uncertainties by shielding its economy from inflation, banking crises and crude oil shocks (through Russian oil imports). The IMF predicts a GDP growth rate of 5.9% for India in FY24, while the RBI puts it at 6.4%.

In May, India's manufacturing PMI reached a 31-month high of 58.7, while China, the largest manufacturing hub, recorded 50.9.

Note: A value above 50 indicates growth

India’s strong economic indicators have pushed its stock market to new highs, reclaiming its position as the fifth largest stock market with a market cap of $3.3 trillion. The Nifty PSU Bank index touched a decadal high after gaining 56% in the past year. Midcaps, which offer a blend of value and growth, have seen significant gains in market cap. The Nifty Midcap 100 saw gains of 22% in the past year, against Nifty Smallcap 100’s 14%.

Among sectoral indices, Nifty PSU Bank (59%) led the way, followed by Nifty FMCG (36%) and Nifty Auto (27%).

The FMCG segment saw growth on account of rising rural penetration. In Q4FY23, the FMCG market grew 14.1%, with rural markets growing at 16.8% vs urban at 7.9%. The auto segment, which contributes to 49% of India’s manufacturing GDP, was driven by growth in passenger vehicles (26.7% YoY).

As of May 2023, foreign portfolio investors (FPIs) have investments to the tune of Rs 48,79,628 crore in Indian markets. Major sectors holding FPI investments are Financial Services (Rs 16,46,306 crore), Oil, Gas & Consumables (Rs 4,76,503 crore) and Information Technology (Rs 4,87,869 crore)

Japan, South Korea and India are drawing foreign investors

Asia, excluding China and Japan, has seen a significant influx of foreign investment totaling $23 billion in 2023. Japan’s Nikkei index has gained 25.28%, while South Korea’s Kospi index rose 17.51% since the start of 2023. India has experienced more modest growth with a 2.33% gain. These three nations have outperformed China by huge margins in 2023.

Japan's economy has got a boost from positive changes in corporate governance and the Bank of Japan's move towards tighter monetary policies. Foreign inflows into Japan reached nearly $30 billion in CY23, propelling the Nikkei index to a 33-year high.

In South Korea, FII inflows have amounted to $9 billion. The boom in artificial intelligence has driven up Korea's chip manufacturing stocks, while restrictions on Chinese chip manufacturers have improved prospects for South Korean players. Korean automotive stocks have also contributed to its economic resilience through robust export performance.

Between 1990 and 2019, the annual income for an average Chinese person jumped 32 times, from $318 to $10,276. That's a tough act to follow, but as Zakaria pointed out, it is India's game to win or lose.

Screener: Big changes up or down in FII holding

As foreign institutional investors turn net buyers of equities in the Indian market, we take a look at stocks which have seen the highest change in FII holdings over the past quarter. This screener highlights stocks with big shifts (> 2% or -2%) in FII shareholdings on a QoQ basis in the most recent quarter.

It features stocks from the automobile & auto components, banking & finance and software & services sectors. Major stocks that appear in the screener are Equitas Small Finance Bank, Sona BLW Precision Forgings, Go Fashion (India), Jindal Stainless, PVR Inox, Dixon Technologies, HDFC Asset Management and RBL Bank.

Equitas Small Finance Bank witnessed its FII holding increase by 18.6 percentage points over the past quarter to 22.7%. Ellipsis Partners was the largest buyer, acquiring a 2.7% stake in the company, followed by Massachusetts Institute of Technologyand Rimco India as they bought a 2.5% and 2.1% stake, respectively, over the same period.

Sona BLW Precision Forgings’ FII holding grew by 13.4 percentage points to 24.7% over the past quarter. This rise was aided by the Government of Singapore buying a 4.1% stake in the company. Fidelity Funds and BNP Paribas Arbitragealso bought a 1.3% stake each in the company.

On the other hand, PVR Inox witnessed the steepest fall of 10.8 percentage points in FII holdings over the past quarter. Its FII holding currently stands at 31.2%. The biggest contributors to this decline were SBI Magnum Children's Benefit Fund and Nippon Life India Trustee, as they sold a 1.2% and 1.3% stake, respectively, in the company.

You can find more popular screenershere.

Construction Materials

SECTOR | 29 May 2023

Adani Group's ACC and Ambuja Cements acquisitions have reshaped the Indian cement industry

By Shreesh Biradar

As infrastructure spending ramps up, the Indian cement sector is seeing the rise of powerful new players with deep pockets. The recent acquisition ofACC andAmbuja Cements by Adani Group has put the cement industry on notice - this giant family conglomerate is coming after their business. The Adani Group's ambitious plans todouble its capacity by FY28 have …

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Adani’s entry comes at a difficult time for the industry, which is already facing increased competition from smaller players, and the challenges of fluctuating fuel and freight costs. As India solidifies its position as the world’s second-largest cement producer, brokerages likeCLSA,Jefferies andMotilal Oswal have started closely tracking this sector. Against this backdrop, the cement and cement products industry has risen 9%, outperforming the broader Nifty 50’s 1.9% growth over the past 90 days.

Cement gets an election-driven infra boost

As the May 2024 elections approach, the government’s pre-election spending is expected to add momentum to infrastructure development. Infrastructure projects consume nearly 35-40% of the cement produced, while housing accounts for 55-60% of cement consumption. In the FY24 budget, the government raised the capexoutlay by 33% to Rs 10 lakh crore, with a budgetary allocation of Rs 80,000 crore for the Pradhan Mantri Awas Yojana (for housing projects). Cement firms are aligning with this infra push and targeting an 8-10% volume increase for FY24.

Capacity expansion to drive market share for players

The Adani Group, the new owners of ACC and Ambuja Cements, have unveiled plans to double the combined entities’ capacity from the current 70 MT to 140 MT over the next five years. This has started a capex war among major cement manufacturers, who are now increasing their capacity by 8-10% annually for the next 2 to 3 years.

As a result, the overall cement industry capacity is expected to reach 664 MT in FY25, up from the current 576 MT. However, large players are facing pricing competition from the unorganised sector, raising concerns about potential market share loss.

Capacity expansion is crucial for cement manufacturers to capture a larger market share. For instance,Ultratech Cement doubled its capacity between FY14 and FY23, which increased its market share from 16% to 26%. Following its lead, other large players are also expanding their capacity. Currently, organised players account for nearly 72% of the market.

While the clinker capacity utilisation for large cement manufacturers stood at nearly 90% in Q4FY23, additional capacity is expected to lower utilisation levels, and increase depreciation and variable costs.

Rising competition makes price increases a tough call

Cement prices are highly sensitive and drive demand, rather than demand dictating prices. In the first half of CY22, the industry saw a surge in raw material costs, prompting cement manufacturers to implement price hikes. However, this led to a fall in demand.

Subsequently, major cement manufacturers reduced their pricing, which helped revive overall demand. Post that, cement firms have implemented small price hikes, with major discounts in the last quarter of FY23. Higher cement prices allowed smaller players to capture market share through localised selling strategies.

Consequently, despite the price hikes undertaken in Q4FY23, cement manufacturers had to reverse their decisions by offering discounts. This resulted in a decline in all-India cement prices during the same period.

In April 2023, cement prices recovered by Rs 5-10/bag. South Indian cement consumers, known for their price sensitivity, reacted strongly, resulting in lower consumption. Consequently, prices in South India declined by 12-14% from their peak in December 2022.

Looking ahead, cement manufacturers are unlikely to implement substantial price increases as it would negatively impact volumes. Instead, they are prioritising passing on the benefits from lower fuel prices to retain their market share.

Declining coal and pet coke prices a boon for bottom lines

Fuel and freight costs, which account for nearly 50% of revenue, have declined since their peak in December 2022. Imported coal prices decreased by nearly 20% in Q4FY23, and pet coke prices, previously above USD 200/tonne until Q3FY23, have now dropped below USD 180/tonne.

Cement manufacturers typically maintain 50-60 days of fuel inventory. The average energy cost is expected to decrease by approximately USD 1/tonne in Q4FY23, and further decrease by USD 3/tonne in Q1FY24 due to lower coal and pet coke prices.

Domestic coal and pet coke prices are high compared to imports, driving cement manufacturers to import fuels to reduce costs. India witnessed a 32% YoY increase in coal imports from April 2022 to February 2023.

Prices of coal and pet coke are expected to cool off in H1FY24. Manufacturers are adopting green energy solutions like solar and wind power plants to reduce coal dependence. Ultratech Cement, for example, aims to meet 30% of its fuel demand through green initiatives by the end of FY24.

