Stock market analysis and stories by Swapnil Karkare

Articles by Swapnil Karkare

17 Oct 2024

Is India's growth engine slowing down? Screener: Upcoming results of profit growth stocks

In the last week of September, I visited Kochi. Uusally it's bustling, but this time, the city felt low on energy. The Marine Drive crowd had thinned, the spice sellers looked bored, and the malls were mostly filled with window shoppers and college students playing hooky from class. I thought it might be because of the rains or the Pitrupaksha season, when Indians avoid new purchases.

A week later, the RBI announced its monetary policy, and commentary on the Indian economy flooded my news feed. From slowing car sales to subdued production, slowdown became the talk of the town. Headlines from The Economist and Bloomberg suggested that India's growth may be running out of steam. Perhaps what I saw in Kochi meant something more.

Despite our hopes for India as a ‘China+1’ economic destination, the world's fastest growing nation may be on a bumpy road. Is India reverting to the mean after the post-pandemic boom? Will growth bounce back?

In this week's Analyticks:

Is the world's major growth engine right now - India - slowing down?
Screener: Upcoming results for Nifty500 companies with previous quarter profit growth greater than 10% both YoY and QoQ

Let's do a health check.

GDP matters for stock markets

Stock markets often draw ire for not reflecting the real economy. But contrary to popular belief, markets do tend to reflect reality in the longer run. Our analysis of quarterly GDP growth rates and Nifty returns shows that over the past two decades, the broader market index has closely tracked economic growth. So if GDP growth stumbles, the markets will feel the brunt.

In the first quarter of this financial year, India’s GDP growth slowed to 6.7% YoY from 7.8% YoY the previous quarter. Many analysts have forecast a further decline in the growth rate in the second quarter. For example, Motilal Oswal estimates 6-6.5% growth in 2QFY25 (RBI is more optimistic than most, and forecasts 7% growth).

Can this year's festive season cheer up consumers?

As we entered the September quarter, rising raw material costs, a drop in car sales, a high unemployment rate and a decline in tax collections together put the brakes on the Indian economy.

Amnish Aggarwal, Head of Research at Prabhudas Lilladher, expressed caution about the FMCG sector owing to higher raw material costs. Similarly, Garima Kapoor, an economist at Elara Securities, pointed out that consumer spending has taken a hit, especially in cities due to dwindling savings and slow hiring in sectors like technology and retail.

The rural areas are seeing some upside. Thanks to normal monsoons, farmers are cultivating more land. The drop in demand for jobs under the MNREGA scheme is another good sign. This scheme usually sees an uptick in employment when the rural economy is struggling, and a decline in demand suggests things are looking better.

Titan, Mamaearth, Himalaya, Dabur, Denver, Bata, and several D2C brands have joined Meesho Mall ahead of the festive season to tap into the tier-2+ market, where the e-commerce platform is popular. The platform has reportedly seen a 40% rise in orders during its recent Mega Blockbuster Sale.

Online marketplaces have overall registered a 26% increase in just one week of festive sales, selling almost Rs. 55,000 crore worth of goods. ET reported that tier-2 and tier-3 cities accounted for a larger chunk of demand. We need to watch whether this demand holds steady through the next year and spreads across all sectors.

A long wait for the capex cycle

Last week, the statistical ministry released production data for August 2024, which had production contracting by 0.1% over last year. RBI’s Industrial Outlook Survey for Q2FY25 showed manufacturers less optimistic due to slowing demand, lower production, and low-capacity utilisation. However, companies expect marginal improvements in Q3FY25.

Mayank Jha, an economist at HDFC Bank, discussed in a LinkedIn post, emerging weakness in investment growth. Although we have seen a capital expenditure surge in a few sectors, there hasn’t been a broad-based recovery. Firms often announce large capex plans but fail to implement them due to lower capacity utilization. For instance, capex plans in electronics, food processing and textiles have largely remained on paper.

On one hand, we're still waiting for the long-promised surge in private capex. On the other hand, government capex seems to have hit its limit. The elections stalled both central and state government capex, causing a loss of momentum. Dwindling tax revenues have made it even more challenging to meet the budgeted capex levels while keeping the fiscal math in check.

Although the finance minister has assured a pickup in government capex after the subdued first quarter, this will be tough to deliver. The government faces the dual challenge of dwindling tax revenues and the need to keep the fiscal deficit in check. A war in the Middle East and rising oil prices for India could constrain government finances even more.

Outlook

I wish we had a (working) crystal ball to predict what the FY25 growth rate would be. Forecasts for FY25 have swung wildly, between 6.5% and 8%. Basically, no one knows.

One way to look at these numbers is that the 8% GDP growth mark achieved in FY24 is now the highest estimate for FY25, and may be out of reach. India's economic engine for now, may have shifted to a lower gear.

Screener: Upcoming results for Nifty500 companies with previous quarter net profit growth greater than 10% YoY and QoQ

Banking stocks among those with the highest net profit growth in Q1FY25

As we enter the result season for Q2FY25, we look at stocks that delivered the highest net profit growth in the previous quarter. This screener shows companies whose results are upcoming, whose net profits YoY and QoQ showed growth greater than 10% in Q1FY25.

The screener is dominated by stocks from the banking & finance, software & services, chemicals & petrochemicals, food beverages & tobacco, and FMCG sectors. The most notable stocks in the screener are Zee Entertainment Enterprises, Max Financial Services, Biocon, Star Health and Allied Insurance, United Breweries, Go Digit General Insurance, Pidilite Industries, and Petronet LNG.

