Stock market analysis and stories by Satyam Kumar

Articles by Satyam Kumar

22 Nov 2024

Quant mutual funds and GQG partners back in focus as another Adani Group controversy erupts

On January 24, 2023, Hindenburg Research, famous for activist short-selling, published a report with the headline, “Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History.” This impacted all the stocks of the Adani conglomerate and within a matter of days, brought down his wealth by more than 50%. In response to this, Gautam Adani said that all allegations are baseless. The Supreme Court of India and SEBI gave him a clean chit after an investigation.

Almost two years later, Adani stocks were still recovering from the Hindenburg shock, and Gautam Adani was busy raising fresh funds, and set to launch $600 million of dollar-denominated bonds.

But around 3 am, early Thursday morning in India, US prosecutors published the allegations that he, along with others, had promised to pay more than $250 million in bribes to Indian government officials to win solar energy contracts. The crux of their case was that he concealed these efforts while he sought to raise money from US investors.

Adani Group’s stocks and bonds plunged, wiping off around Rs 2,50,000 crore of the conglomerate’s total market value. Here at Trendlyne, we follow these market movements closely, and in this article, we will explore the impact of this on retail as well as institutional players who hold Adani stocks in their portfolios.

Domestic and foreign investors hold substantial Adani Group shares

Domestic investors held 17% of Adani stocks, while foreign investors owned 13%

Of the total investments worth over Rs 2 lakh crore by the foreign institutional investors (FIIs) as of October end, around 40% was from GQG Partners. GQG, an investment management firm, saw its shares listed on the Australian Securities Exchange fall by around 20% on Thursday.

Meanwhile, retail investors and mutual funds combined also had investments worth around Rs 2 lakh crore at the end of October.

By design, every passive fund and ETF was exposed to a few Adani Group stocks. However, even the actively managed mutual funds from Quant, ICICI Prudential, HDFC, SBI, and Mirae Asset among others had significant exposure to Adani stocks as of October 31.

Actively managed Quant mutual funds have exposure of ~Rs 5,000 crore to Adani stocks

While FIIs were continuously pressing ‘SELL’ on Adani, DIIs were pressing ‘BUY’

FIIs were right yet again in reducing their exposure to Adani-verse

Except for GQG Partners, most FIIs were quietly cutting their exposure to the Adani group stocks, while active mutual funds and retail investors were mostly sitting on the other end of the trade buying those stocks.

Quant mutual funds find themselves wrong-footed on Adani again

Quant MFs again took a chance with Adani stocks, and got burnt again

You must be wondering who were the ones among the DIIs pressing the ‘BUY’ button. I found the answer exactly where I thought I would — the monthly change page of mutual funds’ holdings on Adani Enterprises’ shareholding page, and I was struck by one name in particular — ‘Quant Mutual Fund’. If you look at the screenshot above, many funds managed by the Quant fund house took fresh positions in Adani Enterprises just last month in October. According to the data from Trendlyne, they invested over Rs 1,963 crore in this single stock and again got their hands burnt along with many investors who trusted them with their savings.

This is the second time Quant has got its fingers burnt. Quant mutual funds were among the biggest holders of Adani stocks during the Hindenburg Saga.

Adani follows the SOP

An Adani Group media release that came around 2 pm on Thursday issued denials regarding the case, “The allegations made by the US Department of Justice and the US Securities and Exchange Commission against directors of Adani Green are baseless and denied.”

The media release also cited the US Department of Justice, which said, “The charges in the indictment are allegations and the defendants are presumed innocent unless and until proven guilty.”

In an interview with Forbes over a decade ago, Gautam Adani said, “Being an entrepreneur is my dream job as it tests one's tenacity. I could never take orders from anyone.” But shareholders, regulators and investors will now play significant roles in deciding what lies ahead for his conglomerate.

The Baseline

05 Nov 2024

Chart of the Week: Banks & AMCs beat analyst forecasts in Q2, while OMCs & pharma disappoint

By Satyam Kumar

Who doesn’t enjoy surprises? The word makes us think of something pleasing and unexpected. However, when viewed through the lens of an analyst with specific forecasts about a company’s performance, surprises can be negative too, as we’ll explore in this article.

If you check the quarterly reports of analysts, available here, it typically begins with an assessment of whether the firm exceeded or missed estimates for revenue, net profit, margins, and other key metrics in their results. These beats and misses significantly impact the company’s share price. In this week’s chart of the week, we’ll look at Trendlyne’s Analyst Estimates dashboard to review companies that either beat or missed forecasted estimates for Q2 FY25.

Banks shine in Q2, wealth management & related firms outperform

Most banks reported strong results in Q2, with firms like ICICI Bank and Axis Bank exceeding analyst expectations for revenue and net profit. Improved asset quality and sustained loan growth boosted earnings; deposits however, remain a concern, impacting profitability. Changing savings preferences have driven customers away from deposit accounts, as more and more people buy into the idea of “Mutual Funds sahi hai.”

Public Sector Undertaking (PSU) banks like the Bank of Baroda, Punjab National Bank, and Union Bank of India outperformed estimates by significant margins. Many PSU banks currently offer strong valuations, with Trendlyne Valuation Scores above 70. This trend aligns with Nifty PSU Bank—an index of 12 government banks—trading at a discount of over 15% from its 52-week high.

On the contrary, Kotak Mahindra Bank missed its consensus estimates due to higher slippages (bad debt), particularly in the credit card and microfinance segments, impacted by macroeconomic stress and borrower overleveraging. In response to this, traders and investors led Kotak’s share price down by over 4% on the result announcement day, October 21. The RBI's ban on digital customer onboarding by Kotak due to a tech embargo has also slowed growth, especially in new credit cards. A positive development for the bank, however, was the significant growth in deposits, driven by the relaunch of ActivMoney, an alternative to fixed deposits.