Margins to expand, but Adani’s entry set to keep growth muted

The margins of cement manufacturers will see an expansion in FY24 and FY25, driven by lower fuel and freight costs. The price of diesel, a crucial raw material for cement production, has a significant impact on the margins of manufacturers. Diesel costs account for nearly 20-30% of the freight cost for coal transport, 50% of road transportation charges for cement, and are also essential for limestone mining. Variation in diesel prices impacts the margins of cement manufacturers.

Diesel prices have remained stable over the past three quarters despite the decline in crude oil prices from a peak of USD 120/barrel in June 2022 to USD 75/barrel by the end of March 2023. Going forward, it is unlikely that diesel prices will see a significant increase.

The combination of lower coke and coal prices, along with stable diesel prices, will help margin expansion. However, heightened competition, triggered in part by the Adani group’s entry into the market will lower price realisations. The average price realisation for cement manufacturers in FY23 stood at Rs 5,266/tonne, and it is expected to be around Rs 5,238/tonne in FY24 and Rs 5,276/tonne in FY25.

The lower price realisation will offset the margin expansion achieved through lower fuel and freight costs. As a result, the margins in FY24 and FY25 will likely hold at FY22 levels. Despite this, major cement manufacturers remain optimistic about volume growth, with an expected increase in cement consumption ranging from 13-15% in FY24. Cement firms are counting on consumption to grow in the range of 8-10% in FY24, which is keeping the mood upbeat.

Axis Direct released a Sector Update report for Construction Materials on 16 Jul, 2025.

Mutual Funds News

TREND | 17 May 2023, 06:44PM

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

By Shreesh Biradar

In April, benchmark indices Nifty 50 and Nifty 500 surged by 4.06% and 4.93% respectively. This rally was fueled by global central banks signalling a pause in interest rate hikes amid cooling inflation. Foreign institutional investors turned net buyers in Indian markets with an investment of Rs 5,712 crore. The upbeat market brought back interest in undervalued growth stocks. The Nifty Midcap 100, which shot by 5.86% in April, saw the highest interest from fund managers.

Zomato - Blinkit and ONDC to affect profits and market share

Zomato Ltd (ZOMATO): Zomato is a fee-based online platform that connects customers to restaurant and delivery partners, and also offers B2B services and dining-out booking services.

Zomato bought Blinkit (Grofer earlier) in June 2022 at a valuation of Rs 4,447 crore. Since then, Blinkit has faced protests from delivery partners over pay scales and increased attrition levels. According to the management, the core business (Zomato) is expected to turn profitable in Q2FY24. With its dominant market share, Zomato is expected to grow at a 30% CAGR in FY24-25.

The rise of an open network for digital commerce (ONDC) however, presents a challenge for Zomato. Some restaurant chains are using ONDC to cut the fees they pay to Zomato. However, considering the size of the Indian market, Zomato likely has more market share to gain than to lose. But competing with a low-commission platform (ONDC charges 2-4%, compared to Zomato’s 25-30%) may dent Zomato’s future profitability.

Fund managers who bought shares of Zomato

Fund managers who added shares of Zomato to their portfolios include Siddharth Bothra and Ankush Sood for Motilal Oswal Focused Fund and Anand Radhakrishnan and Varun Sharma Franklin India Technology Fund. Fresh buys were done by Siddharth Bothra and Niket Shah for Motilal Oswal Flexicap Fund, Harsha Upadhyaya and Abhishek Bisen for Kotak Multicap Fund and Niket Shah and Ankush Sood for Motilal Oswal Midcap 30 Fund.

Zee Entertainment - NCLT halts ZEE-Sony merger, raising fresh concerns

Zee Entertainment Enterprises Ltd (ZEEL): Zee Entertainment provides satellite television channels and digital media services, and is also involved in the sale of media content like programmes, film rights, and music rights.

In March 2023, Zee Entertainment settled its dispute with IndusInd Bank to pay Rs 84 crore towards a loan taken by Siti Networks (promoter-owned entity). This resolution paved the way for Zee-Sony merger. However, last week, NCLT asked the stock exchanges to submit their order regarding the Essel Group’s firm Shirpur Gold Refinery (SGR). NCLT has issued a show cause notice to the promoters of Essel Group for allegedly siphoning off funds from the Shirpur Gold Refinery. Essel Group is the promoter of ZEE, hence NCLT has withheld the merger.

Fund managers who bought shares of Zee Entertainment

Fund managers who added shares of Zee Entertainment to their portfolios include Sailesh Raj Bhan and Ashutosh Bhargava for Nippon India Multi Cap Fund and Nippon India Large Cap Fund, Harsha Upadhyaya and Abhishek Bisen for Kotak Multicap Fund, Vaibhav Dusad and Sharmila D’mello for ICICI Pru Technology Fund and Manish Gunwani for Bandhan Core Equity Fund

FSN E-Commerce - Focus on cost optimization and private label growth to drive margins

FSN E-Commerce Ventures Ltd (NYKAA): FSN E-Commerce Ventures, commonly known as Nykaa, is an e-commerce platform involved in the sale and distribution of personal care, health care and fitness products online.

While Nykaa has been efficient with its beauty and personal care segment, its expansion into the highly competitive fashion industry remains a concern. Improvement in private label sales and better product mix is expected to drive both the top line and margins. Nykaa’s management is committed to cost optimisation by reducing advertising and marketing expenses, thereby positively impacting the bottom line.

Fund managers who bought shares of Nykaa

Fund managers who added shares of Nykaa to their portfolios include Gaurav Khandelwal and Gaurav Misra for Mirae Asset Large Cap Fund and Saurabh Pant and Mohit Jain for SBI Large & Midcap Fund. Fresh buys were done by Neelesh Surana for Mirae Asset Tax Saver Fund, Ihab Dalwai and Sharmila D’mello for ICICI Pru Large & Mid Cap Fund, and Sankaran Naren and Anuj Tagra for ICICI Pru Multi-Asset Fund.

BHEL - Execution remains key to the huge order book

Bharat Heavy Electricals Ltd (BHEL) is a power plant equipment manufacturer engaged in the engineering, manufacturing, and construction of complex electrical equipment for the power, oil & gas, defence, and aerospace sectors.

BHEL won a Rs 3,700 crore order for the supply of strategic equipment to the defence sector. Additionally, the company secured a railway tender for the supply and maintenance of 80 Vande Bharat train sets worth Rs 23,000 crore.

As of Q3FY23, the company’s total order book amounted to Rs 1,03,700 crore, with 83% concentrated in the power segment and 13% in the industrial segment. The company also signed a pact with the Nuclear Power Corp of India to jointly pursue business opportunities in the area of nuclear power.

Fund managers who bought shares of BHEL

Fund managers who added shares of BHEL to their portfolios include Samir Rachh and Kinjal Desai for Nippon India Small Cap Fund and Neeraj Kumar and Nidhi Chawla for SBI Equity Savings Fund, Satish Ramanathan and Gurvinder Wasan for JM Flexicap Fund, Murthy Nagarajan and Rahul Singh for Tata Multi-Asset Opportunities Fund and Dwijendra Srivastava and Ravi Gopalakrishnan for Sundaram Flexi Cap Fund.

Bandhan Bank - Lower provision and recoveries to drive profitability

Bandhan Bank Ltd (BANDHAN) started as a microfinance institution based out of West Bengal and has since grown into a mid-sized bank with a pan-India presence. The bank currently has a loan book of Rs 98,000 crore, catering mainly to MSMEs, micro-entrepreneurs and retail borrowers.

Bandhan Bank increased its collection efficiency to 98.5% in March 2023 and has enhanced its recovery process by selling the microfinance portfolio twice. It has also received reimbursements from the guarantee fund (insurance for loss on loans given out). These initiatives have led to an increase in the provision coverage ratio, which now stands at 80%. The bank saw a decline in loan loss provisions from 98% in FY22 to around 30% in FY24.

Fund managers who bought shares of Bandhan Bank

Fund managers who added shares of Bandhan Bank to their portfolios include R Srinivasan and Mohit Jain for SBI Flexicap Fund and Sailesh Raj Bhan and Ashutosh Bhargava for Nippon India Large Cap Fund. Fresh buys were done by Jitendra Sriram and Miten Vora for Baroda BNP P Large Cap Fund, Abhinav Sharma and Satish Mishra for Tata Mid Cap Growth Fund and Abhinav Sharma and Amey Sathe for Tata Flexi Cap Fund.

Poonawalla Fincorp - Strong parentage key to AUM growth

Poonawalla Fincorp Ltd (POONAWALLA), formerly known as Magma Fincorp Limited, is a part of the Cyrus Poonawalla group. It is a non-banking finance company (NBFC) that focuses on consumer and MSME financing. The firm currently has an AUM of Rs 16,500 crore.

Poonawalla Fincorp’s loan disbursement jumped 109% YoY to Rs 15,800 crore. Of the total AUM, 51% comprises of unsecured loans. However, the firm's non-performing loans ratio remains low at 1.44%, mostly originating from discontinued legacy portfolios. The provision coverage ratio of the firm stands at 46.2%. The rapid growth in AUM, supported by strong parentage, will help the top-line.

Fund managers who bought shares of Poonawalla Fincorp

Fund managers who added shares of Poonawalla Fincorp to their portfolios include Dhaval Shah and Harshil Suvarnkar for Aditya BSL Multi-Cap Fund. Fresh buys were done by Vinay Paharia and Puneet Pal for PGIM India Midcap Opps Fund, Manish Gunwani for Bandhan Core Equity Fund, Atul Penkar and Dhaval Joshi for Aditya BSL Equity Advantage Fund and Satish Ramanathan and Gurvinder Wasan for JM Flexicap Fund.

Delhivery - (Higher pricing and optimisation to drive margins)

Delhivery Ltd (DELHIVERY)provides supply chain, freight and logistics services to e-commerce segments across the board. Delhivery is India’s largest e-commerce logistics provider with 2,751 delivery centres across India.

Delhivery reported a drop in revenues in the past quarter on account of network footprint optimisation. Its management is renegotiating contracts with low-paying clients, resulting in a 4.8% increase in yields. The company has also improved capacity utilisation and implemented cost optimisation measures, improving margins. However, Delhivery is still a loss-making entity.

Fund managers who bought shares of Delhivery

Fund managers who added shares of Delhivery to their portfolios include Dinesh Balachandran and Mohit Jain for SBI Contra Fund and Neelesh Surana and Ankit Jain for Mirae Asset Emerging Bluechip Fund, Rahul Baijal for HDFC Business Cycle Fund and Meenakshi Dawar and Kinjal Desai for Nippon India Equity Hybrid Fund. Fresh buys were done by Dinesh Balachandran and Dinesh Ahuja for SBI Balanced Advantage Fund.

CDSL - Waiting for the market to bounce back

Central Depository Services (India) Ltd (CDSL)facilitates the holding of securities in dematerialised form and enables securities transactions. It acts as an intermediary for exchanges, clearing corporations, depository participants and investors. CDSL currently has 8.43 crore investor accounts.

In Q4FY23, CDSL experienced an 11.6% YoY decline in revenue due to a drop in transaction charges and IPO-related activity. Margins narrowed by 460 bps to 55.7% in Q4FY23. However, the management has given a guidance of 12% revenue growth for FY24, with an expected EBITDA margin of60%. IPO activity and market transactions have a strong correlation with market movements. As the market exhibits positive momentum, an increase in IPO activity is expected.

Fund managers who bought shares of CDSL

Fund managers who added shares of CDSL to their portfolios include Anandha Padmanabhan Anjeneyan and Ojasvi Khicha for PGIM India Small Cap Fund. Fresh buys were done by Puneet Pal and Vivek Sharma for PGIM India Midcap Opps Fund and Bhupesh Kalyani and Vinay Paharia for PGIM India ELSS Tax Saver Fund.

Dixon Technologies - Inflationary pressure restricting white goods sales

Dixon Technologies Ltd (DIXON) operates in the 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’s major revenue source is consumer electronics, with nearly 36% revenue share and 24% operating profit share. Revenue from the home appliances division has seen a growth of 35% YoY in the past quarter. The reduction in prices of open cells for TVs has hurt the company’s margins. Also, higher inflation has pushed down sales of white goods. Dixon has been implementing cost-saving initiatives and benefiting from lower input costs, leading to gradual margin improvements.

Fund managers who bought shares of Dixonn Technologies

Fund managers who added shares of Dixon to their portfolios include Chirag Setalvad and Priya Ranjan for HDFC Mid-Cap Opportunities Fund, Pankaj Tibrewal and Arjun Khanna for Kotak Emerging Equity Fund and Trideep Bhattacharya and Sahil Shah for Edelweiss Small Cap Fund. Fresh buys were done byVinay Paharia and Puneet Pal for PGIM India Midcap Opps Fund and R Janakiraman and Sandeep Manam for Franklin India Prima Fund.

PNB Housing Finance - Moving away from corporate loan book

PNB Housing Finance Ltd (PNBHOUSING) is into providing loans to individuals and corporates for the purchase, construction, and repair of houses. The firm has a loan book of Rs 53,123 crore and an average quarterly disbursement of Rs 3,000 crore.

PNB Housing Finance has 92% of its loan book in the retail category. This category has a relatively low NPA of 2.26%, while the corporate segment (developer loans) has 26.61% in NPAs as of Q3FY23. Lately, the firm has been cutting down its corporate book. The firm is now targeting salaried home buyers for loan disbursements, as the default rate in the segment is comparatively lower.

Fund managers who bought shares of PNB Housing Finance

Fund managers who added shares of PNB Housing Finance to their portfolios include Sonam Udasi and Amey Sathe for Tata Equity P/E Fund and Murthy Nagarajan and Rahul Singh for Tata Multicap Fund. Fresh buys were done by Samir Rachh and Kinjal Desai for Nippon India Small Cap Fund, Abhinav Sharma and Arvindkumar Chetty for Tata Large Cap Fund and Sanjay Chawla and Miten Vora for Baroda BNP P Lrg & Mid Cap Fund

IDBI Capital released a report for Mutual Funds News on 14 Jul, 2025.

Banks

SECTOR | 08 May 2023

Is the party over for private banks? Slowing credit growth, rising costs may hit margins

By Shreesh Biradar

The collapse of Silicon Valley Bank (SVB), First National Bank, Credit Suisse, and First Republic Bank has cast a spotlight on financial institutions. As these failures reverberated across the US and Europe, the markets reacted – the US Dow Jones Bank Index has dropped 18%, and the Europe 600 Bank Index has decreased by 10.2% since the start of the …

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Private Banks in India command higher valuations despite having smaller loan and deposit books compared to PSU banks. Private banks accounted for nearly 33% of the turnover of Indian banks as of Q3FY23. They have also been the preferred investment choice for FIIs in the Indian banking sector. HDFC Bank, Axis Bank, ICICI Bank and IndusInd Bank are the star performers, while Yes Bank's fall from grace has pushed it to the sidelines.

All these banks have released their Q4FY23 earnings reports in the past 10 days.

Kotak Mahindra Bank released its Q4FY23 earnings on 29th April. The bank increased its Q4FY23 net profit by 26% and its net interest income (NII) by 35%. Net interest margins (NIM) stood at 5.75% for the quarter. Uday Kotak, CEO and Managing Director of Kotak Mahindra Bank, emphasized the need for higher capital buffers for banks to "build a fortress of resilience in these uncertain times." During the conference call, he noted that the Indian banking system is in good shape and in a "Goldilocks" phase, with favorable domestic macro factors, even as external factors such as the global slowdown and foreign regional bank failures are impacting India's growth trajectory.

Credit growth slows for large private banks

The high-teen credit growth, visible until Q3FY23, is fizzling out. Recent data released by the RBI indicates a sharp drop in industrial lending from 13.6% in October 2022 to 6.9% in February 2023. The drop has been led by lower credit offtake by medium-sized industries. However, credit requirements from retail sectors in segments like personal loans, vehicle finance, and credit cards remain elevated. Non-Banking Financial Companies (NBFCs) have also been major consumers of credit in Q4FY23.

Although large private banks have shown promising growth of advances in FY23, it remains to be seen if they can sustain this in FY24.

Note: Axis Bank numbers in the charts below are inclusive of its recent acquisition of Citibank.

The credit growth witnessed in FY23 by these large private banks was backed by a higher deposit base. This is visible in the increase in the credit-to-deposit ratio of banks such as IndusInd Bank and ICICI Bank, which rose nearly 500 bps in FY23.

In the fourth quarter however, there was a deviation from the trend as three out of five large private banks curbed their credit growth. This was due to higher interest rates, which led to an increase in deposits and lower demand for loans. As a result, HDFC Bank, Axis Bank and ICICI Bank saw a decline in their CD ratio. IndusInd Bank and Yes Bank were exceptions and continued to chase credit growth.

Most private banks have now exceeded the 85% CD ratio, which can potentially lead to an asset-liability mismatch (ALM) if not managed properly. For instance, Yes Bank’s CD ratio at 93% is high, which leaves little room for growth unless the bank raises more deposits. It's worth noting that part of Yes Bank's advances are funded by bond issuances.