All asset management companies, including HDFC AMC, Nippon Life India, UTI AMC, and Aditya Birla Sun Life AMC, surpassed estimates by wide margins, reflecting increased investor confidence in India’s long-term economic growth. Other firms, like CDSL, MCX, and KFIN Technologies, also reported strong results, benefiting from similar trends.

Consumer electronics, realty and general industrials were a mixed-bag

The past few years have been favourable for consumer electronics manufacturers in India. Demand continues to rise, driven by rapid advancements in technology, such as the shift from 3G to 4G to 5G and the emergence of generative AI. On the supply side, the government has introduced policies to incentivize local manufacturing of electronic goods, supporting industry growth.

Rising disposable incomes have also blurred the line between essential and discretionary products. What was once considered a luxury is now viewed as a norm. Companies like Dixon Technologies and Amber Enterprises exceeded revenue and net profit estimates by significant margins. In contrast, Voltas missed estimates slightly during a seasonally weak quarter, as much of its revenue relies on air-conditioner sales.

The real estate sector experienced a mixed performance, with both upbeat and downbeat results. DLF, Godrej Properties, and Prestige Estates Projects reported positive Q2 results, while Macrotech Developers, Oberoi Realty, and Phoenix Mills posted weaker-than-expected results. Similarly, in the general industrials sector, companies like BHEL and Jindal Saw exceeded expectations, whereas Grindwell Norton, Suzlon Energy, Supreme Industries, and AIA Engineering underperformed relative to Forecaster estimates.

OMCs miss estimates on all fronts

Q2 was a real bummer for oil marketing companies (OMCs) such as Indian Oil, Bharat Petroleum, and Hindustan Petroleum. All of these firms missed net profit estimates and saw it decline for another quarter — a negative trend that started in Q2 last year. However, just before this downhill journey, these OMCs had reported all-time high net profits because of cheap Russian crude that India imported last year. Even today, India imports most of its crude oil from Russia (above 40%), but it is not as cheap, creating pressure on their profit margins.

Meanwhile, in the pharma industry, it feels like the firms were struggling to manage both sides of the scale — one side representing revenue and the other side representing net profit. Pharma bellwethers like Sun Pharmaceutical and Cipla barely managed to meet their revenue consensus, while delivering on higher than expected net income. On the contrary, firms like Torrent Pharmaceuticals, Ajanta Pharma, and Piramal Pharma missed Forecaster's net profit estimates, primarily due to their growth-seeking approach.

The Baseline

29 Oct 2024

Chart of the Week: Promoters are on a selling spree as markets grow volatile

By Satyam Kumar

The ongoing correction in the Indian stock market has left many retail investors wondering about the reasons behind the heavy selling. While the Middle East war is an important factor here, the relatively expensive valuations of the Indian firms, downbeat Q2 results, and a slowing Indian economy are other reasons.

Foreign institutional investors (FIIs), who are the most fickle players in a stock market, have according to Trendlyne’s FII & DII dashboard, sold over Rs 90,000 crore worth of equities in the Indian market in October (the highest ever in a single month). This suggests that FIIs are booking profits and reallocating some investments to China, which currently appears to be a more affordable market. As a result, the Nifty50 is trading at a discount of over 7% from its all-time high. Even promoters, who are closely tracked for their long-term bets on their companies, have been cashing out a sizeable chunk of their holdings.

This chart of the week takes a look at promoter activity over the past quarter. Given promoters' significant influence over board selection and key decisions, their trading activity can be a leading indicator that gives insights into the future of the business. According to Trendlyne’s shareholding stock screeners, promoters of 155 of the top 500 firms have reduced their shareholding, while just 23 increased it over the past quarter.

Stocks with expensive PEs see corrections, promoters selling stakes

Many stocks trading at very high price-to-earnings (PE) ratios or with a Trendlyne valuation score of below 35 have seen significant correction over the past month. An easy-to-understand value metric tracked on Trendlyne is the percentage of days the stock has traded below the current PE ratio. If this is more than 80%, it indicates that the stock usually trades below its current PE and is at a relatively high valuation, or in the “Strong Sell Zone”. This could explain why promoters are cutting their stake.

Out of the 155 stocks where promoters decreased their stake in the last quarter, 93, or 60%, are in the Sell Zone or Strong Sell Zone. Firms like Prestige Estates Project, Vedanta, Max Financial Services, KPR Mill, and Adani Energy Solutions are in the Strong Sell Zone. Meanwhile, JK Tyre & Industries, Welspun Living, Patanjali Foods and 33 other firms are in the Sell Zone — which means that stock has traded below the current PE for at least 60% of the days.

Notable sells by promoters

According to a Trendlyne screener that tracks promoter stake cuts of over 2% in Nifty500 firms, 31 companies have witnessed significant promoter selling over the past quarter. Companies appearing in this screener include GE T&D India, Easy Trip Planners, Route Mobile, Sterling and Wilson Renewable Energy, InterGlobe Aviation and Adani Energy Solutions among others.

GE T&D India, an industrial machinery firm, saw its promoter offload a 15.6% stake via an offer for sale priced at Rs 1,400 per share — around Rs 300 below the then trading price. This resulted in stock hitting a lower circuit of 5% the day the offer opened for subscription on September 19.

Meanwhile, Easy Trip Planners’ promoter, Nishant Pitti sold half of his stake in the past quarter and currently holds only 14.2%. This has reduced the cumulative promoter holding from 64.3% a quarter ago to slightly above 50% as of September 2024. The stock currently trades at nearly half its 52-week high of Rs 54.

Similarly, at the end of August 2024, Rakesh Gangwal, co-founder and promoter of airline operator, InterGlobe Aviation (Indigo), sold a 6% equity stake valued at over Rs 10,000 crore. The Gangwal-backed promoter group’s stake has dropped from 36.7% in 2019 to 13.5% as of September 2024. This includes the 8.2% stake of Chinkerpoo Family Trust – whose trustees are Shobha Gangwal and JPMorgan Trust Company of Delaware – and Rakesh Gangwal's personal 5.3% stake.