The current interest rate also demands moderate credit growth with a rapid rise in deposits for FY24.

HDFC Bank expands its branch network rapidly in FY23

HDFC Bank is taking steps to scale up its credit/deposit growth by expanding its presence in rural and semi-urban areas, where it has a lower footprint. The bank added 1,479 branches in FY23, an increase of 23% from FY22. This move is expected to boost its customer base.

IndusInd Bank is leading the pack with a 15% increase in its branches. The benefits of new branches will start showing up on the income statement and balance sheet with a lag effect.

Large private banks see high growth in interest and fee income

All major banks have seen a significant increase in fee income, mainly driven by new loan disbursals. For IndusInd and Yes Bank, fee income accounts for nearly one-third of their gross income. For other banks, it ranges from 22% to 28%.

Another key indicator of performance for banks is the net interest income (NII), which has also seen a rapid pace of growth. For instance, ICICI Bank’s NII has grown 40% YoY, driven by margin expansion and high credit growth. Its net interest margin (NIM) at 4.90% is one of the highest among large banks.

Most banks have seen margin expansion backed by substantial increases in lending rates. The CASA ratio, which had been dropping until Q3FY23, flatlined with a marginal increase in Q4FY23 (a fall in CASA ratio increases the cost of capital. While the cost of capital showed an increasing trend until Q3FY23, the marginal increase in CASA in Q4FY23 indicates moderation in cost of capital for large private banks. Among the large private banks, IndusInd Bank is the only one that saw its CASA ratio drop, while Yes Bank shored up its current and savings account by increasing its CASA ratio by 83 bps QoQ.

The increase in yield on advances, and the rise in the cost of deposits have been disproportionate. For instance, ICICI Bank’s cost of deposits improved by 50 bps in FY23, while the yield on advances increased by 144 bps.

As a result, lending rates have shot up significantly, which may not be sustainable when interest rates begin to rise. This could lead to an increase in NPAs. The yield on advances for IndusInd Bank at the end of Q4FY23 was as high as 12.02%.

Low net NPAs in private banks may not last as credit growth slows and interest rates fall

Net NPAs have reached their lowest levels, comparable to the high credit growth era of banks from 2006 to 2011. However, gross NPAs are still moderating. High-interest rates and credit growth do not go hand in hand. The fixed-interest loans, which are mainly retail loans, will likely start to see high defaults once the interest rates start falling. For instance, HDFC Bank and Axis Bank have only 41% of its loans linked to external benchmark-linked lending rates.

Usually, a high credit growth cycle is followed by a rise in NPAs,. Eespecially when the credit growth is achieved in a high-interest rate environment. As credit growth slows down to below 10% from the current 16%-17%, coupled with interest rates falling by around 200 bps, gross NPA levels are expected to increase by 150 -180 bps.

The question is, are the banks well equipped to absorb this kind of rise in NPA? The answer is yes.

Strong provision coverage and lower provisions boost profitability

Banks have been taking measures to recognise NPAs and make provisions for the last 6-7 years. Consequently, the provision coverage ratio of most banks has increased to above 70%. Moreover, banks have also strengthened their capital buffers. Nearly all private banks maintain their capital adequacy ratio above 17%, while the RBI mandate requires it to be at 9%. This gives sufficient room for further provisioning.

The high PCR and lower net NPA levels have decelerated the provisioning requirements for banks. Currently, banks are reporting only a small portion of their operating profit as provisions. In pre-Covid era, provisions accounted for more than 50% of operating profits. The lower provisioning is driving profitability and increasing the overall liquidity buffers of banks.

However, the low provisioning environment is not expected to last for long. With the possibility of an increase in NPA once interest rates drop and the RBI's expected credit loss (ECL) mechanism, banks will need to remain vigilant in their provisioning requirements. However, with their strong capital buffers and high provision coverage ratios, banks are in a better position to absorb these shocks.

Axis Direct released a Sector Update report for Banks on 08 Jul, 2025.

The Baseline

04 May 2023

India emerges a winner in the global oil war | Stocks beating analyst estimates in Q4

By Shreesh Biradar

Over the past few decades, major geopolitical events led to sharp fluctuations in oil prices – the US invasion of Iraq (which triggered a 49% jump in oil prices from March 2003 to March 2004), the Afghanistan crisis (58% up from September 2001 to September 2002), and sanctions on Iran (43% up from September 2010 to September 2011).

Each of these events disrupted the crude oil supply chain. The usual pattern is this: Developed nations impose sanctions on an oil producer, and developing economies struggle with high oil prices, and rising fiscal deficits.

The ongoing Russia-Ukraine conflict is the latest example, where many analysts expected $100 oil after the US and Europe stopped energy purchases from Russia.

But unlike the previous blanket bans, this time the G7 countries took a softer stand by capping the Russian oil price at USD 60 per barrel. The sanctions are meant to ensure a revenue cap for Russia, without hampering the oil supply chain.

Many countries are not complying with the price cap:

The impact this time is different – by continuing to buy Russian oil despite EU and US boycotts, India and China have become major refined oil exporters.

In this week’s Analyticks:

Oil politics: India is on the winning side of oil politics, for a change
Screener: Stocks that beat analyst estimates for revenue and net profit in Q4FY23

Let’s get into it.

India's deep thirst for cheap Russian oil

The price cap on Russian oil has caused its Ural crude to trade at 40% below the international benchmark, Brent crude. In the first quarter of 2023, Russian Ural oil averaged USD 51.05 per barrel, while Brent crude oil was priced around USD 81.91.

India's economy is highly susceptible to oil price fluctuations. A report by Edelweiss suggests that a 10 dollar increase in oil prices causes a current account deficit of 0.5% of India's GDP. If India were to replace its entire import crude basket with Russian Ural, its current account deficit could contract by 1.6%-1.7% of GDP.

The landing cost (including freight and insurance) of Russian Ural for India was roughly USD 70 in March. India and China are snapping up cheap Russian crude in large quantities - Russia currently accounts for nearly 40% of India’s crude imports, while China has increased its Russian oil imports by 22%.

The Middle East’s oil producers have been at the receiving end of this, and saw their share of Indian oil imports drop sharply.

Sooner or later, Middle Eastern refiners may need to revise their official selling price to compete with Russia.

The increased demand for cheaper Russian Ural has pushed its prices past the $60/barrel cap imposed by the G7, and the price differential between Russian Ural and Brent had narrowed to 20% by the end of April 2023. Finance Minister Nirmala Sitharaman has saidthat India is going to keep buying Russian oil past the price cap, as long as it remains cheaper than Brent crude.

Can India increase Russian oil imports?

India increased its Russian imports from 67,500 barrels/day in January 2022 to 2.1 million barrels/day by the end of April 2023. Russia is now India’s single major source of oil supply. Whether India can increase its Russian oil imports further is a complex question.

India has struggled to find an alternative currency to the US dollar for purchasing Russian crude oil. Russia's removal from the international SWIFT payment system has made dollar transactions difficult, and exposes India to potential sanctions. Trading in INR is impractical, as Russia is a net exporter to India; receiving rupee payments would leave Russia with an excess of rupees and no way to spend them.

For now, Russia and India are trading in UAE Dirhams, which helps to a certain extent as it is pegged to the dollar. But this does not completely solve the INR depreciation issue. UAE is a net exporter to India, so India buying more Dirhams for Russian trade will cause the INR to depreciate against the Dirham.

India also cannot stockpile much Ural oil due to its limited strategic petroleum reserve of 5.33 MMT, which covers only about 9.5 days of national demand. In contrast, countries like China have significant reserves that can meet nearly 50 days of their national demand.

A potential solution for India is to rapidly refine and export more Russian oil. But Indian oil refineries are operating at full capacity, with overall capacity utilization exceeding 100% since May 2022. In January 2023, capacity utilization reached 106.9%, and state-run firms like Indian Oil Corporation reported even higher figures at 110%. India cannot increase oil exports without investing in additional capacity expansion projects.

Russian oil wears an Indian disguise, as India becomes the top fuel exporter to Europe

The European Union banned seaborne crude imports from Russia starting from February 2023. At the time, Russia accounted for nearly 30%of European crude imports.

While the US has increased its crude oil exports to Europe by morethan 70%, it is unable to meet all of Europe’s needs. So Moscow is rerouting Russian oil to Europe via refineries in India, China, Africa and the Middle East. India has become the hub for sending Russian Ural to Europe as refined oil.

India’s oil refineries are processing and exporting Russian crude as a clean fuel. India supplied roughly 3,65,000 barrels per day to Europe in April 2023, an increase of 187% since the start of the Russia-Ukraine war in February 2022.

Data Source: Kpler and Bloomberg

However, India cannot completely substitute Russian oil exports to Europe, which averaged around 1.1 million barrels per day before the start of the conflict. India is limited here by its refining infrastructure.

The idea behind the sanctions was to cripple Russia's revenue source without completely cutting off the global oil supply. The plan has worked, but it's not been foolproof. Russia is still making money, just not as much. Oil supply to Europe has continued, but routed through India and China. For the first time, countries like India and China, which used to be victims of international oil politics, are gaining from this oil war.

Screener: Stocks that beat analyst estimates for revenue and net profit in Q4FY23

With the Q4FY23 result season in full swing, we take a look at the stocks that have beat analyst estimates for revenue and net profit on Trendlyne’s Forecaster. This screenerfeatures stocks with the highest positive surprises in estimates for revenue and profit in Q4FY23.

Stocks from the banking, NBFC, pharmaceuticals and IT consulting & software industries dominate the screener. Stocks that stand out are Machrotech Developers, ICICI Lombard General Insurance, Syngene International, IDFC First Bank, Supreme Industries and Welspun India.

Macrotech Developers recorded the highest positive surprise in Forecaster estimates, beating revenue estimates by 15.1% in Q4FY23. However, the realty company’s revenue fell 5.5% YoY in the quarter to Rs 3,255.4 crore. It also beat Forecaster estimates for net profit by 47.5% as it grew by 39% YoY to Rs 744.4 crore.

ICICI Lombard General Insurance surpassed Trendlyne’s Forecaster estimates for revenue by 14.3% as it posted a 12.3% YoY growth in premiums earned in Q4FY23. The rise in premium earned from the retail health, corporate health and motor insurance segments aided the growth in net premium earned. A net profit growth of 39.8% YoY to Rs 436.9 crore helped the general insurer beat the Forecaster estimates by 12.1%.

You can find some popular screenershere.

Signing off this week,

The Trendlyne Team

Mutual Funds News

TREND | 19 Apr 2023

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

By Shreesh Biradar

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

The month of March saw benchmark indices Nifty 50 and Nifty 500 stay flat at 0.32% and -0.27% respectively. Markets were dealing with the aftermath of regional bank failures in the US, and the liquidity crisis in Credit Suisse. Indian banks also faced some selling pressure, but their strong balance sheets gave confidence to investors. As a result, fund managers picked up fundamentally sound stocks with good growth trajectories.

Equitas Small Finance Bank – Personal finance to help growth in loan book

Equitas Small Finance Bank (EQUITASBNK) is in the retail banking business, with a focus on micro-finance, commercial vehicle finance, home loan, loan against property and financing solutions for individuals and micro and small enterprises (MSEs) that are underserved by formal financing channels.

Following its reverse merger with its parent firm, it has eliminated the overhang of operational costs, and its small size enables it to navigate through changing interest rate cycles. The bank has reported a return on asset (ROA) of 2.2%, which is significantly higher than the industry average of 0.7%. It is expanding rapidly and venturing into new products like credit cards, personal loans and used vehicle finance. Its NPA slippages are low, and the CASA ratio is maintained at 45%, leading to an increase in the bottom line.

Fund managers who bought shares of Equitas Small Finance Bank

Fund managers who added shares of Equitas Small Finance Bank to their portfolios include R Srinivasan and Mohit Jain for SBI Small Cap Fund and Murthy Nagarajan and Rahul Singh for Tata Multicap Fund. Fresh buys were done by Pranav Gupta and Haresh Mehta for Aditya BSL Nifty SmCp 50 Idx Fund, Jinesh Gopani for Axis Nifty Smallcap 50 Index Fund, and Laukik Bagwe and Atul Bhole for DSP Dynamic Asset Alloc Fund.

Tata Motors – Pent-up demand boosts recovery in sales

Tata Motors (TATAMOTORS) designs, manufactures and sells a wide range of automotive vehicles, including passenger vehicles, premium luxury vehicles (including the iconic Jaguar and Jaguar Land Rover) and commercial vehicles. JLR contributes nearly 63% of the revenue, followed by commercial vehicles at 18%.

Tata Motors reported the highest-ever passenger vehicle annual sales in FY23, supported by post covid pent-up demand and the launch of new vehicles in the past two years. The company has consolidated its position in domestic EVs, with a market share of 70%.

The commercial vehicle segment has also seen an uptick in demand due to an increase in mining activity and the scaling up of the e-commerce sector. JLR is in recovery mode and working on cost optimizations and building its e-mobility portfolio.

Fund managers who bought shares of Tata Motors

Fund managers who added additional shares of Tech Mahindra to their schemes include Dinesh Balachandran and Dinesh Ahuja for SBI Balanced Advantage Fund, Kunal Sangoi and Dhaval Joshi for Aditya BSL Focused Equity Fund, Dinesh Balachandran and Mohit Jain for SBI Contra Fund, and Rahul Baijal and Priya Ranjan for HDFC Top 100 Fund. New buys were made by Ashish Naik and Vinayak Jayanath for Axis Business Cycles Fund.

Uno Minda – Electric mobility and new verticals to guide growth trajectory

UNO Minda (UNOMINDA) manufactures auto components including lighting, alloy wheels, horns, seating systems, seatbelts, switches, sensors, controllers, handlebar assemblies and wheel covers. It holds a 66% market share in the switch business.

UNO Minda’s growth has been fueled by growth in segments like switches, lighting and acoustics. Its core business grew at 28% in Q3FY23. The firm has been consistently increasing the number of products per vehicle to enhance its kit value per vehicle. It has executed a joint venture agreement with Buehler Motor & Tach-S for the supply of traction motors for electric two-wheelers. The company has allocated Rs 175 crore for airbag development to meet the upcoming regulatory requirements, out of its total capex of Rs 700 crore.

Fund managers who bought shares of Uno Minda

Additional shares of UNO Minda were bought by Vinit Sambre and Jay Kothari for DSP Midcap Fund, and Shreyash Devalkar and Vinayak Jayanath for Axis Midcap Fund and Taher Badshah and Dhimant Kothari for Invesco India Contra Fund. New buys were done by Pankaj Tibrewal and Arjun Khanna for Kotak Emerging Equity Fund and Murthy Nagarajan and Rahul Singhfor Tata Multicap Fund.

City Union Bank – Higher credit costs and NIM contraction may bottleneck PAT growth

City Union Bank (CUB), one of India’s oldest private sector banks, has around 750+ branches and is headquartered in Kumbakonam, Tamil Nadu. It specializes in micro, small and medium enterprises (MSME) loans and has a loan book of Rs 43,000 crore.

City Union Bank is diversifying its loan book to build its asset quality. While traditionally focused on MSME loans, CUB is now shifting its focus towards gold loans. The bank's cost of capital has increased due to higher credit costs and a lower deposit base. Management has revised its loan growth expectations downwards by 200 bps, from an earlier projection of 15-18%. However, even with this adjustment, the bank’s loan growth is still higher than the industry average of 10-11% for FY24.

Fund managers who bought shares of City Union Bank

Additional shares were bought by Kayzad Eghlim and Nishit Patel for ICICI Pru Nifty Private Banks ETF and R Srinivasan and Mohit Jain for SBI Small Cap Fund. Fresh buys were done by Murthy Nagarajan and Rahul Singh for Tata Multicap Fund, Pranav Gupta and Haresh Mehta for Aditya BSL Nifty SmCp 50 Idx Fund, and Jinesh Gopani for Axis Nifty Smallcap 50 Index Fund.

Interglobe Aviation – Increased domestic demand and higher fleet size to drive top line

Interglobe Aviation (INDIGO) is in the air transportation business which includes passenger and cargo services, and provides allied services such as in-flight sales. The firm mainly operates in domestic circuits, covering 77 domestic and 26 international destinations. It has operated around 1,800 flights on a daily basis in the past three months.

The firm’s huge order of 500 aircraft for Boeing and Airbus made news recently. The increased number of airports and the government's push towards aviation infrastructure have increased passenger footfalls over the years. Indigo, with its low cost and extensive connectivity, has the highest market share of domestic passengers at 54%. It plans to double its fleet size from 300 to 600 by 2030, boosting connectivity and passenger footfalls, and resulting in double-digit growth in the medium term.

Fund managers who bought shares of Interglobe Aviation

Fresh buys were done by Sachin Relekar and Manish Gunwani for Bandhan Flexi Cap Fund. Additional shares were bought by R Srinivasan and Dinesh Ahuja for SBI Equity Hybrid Fund, Sankaran Naren and Dharmesh Kakkad ICICI Pru Value Discovery Fund, Samir Rachh and Kinjal Desai for Nippon India Small Cap Fund and Manish Gunwani for Bandhan Core Equity Fund.