This all started when the partnership between co-founders Rahul Bhatia and Rakesh Gangwal soured and fell apart in 2019. In February 2022, Gangwal resigned from IndiGo’s board as a non-executive, non-independent director and announced plans to reduce his stake. “I have been a shareholder in the company for more than 15 years, and it's only natural to someday think about diversifying one's holdings,” Gangwal explained in his resignation letter.

Significant corrections have led to stake additions

With the ongoing correction in the Indian stock market, many stocks are trading at a substantial discount from their all-time highs. Promoters are taking this as an opportunity to increase their stakes, though the list of buyers is notably shorter compared to the number of sellers.

While major promoter sells often make news headlines, however, the case is not the same when they increase their stake. This is likely because they don’t want to drive up the price while they are stacking up on those shares. Trendlyne’s screener, however, constantly tracks these activities and currently highlights over 20 stocks where promoters have increased their holdings over the past quarter.

For instance, Maharashtra Seamless, a steel pipe manufacturer, saw its promoter, Jindal Group, add around 2.5 lakh shares year-till-date in 2024. Trendlyne categorises this stock as a “Value Stock, Under Radar”, noting the company’s sound financials, with the stock currently trading at a discount of over 40% from its all-time high.

Similarly, Adani Green Energy, an Adani-Group firm, witnessed stake additions over the past two quarters as the stock currently trades at a discount of around 25% from its 52-week high. Other notable companies where promoters increased their stake over the last quarter include Indus Towers, GMR Airports Infrastructure, and Kalyan Jewellers India, among others.

The Baseline

17 Sep 2024

Chart of the Week: Both domestic and foreign investors are sitting on hefty gains as Nifty touches new highs

By Satyam Kumar

Nifty50 hit an all-time high of 25,446 on Monday as India’s booming markets witnessed the fourth straight month of buying by foreign investors. The recent surge is driven by the likelihood that the US Fed will start the rate-cutting cycle tomorrow, September 18. Markets are rising due to expectations that the Fed will cut interest rates by 50 basis points (bps) rather than 25 bps as estimated earlier, which will lead to lower interest rates and boost flows into emerging markets.

Morgan Stanley Composite Index’s (MSCI) gauge of Indian shares is up 24% in 2024, in contrast to a 1.7% drop in a similar gauge for Chinese stocks. This has led to the rising influence of Indian stocks in the MSCI Global Standard Index, also known as the World Index. India currently holds a weightage of around 18%, second only to China, which has a weightage of approximately 25%. This marks a significant increase from levels below 10% at the start of 2021.

This chart of the week takes a look at FII & DII activity in the equity segment on a monthly basis over the past decade. We have compared the investing preferences of Indian and foreign investors and how they have fared over the past decade.

FIIs have almost quadrupled their investments in Indian equities over the past decade

Foreign institutional investors (FIIs) assets under management (AUM) in the equity segment stood at Rs 75.5 lakh crore, up from Rs 19.6 lakh crore at the start of 2015. Between January 2015 and September 2024, FIIs were net buyers in 68 out of 117 months and net sellers in the remaining months. This indicates that FIIs were net buyers in 58% of the total months over the past decade.

Over the past decade, FII's buy/sell decisions overlapped with positive and negative changes in the Nifty50 in 90 of the total 117 months. This implies that they bought whenever the markets rose and sold whenever the markets took a hit, and that too with an accuracy of 77%. This can be an interesting data point for traders and swing investors in their pursuit of timing the markets better. Another reason for this accuracy can be attributed to their higher stake of over 17% in the Indian equity markets. This results in their higher influence in the equity market, with prices moving in the direction they trade.

India following the SIP mantra, DIIs were net buyers in 84% of the total months over the past decade

Domestic institutional investors (DIIs) include entities like mutual funds, pension funds and insurance firms. Over the past decade, DIIs were net buyers in 98 of the total 117 months, while net sellers in the remaining months. On a monthly basis, they were net buyers in the market irrespective of where the market was headed.

Central Depository Services’ annual report highlights rising investor confidence in the Indian equity market. This depository company currently has a market share of 76% as of March ‘24 with 11.6 crore investor accounts. This implies that the company has added new investors at a CAGR of more than 25%. According to data released by the Association of Mutual Funds in India, retail investments via SIPs into mutual funds have increased at a CAGR of 24.1% over the past seven years.

Over the long term, both FIIs and DIIs have gained on their investments, thanks to the economic growth

According to Trendlyne’s Technicals, the broader equity market index, represented by the Nifty 500 index which consists of the top 500 listed Indian firms, has gained 273.8% over the past 10 years.

DIIs, even with their strategy of investing in markets consistently, rather than timing their investments like FIIs do, made outstanding returns. This is because India’s economic growth has consistently outperformed in comparison to its peers post-pandemic, highlighted by the GDP growth rate of 8.2% in FY24.

FIIs, on the other hand, have also gained on their investments significantly over the past years. The payoff has led them to consistently increase India’s weightage in their portfolio in comparison to other emerging market peers like Indonesia, South Korea, Thailand, etc. On top of that, foreign investors have witnessed a better risk-reward environment as the rupee has stabilized in comparison to the US dollar over the past few years.

Stable political environment boosts investor confidence in the Indian equity market

FIIs divested over Rs 30,000 crore in the months before the election in June. However, they have re-entered the markets since then with consistent buying in the following months, as the BJP-led NDA alliance formed a government with Narendra Modi re-elected as Prime Minister for a third term.

In recent years, India has made strides in improving the ease of doing business, with reforms in taxation, labour laws, and corporate governance. This stability has attracted increasing FII inflows, further strengthening the Indian equity market. Initiatives like Make in India, Digital India, and Atmanirbhar Bharat have fueled investments in manufacturing, technology, and innovation, promoting growth and attracting both domestic and foreign investors.

The Baseline

11 Sep 2024

Chart of the Week: Crude oil prices at 52-week low boosts prospects for India

By Satyam Kumar

Crude oil prices fell below $70, marking a new 52-week low on September 10 due to oversupply concerns and a weak demand outlook. A week ago, OPEC+ announced it would postpone its planned oil supply increase until the start of 2025.

OPEC, or the Organization of the Petroleum Exporting Countries, was established in 1960 by Iraq, Iran, Kuwait, Saudi Arabia, and Venezuela. The organization has since grown to include 13 member nations. OPEC operates like a cartel, regularly meeting to set oil production targets and coordinate output to manage global oil prices.

In 2016, in response to falling oil prices driven by a surge in United States crude production—also known as shale oil—OPEC signed an agreement with 10 other oil-producing countries, forming OPEC+. Among these countries was Russia, the world’s third-largest oil producer accounting for more than 10% of global production.

This week’s Chart of the Week looks at the reasons behind falling crude oil prices and how these trends may affect India and its equity markets.

Weak demand in the US & China and an increasing supply of US crude led to decline in crude prices

US increases crude production to all-time high levels, while OPEC+ cuts

Oil posted its biggest weekly drop in 11 months as a weak US jobs report added to concerns about tepid demand in the world’s largest consumer of crude. Oil prices have trended lower since early July, with weakness in the economies of China and the US — the top two oil consumers — creating fears about demand.

According to U.S. Energy, the production of crude oil in the United States, also known as shale oil has steadily risen in recent years to all-time high levels, adding supply pressure and messing up OPEC’s calculations as oil demand weakens.

Falling crude oil prices a boost for the Indian economy

India imports more than 80% of its crude oil needs, so falling oil prices will significantly reduce the country's import bill. This will help narrow the trade deficit and boost foreign exchange reserves.

High oil prices typically lead to a stronger US dollar against other currencies, which puts downward pressure on the Indian rupee. This is because high oil prices drive up demand for dollars as it is the preferred currency used in oil trade across the globe–so much so that it is referred to as the petrodollar trade. So falling crude oil prices can alleviate the pressure on the rupee.

According to India Today, the government is considering lowering oil prices to reduce inflation by bringing down energy costs. High retail prices for petrol and diesel tend to drive up domestic commodity prices, as increased oil costs raise production and transportation expenses across various sectors, squeezing profit margins. As the world's fourth-largest energy consumer, behind China, the US, and the European Union, India is especially sensitive to shifts in global oil prices.

Indian oil marketing companies & airlines would directly benefit from lower crude oil prices

Oil marketing and distribution companies such as Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation stand to benefit from falling crude oil prices, as it is a key input material. Despite crude price fluctuations, retail fuel prices have remained near Rs 100 for the past few years. As a result, declining crude prices, coupled with stable retail prices, will significantly enhance their profit margins.

These companies saw their net profit surge nearly tenfold during the Russia-Ukraine war. This was due to US sanctions on Russian crude, which left Russia with limited buyers and forced it to sell at discounted rates. Consequently, India's crude imports from Russia skyrocketed, increasing from $2.3 billion in 2021 to $25.5 billion in 2022, and nearly doubling again to $48.6 billion in 2023.

Although Russia still supplies 40% of India’s crude oil, the price advantage has lessened due to higher insurance and freight costs.

Similarly, for airlines like InterGlobe Aviation (IndiGo), fuel expenses make up more than 30% of its total expenses. Lower crude oil prices can help reduce operating costs and boost profit margins.

Paint, tyre and lubricant manufacturers that use crude oil derivatives as raw materials would witness higher gross profit

Paint manufacturers such as Asian Paints, Berger Paints (India), and Kansai Nerolac Paints will benefit from lower crude oil prices, as more than 40% of their revenue is spent on raw materials, many of which are crude oil derivatives. Gulf Oil Lubricants India will also see a reduction in operating costs in the coming quarters if crude oil prices remain low.

On the other hand, rubber prices have risen by 24% over the past year, squeezing profit margins for tyre manufacturers. Companies like Balkrishna Industries, MRF, Apollo Tyres, and Ceat have taken price hikes over the past year to offset rising costs. However, as the prices of crude oil derivatives decline with falling oil prices, rubber costs are expected to decrease, which will, in turn, benefit these tyre manufacturers.

The recent decline in crude oil prices offers significant advantages to various sectors in India. Overall, crude oil prices at or below $70, is good for the Indian economy. However, global economic dynamics, particularly demand trends in the US and China, will be critical in shaping the long-term outlook for crude prices and their impact on India.

The Baseline

04 Sep 2024

Chart of the Week: Fertilizers and software & services sector emerge as top gainers over the past quarter

By Satyam Kumar

For the first time in six quarters, India’s quarterly GDP growth on a YoY basis came in below estimates at 6.7% for Q1FY25. This was primarily due to subdued government spending and a decline in manufacturing activity. Despite this slight moderation in short-term growth, the World Bank remains optimistic about India’s long-term growth outlook. They revised their growth projection for the current fiscal upward to 7%, from the previous estimate of 6.6%.

If we look at the equity markets, India’s influence in the MSCI Global Standard Index, also known as the World Index, has been growing rapidly. India currently holds a weightage of around 18%, second only to China, which has a weightage of approximately 25%. This marks a significant increase from levels below 10% at the end of 2020.

In this week’s Chart of the Week, we take a look at Trendlyne’s Sector Dashboard to identify the top-performing sectors over the past quarter. We focus on the top eight sectors that have delivered maximum gains, highlighting the stocks and underlying factors that have contributed the most.

Early signs of growth propel the fertilizers and software & services sectors

The fertilizers sector emerged as the best-performing sector, posting 34.1% gains over the past quarter. Average net profit growth more than doubled on a YoY basis in Q1FY25. This growth was driven by a good monsoon and initiatives taken by the government to boost the sector. For instance, the government is developing a national policy to boost local fertilizer manufacturing. The Fertilisers and Chemicals Travancore, Coromandel International and Chambal Fertilisers & Chemicals were the highest contributing stocks as they rose 41.8%, 36.6% and 28.6% respectively over the past quarter.