Hindustan Aeronautics Limited – Flying high with strong order book and margins

Hindustan Aeronautics Limited (HAL) is engaged in the design, development, manufacture, and end to end servicing of aircraft, helicopters, aero-engines, etc.

HAL has an orderbook of Rs 82,000 crore, consisting mainly of 70 HTT aircraft, 6 Do-228 aircraft and PSLV launch vehicles, among others. Another Rs 50,000 crore worth of orders are expected in the next two years. HAL is expected to see a significant jump in its revenue from the start of FY25. The margins are expected to increase by 200 bps to 24.5% in FY24, thanks to export orders and new products in the pipeline.

Fund managers who bought shares of Hindustan Aeronautics

Additional shares were bought by Roshi Jain and Priya Ranjan for HDFC Flexi Cap Fund, Vaibhav Dusad and Sharmila D’mello for ICICI Pru Technology Fund and Sankaran Naren and Rajat Chandak for ICICI Pru Balanced Adv Fund. Fresh buys were done by Anand Radhakrishnan and R Janakiraman for Franklin India Flexi Cap Fund and Taher Badshah and Dhimant Kothari for Invesco India Contra Fund.

JK Lakshmi Cement – Expanding capacity, and benefits from infra boost

JK Lakshmi Cement (JKLAKSHMI) is a cement manufacturer with plants in Rajasthan, Haryana, Chhattisgarh, Orisa and Gujarat. The company has a total production capacity of 13.9 million tonne (MT) and also operates 117 MW power plants, which fulfill 75% of its energy requirements.

JK Lakshmi Cement has seen increased volume production and capacity utilization due to higher spending on Infra projects. Also, a decrease in prices of petcoke and coal has led to margin expansion. The firm is currently adding a capacity of 2.5 MT at a cost of Rs 1,650 crore, which is expected to be completed by FY25. It also plans to take the total capacity to 30 MT by the end of FY30.

Fund managers who bought shares of JK Lakshmi Cement

Additional shares were bought by Shridatta Bhandwaldar and Ajay Khandelwal for Canara Robeco Small Cap Fund, Shiv Chanani and Miten Vora for Baroda BNP P Mid Cap Fund, Manish Lodha and Abhinav Khandelwal for Mahindra Manulife Small Cap Fund and Pranav Gokhale and Taher Badshah for Invesco India Smallcap Fund. Fresh buys were done by Samir Rachh and Kinjal Desai for Nippon India Small Cap Fund.

HDFC Asset Management – A market leader and consistent performer

HDFC Asset Management (HDFCAMC) is the largest mutual fund in India with an AUM of Rs 4,44,800 crore and a market share of 11%. The firm has 228 branches and is aided by more than 75,000 distribution partners. HDFC is its parent firm and owns nearly 53% stake in the AMC.

The AMC is taking steps to rationalize costs by reducing the number of distribution partners. It recently launched the Business Cycle Fund, which saw a subscription of Rs 2,340 crore during its new fund offer (NFO) and also introduced debt index funds that have generated high interest. HDFC AMC has consistently maintained a market share of 11.8% in equity funds, 13.5% in debt funds and 14.9% in liquid funds, and has grown in line with industry averages.

Fund managers who bought shares of HDFC AMC

Fresh buys were made by SR Srinivasan and Dinesh Ahuja for SBI Equity Hybrid Fund, Vinay Paharia and Puneet Pal for PGIM India Midcap Opps Fund, Dinesh Balachandran and Dinesh Ahuja for SBI Balanced Advantage Fund, Sailesh Raj Bhan and Ashutosh Bhargava for Nippon India Multi Cap Fund and Rohit Shimpi and Mohit Jain for SBI Dividend Yield Fund.

Dixon Technologies India – Acquisitions and growing LNG consumption to boost growth

Dixon Technologies (Dixon) manufactures products in consumer durables, lighting and mobile phones. Its product portfolio includes consumer electronics like LED TVs and mobile phones, home appliances like washing machines and CCTV, lighting products like LED bulbs and tube lights, downlights and CFL bulbs.

Dixon Technologies has seen its revenue get hit by lower discretionary spending by end users, due to higher interest rates. As a result, the firm has cut down its FY23 revenue guidance by 26% to Rs 125 billion.

However, the correction in input raw material prices, cost-cutting measures, and a better revenue mix will contribute to margin expansion, and help the company mitigate the adverse impact on the bottom line.

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, Sailesh Raj Bhan and Ashutosh Bhargava for Nippon India Large Cap Fund and Rupesh Patel and Dhrumil Shah Nippon India Growth Fund. Fresh buys were done by Niket Shah and Ankush Sood for Motilal Oswal Midcap 30 Fund and Sonam Udasi for Tata India Consumer Fund.

Data Patterns (India) Ltd – Huge order book to give good revenue visibility

Data Patterns India (DATAPATTNS) is into manufacturing electronic boards and systems for the aerospace and defence sectors. The firm also provides electronic solutions for processors, power, radio frequencies, and embedded software.

As of January 2023, the company’s order backlog stands at Rs 1,014 crore, with development orders comprising 56%, production at 38%, and the rest from the services segment. The management expects Rs 2,000-3,000 crore worth of orders in the pipeline for the next three to four years.

It has maintained a revenue guidance of 25-30% growth, with a gross margin of 65% and EBITDA margin of 40% for the next two years.

Fund managers who bought shares of Data Patterns (India) Ltd.

Additional buys were made by Shreyash Devalkar and Vinayak Jayanath for Axis Small Cap Fund. Fresh buys were done by Samir Rachh and Kinjal Desai for Nippon India Small Cap Fund, Harsha Upadhyaya for Kotak Tax Saver Fund, Ashish Naik and Vinayak Jayanath for Axis Business Cycles Fund and R Janakiraman and Sandeep Manam for Franklin India Smaller Comp Fund.

IDBI Capital released a report for Mutual Funds News on 14 Jul, 2025.

Reliance Industries Ltd.

16 Apr 2023, 06:21PM

1476.40

-0.62%

Reliance demerger of Jio Financial Services set to disrupt India’s consumer finance landscape

By Shreesh Biradar

Reliance Industries, the Rs 16 lakh crore conglomerate, has been the shareholders’ darling since its IPO in 1977. Over the past 10 years, the company has given 5.4x returns, while the broaderNifty 50 has provided 3x returns. If we exclude Reliance Industries, the returns of the Nifty 50 would be even lower. The company has created shareholder value by diversifying its businesses and demerging the entities to create growth opportunities.

Now, Reliance Industries hasannounced the demerger of its financial services arm from the parent company. The demerger will happen in the second half of FY23, and the new entity will be named Jio Financial Services Limited (JFSL). However, the resolution is subject to approval from shareholders at the annual general meeting (AGM) on May 2. Once the necessary approvals are in place, JFSL will be tentatively listed on the bourses in September 2023

How will the demerger work?

Reliance Industries is demerging its financial services business and its wholly owned subsidiary, Reliance Strategic Investments Limited (RSIL), to form Jio Financial Services Limited. Post demerger, JFSL will hold investments in Reliance Industrial Investments and Holdings Limited (RIIHL), which indirectly owns a 6.1% stake in Reliance Industries.

The demerger will take place through a share swap arrangement, with shareholders of Reliance Industries receiving one share of JFSL for each share held in Reliance Industries.

Why is Reliance demerging this business?

The demerger is driven by the belief that the sum of the parts is greater than the whole. By creating a separate entity, JFSL will have higher growth opportunities and be valued in line with its industry peers. The demerger is also part of Reliance Industries' broader plan to monetize its investments in the financial services business.

Debt is also a key factor here. Reliance Industries would like to build its financial services arm without impacting its debt/equity ratio. For a financial services firm, raising debt is a crucial growth lever, and JFSL will be able to raise more debt using its asset base. JFSL’s holding in RIL will provide the much-needed collateral to raise debt, and the higher credit rating of its parent firm will help it get lower interest rates.

JFSL’s net worth is around Rs 1,24,000 crore, taking into account its stake in RIL which is worth approximately Rs 96,000 crore, and assets of Rs 28,000 crore. This capital base gives JFSL a significant head start in capturing market share as a new entrant. For instance, Bajaj Finance has a net worth of Rs 44,000 crore, and an AUM of Rs 2.3 lakh crore.