The software and services sector also saw significant growth, soaring 30.8% over the past quarter, driven by early signs of recovery in the IT industry. This was buoyed by demand for emerging technologies like Generative AI, machine learning and cloud transformation. Tata Consultancy Services (TCS) rose 19.7% over the past quarter driven by positive sequential growth among all verticals except media and communication. Q1FY25 marked the first positive revenue growth on a QoQ basis after four quarters of sequential decline.

IT consulting & software company Infosys saw a 34% uptick in its share price over the past quarter, accounting for 20% of the sector’s overall gain during the period. The company’s financial services segment, which contributes around 27% to the overall revenue, reported positive growth on a YoY basis after six quarters.

Retailing & consumer durables companies witness growth driven by rising demand for their products

The retailing sector has risen 29.5% over the past quarter, with Trent alone contributing 67.3% to the sector’s gains, as it surged 53.2%. Avenue Supermarts contributed 16% to the overall sector gains.

Trent posted revenue growth of 54.8% YoY to Rs 4,150 crore in Q1FY25, with net profit rising 126.3% YoY to Rs 393 crore. The company’s strategy to focus on its affordable, trend-led fashion retail store, Zudio, has been a key driver of revenue growth as consumers gravitate toward value products amid high inflation.

The consumer durables sector also recorded a 20% gain over the past quarter, supported by the “Make in India” initiative amid growing demand for electronics goods. The industry saw an average net profit growth of 45% YoY in Q1FY25. Electronics manufacturer, Dixon Technologies (India), contributed 18.4% to the overall sectoral gains after rising 42.6% over the past quarter. Similarly, Voltas, an air conditioner (AC) manufacturer gained 26.8% over the past quarter, contributing 8.5% to sectoral gains. This rise came on the back of high demand for ACs in the peak summer months from April to June.

Uptick in exports drives the pharmaceuticals & chemicals sector higher

The pharmaceuticals & biotechnology sector gained 26.7% over the past quarter. Pharmaceutical firms like Sun Pharmaceutical Industries and Lupin were the major contributors as they gained 23% and 40% respectively over the past quarter. Growth in Sun Pharma was led by global specialty sales and emerging market segments. Lupin, on the other hand, witnessed its net profit rise by 77% on a YoY basis to Rs 801 crore in Q1, driven by new product launches and improved product mix.

The chemicals and petrochemicals sector surged by 24.3% over the past quarter, as India strengthened its position in the global chemicals market. This growth was driven by increasing interest from global companies looking to source from India in a bid to de-risk their supply chains.

Leading carbon black producer, PCBL saw its stock price double over the past quarter, contributing 8% of the overall sectoral gains. This rise followed the company’s announcement to increase its global presence with capacity additions via brownfield and greenfield expansions, taking the total capacity to 10 lakh tonnes (currently, 7.7 lakh tonnes). Similarly, agrochemicals company PI Industries and specialty chemicals firm BASF India also contributed 7.7% and 6.4% to the sectoral gains over the past quarter.

Food, beverages & tobacco and FMCG companies capitalise on shifting consumption trends

The food, beverages and tobacco sector gained 21.6% over the past quarter. Cigarettes and tobacco manufacturers like ITC and Godfrey Phillips India accounted for around 50% of the sector’s gains. This growth was driven by stable cigarette taxes and enforcement against illegal trade, which helped the legal cigarette industry recover volumes. Breweries & distilleries company United Spirits also gained 25% over the past quarter driven by its premium products, and contributed over 10% to the overall sectoral gains.

Likewise, the FMCG sector gained 20.3% over the past quarter, led by moderation in raw material prices and an uptick in rural consumption. Personal products companies Hindustan Unilever and Colgate-Palmolive (India) gained significantly over the past quarter contributing over 40% to the sectoral gains.

The Baseline

28 Aug 2024

Chart of the Week: Financial firms continue on their growth trajectory in Q1, while the gems & jewellery industry struggles

By Satyam Kumar

At the monetary policy meeting on August 8, the Reserve Bank of India's (RBI) rate-setting panel maintained India's economic growth outlook, projecting GDP growth of 7.2% for FY25, after keeping the repo rate unchanged at 6.5%.

The GDP growth forecast for the full year and the upcoming quarters is unchanged, but RBI’s forecast for Q1FY25 has been revised down to 7.1%. A poll conducted by Financial Express among economists suggests that Q1 growth, estimated at 6.7%, will be the lowest compared to the past five quarters. This slowdown is attributed to weaker manufacturing and agricultural activity, alongside a decline in government spending. The National Statistical Office (NSO) is set to release the Q1FY25 GDP data on August 30.

According to Trendlyne’s Results dashboard, more than 60% of the Nifty500 companies have reported positive net profit growth in their results for the quarter ending June 30. This edition of Chart of the Week looks at YoY growth in revenue and net profit across industries, and the biggest contributors here.

Exchanges & capital markets industry continue to outperform in Q1FY25

India’s capital markets have been on a consistent upward trajectory over the past few years, and the last quarter was no exception. Markets hit new highs, with Nifty50 near its all-time of 25,073 after rising 30% over the past year. Revenue growth in the industry has reached new highs with each passing quarter driven by rising investor confidence. According to Trendlyne’s Results Dashboard, the exchange industry witnessed its revenue double on a YoY basis in Q1.

For BSE, transaction charges—which make up more than half of the total revenue—soared by 5.6X YoY to Rs 366 crore. Revenue from equity derivatives also jumped to Rs 242 crore, compared to just Rs 1.6 crore in Q1FY24, thanks to a relaunch of derivatives in May last year. However, net profit declined 40.1% YoY to Rs 265.1 crore due to a higher base, which is evident on a QoQ comparison, where it surged 147.6%. Similarly, revenue for MCX India surged 52.3% YoY to Rs 253 crore, with net profit rising 464.2% YoY to Rs 111 crore due to a lower base in the corresponding quarter during the previous year.

The capital markets industry registered an overall revenue and net profit growth of 60.1% and 73.8% respectively, in Q1FY25. Firms like Motilal Oswal Financial Services, ICICI Securities and Angel One contributed significantly to this surge.

Consumer electronics and realty ride the tide of better living standards

The consumer electronics industry saw average revenue growth of 51.7% YoY, while net profit surged 139.5%. Once considered a luxury, room air-conditioners (AC) have become mainstream as summers get hotter. AC manufacturers like Voltas and Blue Star reported net profit growth of 158.5% and 102.6% respectively in Q1FY25, driven by high demand. None of the above-mentioned companies were able to keep up with the rising demand in the peak summer months of April to June. This led them to announce huge capex in FY25 in a bid to double their manufacturing capacity by FY26, to prepare for the next summer.

Another consumer electronics front-runner, Dixon Technologies saw revenue and net profit almost doubled on a YoY basis in Q1FY25 driven by the Make in India initiative. The rise in sales was driven by their mobile and electronic manufacturing services (EMS) division. This division saw revenue growth of 189% YoY to Rs 5,192 crore, and contributed 79% to the total revenue in Q1FY25, compared to 55% during the same period last year.

Meanwhile, the realty industry had a mixed performance in Q1FY25, with both winners and losers. However, the industry registered an average revenue and net profit growth of 24.9% and 140.6% respectively. Firms like Macrotech Developers, Oberoi Realty and Brigade Enterprises contributed significantly to the growth of the industry.

Gems & jewellery industry moderates in Q1, while the movies & entertainment industry witnesses a decline

Industry leader, Titan saw its revenue moderate in Q1FY25 driven by rising gold prices which led to subdued demand. Meanwhile, Kalyan Jewellers India and Senco Gold saw their net profit surge 23.5% and 85.3% respectively on a YoY basis driven by healthy same-store-sales growth and new store additions. On the contrary, Rajesh Exports’ share price continues to hit new lows as its net profit falls to 96.2% YoY to Rs 12 crore due to high operating costs.

The movies and entertainment industry also registered a decline in their business owing to general elections and a cricket-heavy season which resulted in a 13% YoY drop in movie releases. PVR INOX’s revenue and net profit declined on a YoY basis by 8.8% and 119% respectively in Q1FY25. Similarly, Prime Focus’ revenue and net profit declined on a YoY basis by 32.8% and 75.3% respectively.

Healthcare facilities & fertilizers industry show early signs of recovery

Both healthcare facilities and fertilizers industries reported average revenue moderation corresponding to the same quarter during the previous year but delivered positive net profit growth on a YoY basis in Q1FY25.

The healthcare facilities industry’s average revenue growth declined by 3.1% in Q1, but the net profit surged by 488% on a YoY basis. Apollo Hospitals Enterprise, Fortis Healthcare and Aster DM Healthcare contributed significantly to this surge in net profit. Apollo Hospitals witnessed growth across all segments, driven by higher occupancy and outpatient volumes. Similarly, Fortis’ occupancy increased from 64% in Q1 last year to 67% in Q1FY25 leading to higher revenue per occupied bed.

Similarly, the fertilizer industry saw its average revenue growth decline by 5.7% in Q1FY25, however, net profit surged 12% YoY driven by forecasts of a good monsoon this year. National Fertilizers and Chambal Fertilisers & Chemicals saw moderate revenue growth, but net profit rose 92.8% and 32.4% respectively on a YoY basis.

The Baseline

22 Aug 2024

Chart of the Week: Indian rupee holds steady despite big shifts in monetary policies across the globe

By Satyam Kumar

On August 5, 2024, the Indian rupee reached its all-time low of Rs 84.1, driven by escalating geopolitical tensions in the Middle East and recession fears in the United States. Though the Indian rupee has hit its all-time low multiple times in the past year, the fall has been marginal, thanks to intervention by the Reserve Bank of India, limiting the losses.

High volatility can complicate trading and investing in the rupee, potentially increasing costs for businesses and investors. However, interventions by the central bank and optimism surrounding potential rate cuts by the US Federal Reserve (Fed) kept the rupee around the critical threshold of Rs 84. The chart above shows that over the past year, the Indian rupee has depreciated by only 0.8% against the US dollar, reflecting its relative stability compared to other currencies like the Brazilian real and the Russian ruble. The Euro and Australian dollar have risen over the past year driven by growing expectations that the Fed might soon begin cutting interest rates.

RBI Governor, Shaktikanta Das, said, “It is always the priority of the RBI to ensure stability of Indian rupee.” This stability the governor talks of has been hard-won – a decade ago, the Indian rupee was one of Asia’s most volatile currencies. US-based Global Finance magazine has ranked Das as the top central banker globally for the second consecutive year, a ranking based on his success in managing inflation, promoting economic growth, and ensuring the currency’s stability while overseeing interest rate policies.

The governor’s job is a tightrope, in ensuring the economy’s stability while facing pressures from corporates and consumers around interest rates. And not everyone is pleased. The International Monetary Fund (IMF) says that excessive forex intervention has contributed to the rupee-dollar moving within a narrow range since December 2022 and reclassified India’s exchange rate regime to ‘stabilized arrangement’ from ‘floating’

This week’s Chart of the Week examines the rupee’s performance among global currencies over the past year and the factors contributing to its improving stability over the past decade.

How does the Yen carry trade impact the Indian rupee?

The yen carry trade, a popular strategy for over a decade, has been undergoing significant unwinding recently, affecting global markets, including India. This trade involves borrowing Japanese yen at the country’s very low interest rates (around 0.1%) and investing in higher-yielding assets abroad. However, the strategy has become less profitable due to recent changes in Japan’s monetary policy.

On the 31st of July, the Bank of Japan (BoJ) increased interest rates by 25 basis points (bps) to 0.25% from near-zero levels, and hinted at further hikes this year. Analysts also expect the US Federal Reserve to cut interest rates by 75 basis points in 2024, squeezing the differential between US-Japan interest rates and impacting profit margins further for those engaged in yen carry trades.