JFSL also plans to leverage its existing retail customer base and develop consumer and merchant lending businesses based on credit bureau-based underwriting. Additionally, JFSL will explore opportunities via joint ventures and acquisitions in insurance, broking and asset management.

JFSL's net worth was around Rs 28,000 crore in FY22

According to a report on the scheme of arrangement for the demergerreleased by RIL, JFSL 's net worth/book value at the end of FY22 is Rs 28,079 crore. JFSL’s book is not expected to have any significant liabilities. The table below provides a breakdown of the book's contents, excluding JFSL's 6.1% stake in RIL.

Note: All values in crores

The debt-free nature of the book gives significant scope to raise capital for growth. JFSL can also benefit from the AAA credit rating of the parent firm, which will help lower its cost of capital. The consolidated turnover of the financial services business as of March 31, 2022, was Rs 2,127 crore, which is 0.3% of RIL’s total turnover.

Valuation of JFSL to be in the range of Rs 1-1.5 lakh crore

Several brokerages have been vocal about RIL’s undervaluation. Trendlyne’sforecaster shows a 23% upside for RIL from the current price of Rs 2,327. As for JFSL, multiple reports suggest different price bands. Areport by Jefferies indicates the market cap of JFSL in the range of Rs 90,000-1,50,000 crore. This puts the share price of JFSL around Rs 134 to Rs 224. The Jefferies report also states that JFSL should list at a base price of Rs 179/share.

JFSL's book value is at Rs 1,24,073 crore considering its 6.1% stake in RIL. It’s the highest among the listed NBFC players in India.

Note: All values in crore. Book value is JFSL’s net worth (Rs 28,073 crore) plus its stake in RIL (Rs 96,000 crore)

Anotherreport by Macquarie suggests that JFSL’s valuation is around Rs 1,52,000 crore, which is significantly higher than Jefferies’ estimates. The difference in valuations can be attributed to different assumptions of holding company discounts and P/B ratios. Here is a simple methodology to determine JFSL’s valuations.

JFSL holds a 6.1% stake valued at around Rs 96,000 crore in RIL. If we consider a holding company discount of 40%, the valuation of the holding translates to Rs 57,600 crore.

At the end of FY22, JFSL’s combined net worth (Financial Service Business and Reliance Strategic Investments Ltd) was Rs 28,079 crore. Assuming JFSL will trade at a P/B ratio of 1.5 to 2, its book would be valued in the range of Rs 42,118 crore to 56,158 crore.

This would take the overall valuation to Rs 99,718-1,13,758 crore, implying a share price range of Rs 147 to Rs 168. Every 0.5-point increase in the P/B valuation of the JFSL book will result in a share price increase of Rs 21-22.

Post demerger, JFSL is expected to be valued at over Rs 1,00,000 crore, making it a part of the Nifty 50. This means that ETFs holding roughly 2% stake in Reliance Industries need not sell their shares.

Future course of action for JFSL

Reliance’s large customer base in the retail and telecom sectors positions JFSL company well in order to target consumer finance in electronics and digital services. With strong vendor partnerships and merchant banking, JFSL has the potential to capture a significant share of the market.

However, competition in consumer finance for high-value electronics goods is currently dominated by banks with credit cards, with NBFCs playing a smaller role.

JFSL plans to expand its offerings beyond consumer finance to include insurance, broking and asset management. The company has already submitted applications to the Insurance Regulatory and Development Authority of India (IRDAI) and RBI for approval. It might foray into the life insurance business, along with the broking business involving bankers, traders, investment managers, dealers and advisers.

With RIL's backing and a debt-free balance sheet, JFSL is well-positioned to disrupt the consumer finance space. In addition to organic growth, JFSL may pursue acquisitions and mergers to consolidate its position in the market.

Banking veteran K V Kamath to head JFSL

K V Kamath, the former CEO of ICICI Bank from 1999 to 2011, will be leading JFSL post-demerger. His track record in increasing the retail customer base and making strategic acquisitions in the NBFC space at ICICI Bank makes him a promising choice to steer JFSL towards growth and profitability.

Investors will be closely watching the company's performance post-demerger and how it capitalizes on the opportunities in the rapidly growing financial services sector in India. Below is the list of JSFL’s board of directors.

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.

Reliance Industries Ltd. is trading below its 30 day SMA of 1478.9

Automobiles & Auto Components

SECTOR | 03 Apr 2023

India's auto ancillary industry gets a margin boost, but faces lower volume growth

By Shreesh Biradar

The Indian automobile industry eclipsed Japan and Germany for the first time in January 2023 to become the third-largest auto market in the world. At the domestic level, the Indian auto industry is valued around USD 100 billion and contributes nearly 8% of the GDP. While auto manufacturers enjoy the limelight, manufacturers of auto parts like Uno Minda, Schaffler …

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TheNifty Auto index has given returns of 14.4% in the past 365 days till March 28, while the benchmarkNifty 50 gave returns of -1.6%. We don’t have a listed index for auto parts and OEMs, but Trendlyne’sauto parts & equipment industry has made returns of 22.7% in the past year.

Indian auto ancillary manufacturers bring springs, engine parts, suspension, shock absorbers, gears, headlights, axles, wiring systems, chassis, lights, batteries, pistons, brakes, bearings, wheels and air conditioning parts to the market. As of FY22, the Indian auto component industry has a market size of Rs 4,20,000 crore, with passenger vehicles (44%) and two-wheelers (22%) accounting for the major chunk.

The recent uptick in retail auto sales has put the limelight back on the auto industry. The sales which picked up in October and November 2022 due to the festive season have extended to 2023 as well. Retail sales in January and February 2023 have increased by 30% YoY.

Note: Revenues of top 50 listed auto part manufacturers

Higher price realizations driving revenue growth

The auto ancillary industry is a leading indicator for sales by auto manufacturers, as OEMs get orders before the actual sale of an automobile. India’s top 50 listed auto part manufacturers’ revenue on a trailing twelve months (TTM) basis is Rs 3 lakh crore as of Dec 2022 – a 16.6% YoY growth over December 2021 revenues. On a quarterly basis, revenue has gone up by 17% YoY.

Note: Values in Rs crore. Cumulative revenue of the top 50 listed auto part manufacturers in terms of market capitalization.

Higher price realization by OEM manufacturers and rise in export-oriented products drove revenue growth. For instance, firms like Sundram Fasteners export a wide range of products to countries like China, Brazil, USA, UK and France. Most of the firms are not expecting FY23 growth in FY24. The volumes are expected to slow down and the growth is expected in the range of 6% to 7% in topline.

GNA Axles’ executive director Kulwin Seehra states that the revenue growth for the firm can be expected in the range of 7% to 8% on account of lower volumes.According to UNO Minda Chairman Nirmal K M, two-wheeler sales are not picking up as marketing is awaiting more EV-based products.

Opening up of China will soften raw material prices

Rising commodity prices and constraints in the supply chain have led auto OEMs to increase the price of manufactured components. The slowdown in China’s manufacturing sector caused supply chain issues starting from semiconductor chips to steel production and an increase in raw material prices at a global level. The opening up of Chinese economy might lead to demand revival of steel. In Q3FY23 steel prices have seen an uptick on account of higher consumption from China.

Indian auto part manufacturers’ plight is no different. The Indian auto part industry also saw its raw material cost increase. According toJSW Steel MD Seshgiri Rao, the upward movement of steel prices may halt and could even reverse in the coming weeks depending on China’s demand for steel consumption.

Note: Values in Rs/tonne

Due to its correlation with steel prices, the cost of raw materials has increased until Q1FY23. It saw a drop in Q2FY23 with steel prices. In Q4FY23, steel prices are still at elevated levels, impacting operating margins of auto part manufacturers.

Margin expand despite rising raw material costs

Margins of the auto part industry tell a different story compared to raw material costs. The margins have risen, mainly due to lower inventory levels and fixed costs. The past three quarters saw the highest automobile sales in India, leading to faster movement of inventory and better operating margins for auto part manufacturers. The increase in raw material cost was offset by higher pricing, lower inventory and lower fixed costs. According to a report by ICRA, freight costs increased by 4-5x in FY22 and have dropped by nearly half in CY23.

Margins are still below pre-pandemic levels but the increased volume has led to overall growth in the operating profits of the industry. Operating profits on a TTM basis for our sample size is Rs 33,013 crore (as of December 2022), a growth of 19.2% YoY

If we look at the bottom line, net profit margins have remained almost flat, in the range of 4.6% to 5.0% on account of higher interest expenses.

For instance, Samvardhana Motherson International has seen its finance costs increase 28% YoY for the trailing twelve months. Even with lower profit margins, the profitability of the sample size increased by 18% YoY on a TTM basis.