The BoJ's rate hike has led to a sharp 8% appreciation of the yen over the past month. As the yen strengthens, it becomes more expensive for investors to maintain yen-funded positions, prompting a rapid unwinding of these trades. This shift has had a noticeable impact on India’s financial markets. Following the BoJ’s rate hike, India's benchmark index, Nifty50, experienced a significant sell-off, dropping over 1,000 points from its peak of 25,000 within just three trading days. This decline is partly attributed to the fact that 23% of total inflows into India since January 2023, amounting to $10.3 billion, were invested by participants in yen carry trades.

US rate cuts: Potential boon for the Indian rupee

The anticipated rate cuts by the US Federal Reserve, expected to be around 75 bps in 2024, could, however, prove advantageous for the Indian rupee. Lower interest rates in the US often lead to increased foreign investment in emerging markets like India. As the interest rate differential between India and the US widens, India may become a more attractive investment destination compared to the US.

The expected inflow of foreign capital could further boost Indian markets. Foreign institutional investors, who had withdrawn from Indian markets as the US Fed started to hike interest rates, could return as the interest rate environment shifts.

The lower US interest rates would also increase the availability of dollars, potentially leading to a softer dollar and a stronger rupee. A stronger rupee could benefit India by reducing its import bill, particularly for oil, which constitutes more than 80% of its total imports. A stronger rupee would help lower import costs, alleviate the current account deficit, and improve the fiscal deficit. A fiscal deficit represents the gap between how much the government earns and how much it spends. It would also make it cheaper for India to service its foreign debt.

Strong economic growth coupled with RBI’s intervention has led to a stable rupee

Volatility in the Indian rupee has fallen to a decade-low

Even though the Indian rupee has consistently weakened against the dollar over the past decade, the volatility has significantly decreased over time. This relative stability can be attributed to robust economic growth, consistent policy measures, and political stability coupled with RBI intervention whenever needed. Continuity in the Central government after the recent elections in June has boosted the confidence of foreign investors. Key reforms, such as assigning an inflation-target mandate to the central bank and reducing the budget deficit, have further supported this stability. India now boasts the world’s fourth-largest pile of foreign reserves.

By buying dollars when the rupee strengthens and selling foreign exchange when it weakens, the RBI has moderated significant currency fluctuations. This intervention helps smooth out the value of the rupee by managing the supply of dollars in the market.

However, the RBI's approach has its limitations. The central bank's interventions can sometimes mask changes in economic fundamentals, meaning that strong growth, which usually supports currency strength, might not always translate into a stronger rupee if the RBI continues to buy dollars.

The Baseline

13 Aug 2024

COTW: When it comes to the Olympic race, India lags in medals to GDP ratio

By Satyam Kumar

The Paris 2024 Summer Olympics ended with Indian athletes winning a total of six medals (one silver, five bronze) –three in shooting, and a medal each in hockey, wrestling, and athletics (javelin).

Successful Olympic athletes like Abhinav Bindra and Neeraj Chopra have won golds in the past and have become national heroes, inspiring others. Rifle shooter Abhinav Bindra was the first Indian to win an Olympic gold medal in an individual event at Beijing in 2008 and was the only one to do so for over a decade before Neeraj’s javelin triumph at Tokyo in 2020.

Last year in October, Prime Minister Modi expressed hopes that India would host the Olympics in 2036, pledging to leave no stone unturned in the effort. However, there is still a lot of work to be done if we want to get a piece of the global sports action.

The International Monetary Fund in May projected that India will surpass Japan to become the 4th largest economy in the world in terms of nominal GDP in 2025. With a growth rate of over 7%, India will very likely become the third largest economy in the coming years. However our performance in the Olympics is a different story.

India stands last in terms of number of medals to GDP ratio in the 2024 Olympics, at 0.05 medals for every $100 billion in GDP.

In this week’s Chart of the Week, we explore why India lags so far behind in global sports. Countries like the United States, China, and Australia dominate the medal tally, and even smaller developing nations like Jamaica, Mexico, and Brazil are far ahead of us.

An Olympic medal is a rarity in India: one per 250 million people

India ranks last in medal density among the most populous nations

In 2023, India beat China to become the most populous country in the world, with over 1.4 billion people. More than half of the population is under the age of 25, and the average age in India is 29 years, compared to 37 in China and 48 in Japan.

You would imagine that this kind of demographics would produce hundreds of thousands of talented Indian athletes.

But despite having the highest youth population, only 117 Indians went to compete in the Olympics this year. China in comparison, sent around 388 people who participated in a total of 33 events. From the above chart, it is clear that qualifying for the Olympics events and winning medals is very rare for India. If we look at the tally this year, India has won only one medal per 250 million people, which translates to 0.004 medals per million people. Meanwhile, countries like the United States, Japan and Brazil won 0.38, 0.36 and 0.10 medals respectively per million people.

Sports: A neglected field in terms of government spending

Budget allocation for sports has been below 0.1% for the past decade

The percentage of the total budget allocated to the Ministry of Youth Affairs and Sports, which oversees sports, games, and youth welfare programs, is abysmal. For over a decade, this allocation has remained below 0.1% of the total budget. This underinvestment could be a major reason why a country with the largest youth population ranks 71 in terms of medal tally in the 2024 Olympics.

Over the past decade, the government has launched various initiatives to promote sports in India. To enhance Olympic and Paralympic performance, the Ministry of Youth Affairs and Sports introduced the Target Olympic Podium Scheme (TOPS) in 2014. It ensures that a ‘core group of athletes’ have all necessary, personalised support in terms of foreign exposure, hiring of specific coaches, training and competition abroad.

In 2018, another program was launched by the name “Khelo India Program” which aimed at reviving the sporting culture in India at the grassroots. It has been more than five years since the programme was launched, and has seen participation of around 20,000 athletes. 3,000 athletes identified as Khelo India Athletes are currently training at Khelo India Academies, and are given an out-of-pocket allowance of Rs 10,000 per month.

A lot of noise, but not enough money: China spends ten times more than India on sports

At the outset, it looks like the government has only revamped the names of various sports programs but changed little else. For instance, Sports Authority of India (SIA) centers have been renamed Khelo India Academies, but little to no effort have been put into increasing the budget allocation.

India has aims to become a developed nation by 2047. To compete globally at a level that reflects our rising economic strength, India needs substantial investment in infrastructure and athlete development. In the FY25 Budget, the government has allocated Rs 3,442 crore for the development of sports, which translates to approx. $410 million. In comparison,, China spent around $3.2 billion in 2023, and has plans to spend around $1 billion in 2024.

The cause of our medal drought is clear: sports in India is severely underfunded and has failed to keep up with other nations. The government's ambitious goal of hosting the Olympics in 2036 may not materialze if we don’t do a big overhaul, in funding as well as infra and training for young athletes.

To excel on the global stage and nurture our talent, the Indian government needs to step up to the plate. Else we will continue to finish dead last in the race.

The Baseline

07 Aug 2024

Chart of the Week: Sectors and stocks with the highest dividend yields in the past year

By Satyam Kumar

There are two popular ways to generate returns from stocks: 1) when your capital appreciates with share price growth, and 2) dividends. Investing in dividend-paying stocks gives you a share of a company’s profits through regular cash payments. Such high-dividend stocks serve as reliable sources of income.

The dividend yield, expressed as a percentage, is the annual dividend payment relative to the stock’s current price. The significance of the dividend yield for a company lies in its ability to attract and retain investors for longer. A higher dividend yield boosts the stock’s appeal, especially for investors looking for a steady income.

It's important to note that the dividend yield isn't a static figure; it changes as the stock price fluctuates. A falling stock price can inflate the dividend yield, a factor investors need to consider when analysing this metric.

In this edition of Chart of the Week, we will look into sectors and companies with the highest 1-year dividend yield over the past year. The full high dividend screener is here.

Aster DM Healthcare gives a special dividend after sale of its Gulf business

Healthcare facilities company Aster DM Healthcare announced a special dividend of Rs 118 per share from the proceeds after the sale of its Gulf business. Its share price rallied after the company completed the separation of its India and GCC businesses on April 3. The management said the Indian healthcare market looks promising and, after segregation, the company would focus on increasing its footprint in India.

Through both greenfield and brownfield opportunities, the company aims to take its total bed count in India to more than 6,600 in the next three years. The expansion plan will encompass the upcoming Aster Capital in Trivandrum, and Aster MIMS Kasargod projects, and adding bed capacity to existing hospitals. The healthcare company will also be looking at potential markets such as Maharashtra and Uttar Pradesh – while UP is a demographically younger market compared to South India, it is highly underserved when it comes to health facilities. The capital allocation for this expansion is in the range of Rs 1,000 crore.

Indian Oil & its subsidiary Chennai Petroleum Corp. deliver the highest dividend yield among oil & gas companies

The oil & gas sector had a dividend yield of 1.7% in the past year. Companies in the lead are Indian Oil Corporation, Chennai Petroleum Corporation and Bharat Petroleum with dividend yields of 7.2%, 6.1% and 3.8% respectively. It is important to note here that central public sector enterprises must pay a minimum annual dividend of 30% of profit after tax or 5% of net worth, whichever is higher as per guidelines given in 2020.

In FY24, Indian Oil gave a 4X higher dividend of Rs 12 on a YoY basis, thanks to the cheap Russian crude that boosted gross refining margins over the past year. However, Trendlyne’s Forecaster estimates that the dividend per share will fall to Rs 6.8 in FY25. This is because discounts have almost halved to $3-6/barrel from $8-10/barrel in FY24, mainly due to higher freight and insurance costs because of Ukrainian drone attacks. This is evident in the net profit of oil & gas companies in Q1FY25. Indian Oil saw its net profit decline 75.6% YoY, while Chennai Petroleum’s net profit declined by 35.8% on a YoY basis.

Bharat Petroleum also saw its net profit decline by 73.3% on a YoY basis in Q1FY25. Trendlyne’s Forecaster estimates the company will lower its dividend payout by 35.7% in FY25 compared to that in FY24. However, due to inflationary headwinds and a slowing global economy which might even lead to a recession in the US, crude oil prices are trading below the $80 level. This can be a major tailwind for refining margins and profitability, leading to potentially higher payouts/dividends.

Vedanta’s dividend yield takes a hit, as it aims to deleverage balance sheet

The metals & mining sector on the other hand had a dividend yield of 2.1%. Companies with the highest dividend payout in this sector are Vedanta, Coal India and NMDC with yields of 6.3%, 4.9% and 3.9% respectively. All three companies saw their share price nearly double over the past year.

Contrary to the estimate beating dividend per share payout of Rs 101.5 in FY23, Vedanta missed the FY24 dividend payout estimates by 17.1%. This comes as the debt-heavy mining company works to deleverage its balance sheet via strategic demerger and asset sale. In Q4FY24, the company reduced its debt by 10% on a QoQ basis and improved its net debt to EBITDA ratio to 1.5X from 1.7X.

Meanwhile, the banking & financial services firm had an overall dividend yield of 1% in FY24. The top dividend-paying stocks in this sector are ICICI Securities, UTI Asset Management Company and Ujjivan Small Finance Bank, offering yields of 5.2%, 4.8% and 3.5% respectively.

Among the stocks that made it to the list, only Ujjivan Small Finance Bank’s share price fell over the past year.

It’s worth noting that there are many reasons for companies to pay out dividends. While some aim to distribute profits back to shareholders, others might do so due to a lack of significant expansion plans. Companies that pay dividends are typically considered more stable and financially sound and, historically, dividend stocks have proven to be a safe bet during market downturns.

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