The top 50 auto part manufacturers generated profits of Rs 14,714 crore on a TTM basis. The amount might look small compared to bigger firms like Reliance Industries, whose Q3FY23 quarter profitability itself is Rs 15,792 crore. But the economic benefits of the auto part industry, and the growth outlook, are irreplaceable.

Export-Import of auto parts narrowing

India is a net exporter of auto components and accounts for nearly 34% of the auto component market. Europe, a major importer, buys nearly 30% of our exports. But India’s imports have recently been rising faster than exports. The import-export gap has been narrowing over the past couple of quarters as the demand for advanced components unavailable in India rises. Supply chain constraints and increased demand in Indian markets have also led to higher imports.

Note: Values in Rs crore. Source: commerce.gov.in

India sources nearly 30% of its auto components from China, and any supply chain disruption in China will adversely impact the auto component industry here. We have imported components worth Rs 48,834 crore in the past 12 months and exported for Rs 57,479 crore.

The global slowdown will impact Indian auto component manufacturers’ exports, hampering their profitability. However, the opening up of China’s economy is expected to offset this and soften the cost of raw materials, supported by reduced supply chain constraints.

Capex and PLI scheme to boost manufacturing in this industry

The auto ancillaries industry had not undertaken any capital expenditure (capex) during Covid times and hence, the pent-up demand post-Covid pushed companies to operate at higher capacity utilization. Change in technology with respect to EVs, sensors and assisted driving also proved to be challenging for Indian auto component manufacturers. These companies expect to see a capex of more than Rs 20,000 crore in FY24. This is expected to increase by 6% to 7% in FY25.

The Indian government has provided a capital outlay of Rs 26,000 crore for auto and auto component manufacturers under the PLI scheme. The scheme provides financial incentives to boost domestic manufacturing of Advanced Automotive Technology (AAT) products. As it focuses on technology, it covers firms with expertise in advanced driver assist systems (ADAS), battery development, sensors, telematics, collision avoidance system, etc.

For instance, Schaffler India plans to invest Rs 1,500 crore in capex for the next three years. According to Schaffler India MD Harsha Kadam, the firm is exploring the possibilities to take benefit of PLI schemes in electric vehicle technology (motor or ECU) and hydrogen fuel cell development.

Incentives for the companies vary from 13% to 15% on the determined sales value of the firm. This will provide a much-needed boost to auto OEMs.

Axis Direct released a Sector Update report for Automobiles & Auto Components on 09 Jul, 2025.

Banks

SECTOR | 27 Mar 2023

Profitability for PSU Banks jumped 10x in nine quarters, but margins now under pressure

By Shreesh Biradar

Until the Adani fiasco, the bank sector was the star performer in the past two years. The Nifty Bank has given absolute returns of 26% from Jan 1, 2021, till date, while Nifty 50 gave 21%. Nifty Bank’s major heavyweights are private banks and State Bank of India (SBI). The underperformance of private banks has overshadowed the growth in public …

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Exponential growth in PSU Banks’ profitability, coupled with valuation rerating, caused the PSU Bank index to double in the past two years.

PSU Banks are the driving force behind the Indian economy, with their deep rural penetration. Implementation of Direct Benefit Transfer (DBT) schemes, coupled with awareness and outreach, has led to an increase in customer base for PSU banks. This is reflected in the overall growth of the banking system. Larger banks with higher assets and networks have seen the maximum growth in the past two years.

It’s worth noting that the Nifty PSU Bank underperformed Nifty 50 in the longer term. In the past five years, Nifty 50 has given an absolute return of 65%, while it was 18% for Nifty PSU Bank.

PSU banks have room for further lending

PSU banks’ deposits have grown at a CAGR of 6.44% in the past two years, while advances grew at 11.62%. PSU banks’ deposits stand at a staggering Rs 113.3 lakh crore, while advances are at Rs 83.8 lakh crore at the end of Q3FY23. PSU banks grew skeptical of lending after the NPA crisis from 2017 to 2020. Most of the deposits were parked with the RBI at a lower interest rate. With the economy opening up after Covid on lower interest rates, PSU banks went on a lending spree.

Note: Values in Rs lakh crore

The growth in advances was achieved on the back of a higher deposit base. The credit deposit (CD) ratio has steadily increased in the past nine quarters. PSU banks currently have a CD ratio of 73.90%, while most private banks are above 80%. A higher CD ratio implies efficient utilization of the deposit base and a higher net interest income (NII). If PSU banks were to reach a CD ratio of 80%+, we can expect another round of rapid growth in advances.

However, at this juncture, higher interest rates will curtail the growth of advances. The CD ratio is expected to remain the same or decline owing to an increase in deposits, Since higher interest rates attract more term deposits - Customers move money out from current account and saving accounts (CASA) into term deposits.

Margins to be under pressure going forward

CASA is traditionally the cheapest source of funding for banks. Customers moving away from CASA deposits increases the cost of funding. Lately, all banks have been seeing an increase in the cost of funds.

PSU banks’ CASA ratio dropped from its peak of 43.05% in Q4FY22 to 40.05% in Q3FY23. This is in line with the increase in repo rates by the RBI from April 2022. RBI increased the repo rate by 250 bps in FY23. CASA ratio is expected to drop further as interest rates peak by the end of FY2024. This will increase the borrowing cost of banks, putting pressure on their margins.

PSU banks' margin has seen an expansion of 80 bps in the past three quarters. However, higher margins are difficult to sustain as the repricing of deposits starts taking effect.

More loans on floating interest rates will be an advantage when there is a trend of rising interest. This will have an adverse impact when the rates decline by the end of FY24.

Note: Values in Rs crore. NIM is calculated as a ratio of net interest income to advances

PSU banks have seen the NII grow at 18.37% CAGR in the past two years. The growth in advances, coupled with margin expansion, led to a higher growth rate of NII for PSU Banks. Going forward, contraction in margins and a slowdown in advance growth will adversely impact NII.

NPAs decline on the back of higher provisions and better recovery

Asset quality has been a concern for PSU banks in the past five years. Post Covid, PSU banks saw another spike in non-performing assets (NPA). However, this time, PSU banks have managed to bring down the NPA drastically. Gross NPA declined by 27% in the past eight quarters and net NPA by 43%. Gross NPA, as a percentage of advances, stands at 5.56% at the end of Q3FY23. Net NPA percentage is at 1.41. The gross NPA percentage of private sector banks is in the range of 3-4, whereas net NPA percentage is 1-1.3. PSU banks are on the higher side in terms of gross NPA.

Note: Values in Rs crore. NPA % is calculated as NPA as a percentage of advances

The lower net NPA percentage is on account of higher provisioning undertaken by banks. Most of the PSU Banks have Provision Coverage Ratio (PCR) greater than 70% (as prescribed by RBI). Banks have provisioned Rs 1,23,360 crore in the past four quarters, a decline of 7% YoY.

Note: All values in crore

Higher provisioning has been eating away at the profitability of PSU banks. This has improved in recent quarters – in Q3FY21, provisions were 58% of the net interest income. However, it dropped to 31% at the end of Q3FY23. Going forward, banks are expected to maintain similar provisioning levels, considering RBI’s implementation of the Expected Credit Loss Mechanism (ECL).

Lower provisions drive profitability

An increase in NII and lower provisioning are driving PSU banks' profitability. PSU banks have seen profitability soar by 10 times in the past nine quarters. The growth is higher due to the lower base. Most of the PSU banks were loss-making (except a few large ones) till the end of FY20. With lower provisioning, banks have turned back to green.

Note: Values in Rs crore

Nifty PSU Bank valuation sees an upward trend

The recent Adani fiasco has pushed the valuation of PSU banks to the downside. The three largest PSU banks, viz., SBI, Bank of Baroda and Punjab National Bank altogether have an exposure of Rs 40,000 crore in the Adani Group. These three stocks have major weights in the Nifty PSU index, dragging it further down. However, the Price to Book (P/B) valuations are still higher than historical averages.

Nifty PSU Bank was trading in the P/B range of 0.7-0.75 from Q1FY22 to Q2FY23. But it has increased to 0.9-1 in the past couple of quarters due to factors like an increase in advances, higher CD ratio, NIM expansion, improved asset quality and lower provisioning.

P/B rerating, coupled with growth in the book value of PSU banks, have led to PSU banks' astounding outperformance with respect to the broader index. Going forward, PSU banks' contraction in margins along with a slowdown in advance growth will put pressure on profitability. However, this will be partly offset by lower provisions, keeping the growth going, but on the lower side.

Axis Direct released a Sector Update report for Banks on 08 Jul, 2025.