Zee Entertainment Enterprises witnessed the highest QoQ and YoY net profit growth of 784.6% and 321.1%, respectively in its Q1FY25. This broadcasting & cable TV stock’s net profit surged due to the company’s efforts to optimize costs, helping to reduce manpower and marketing expenses. The company is scheduled to announce its results on Friday. Analysts at Keynote Capital believe that while concerns around ZEEL’s weak financials, governance, and litigation outcomes continue to persist, the initial signs of improving business are positive. But this company's last few quarters have been bumpy.

Star Health and Allied Insurance’s net profit grew by 216.9% QoQ and 56.7% YoY in Q1FY25, helped by strong investment performance and a Rs 25 crore tax return during the quarter. With its results to be announced on October 29, ICICI Securities believes that this general insurance company will grow in FY25, owing to price hikes, higher growth in new channels, recovery of new business growth, and better investment performance.

You can find some popular screeners here.

The Baseline

10 Oct 2024

Rubber prices puncture margins for tyre companies | Screener: auto parts stocks with rising profit margins

By Swapnil Karkare

Once upon a time (meaning, when I was a teenager) talking about the weather used to be considered a boring conversation. Not anymore. We live in an age where wildfires are destroying entire towns in Greece, California and Australia. A 250 km/hour storm is hitting Florida's biggest cities as I type this.

Extreme weather has hit sugar crops in Brazil and rubber crops in Thailand. Thailand, the world's largest rubber producer, saw its production fall by 1-2% due to incessant rains and a fungal disease. This year, the situation got worse with Typhoon Yagi, which killed over 800 people across South East Asia, and caused flooding in Thailand just as the peak rubber tapping season started in September.

The typhoon also wiped out farms across China, the Philippines, Laos, Vietnam, and Myanmar - a crucial region accounting for 80-90% of the world’s output.

Even as supply is under threat, demand is up. Strong auto purchases globally and a stable US economy have driven rubber prices higher, by over 70% in international markets and 50% in India, in one year.

The tyre industry consumes 70% of all rubber, and has been reeling under these price increases. The industry is struggling with margins and profitability.

In this week's Analyticks:

A nail in the tyre: Soaring rubber prices hit margins for tyre companies
Screener: Auto parts players with rising operating profit margins

Rubber prices jump, as supply tightens

Tyre companies can't seem to catch a break right now. Even as rubber prices surged, crude oil prices jumped past $80 per barrel as well as Israel went on a war footing in the Middle East. Crude oil is the key raw material for synthetic rubber, an alternative to natural rubber.

The stimulus package in China, the world’s largest rubber consumer, is expected to drive demand up, pushing prices of rubber even higher. In India, domestic prices are at a 13 year high due to weak tapping activity in Kerala due to floods, and labour shortages.

Kotak Institutional Equities in a recent report, noted, “Overall, the stockpile of global natural rubber is expected to decline to 2.1 million tons in CY2024E from 2.8 million tons in CY2023, which may increase rubber prices unless the demand trend weakens.”

For tyre companies, margins are at risk

The margins of tyre manufacturers negatively correlate with the prices of natural rubber. Crisil estimates tyre raw material costs might increase by 4-6% in FY25, keeping margins subdued beyond FY25.

Demand is also not in full swing. The Indian auto sector is a mixed bag, despite the many new launches, with passenger car demand slowing down while two-wheelers register double-digit growth.

But the industry earns around 70% of its revenue from the replacement segment, which seems promising. Here’s what companies said recently:

“We expect FY25 volume growth in replacement segment to remain healthy.” – CEAT management

“Passenger car replacement should be doing well because overall replacement cycle is getting shortened.” - JK Tyre management

“So, the replacement demand overall should be at high single digits, so we will recover some of the lost ground.” – Apollo Tyre management

Tyre producers have increased prices by 2-3.5% this fiscal, offsetting some of the impact of raw material prices. Kotak highlights the need for 5% more in price hikes to reach Q4FY24 margins. That's not easy given the slowing demand in some segments and MRF’s aggressive pricing strategy in TBR (Truck, Bus and Radial), TBB (Truck Bus Bias) and two-wheeler segments. These account for 70% of industry revenue. So margins will likely stay under pressure.

A silver lining for tyre companies

A bit of good news for tyre company CEOs is that the link between company profitability and rubber prices is not as strong as it used to be. Price-indexed gross margins for tyre companies are now 4-5% higher compared to two years ago.

MRF's falling market share, better managed capex plans across competitors, premiumisation, rising import duties for boosting domestic production and better export opportunities have helped tyre margins hold up despite rising raw material costs.

Almost all major tyre companies right now have strong fundamentals and mid-valuation levels. Still, due to falling margins, brokers estimate a decline in FY25 profits, despite strong revenue growth.

The trees grow slowly, limiting supply

Rubber trees require 5-7 years to mature enough for tapping, which limits the supply in the short term. Even with some delinking of rubber prices from tyre margins, the high prices will take a toll.

While a big drop in global tyre demand could ease raw material costs, this is hardly the solution tyre companies want. Margins will remain under pressure for now, likely dragging on the bottom line for several quarters.

Screener: Tyre stocks lag the auto parts industry in operating profit margin growth

Auto tyres stocks lag the auto parts industry in operating profit margin growth

This week, we look at the impact of rising rubber prices on the operating profit margins of auto tyres & rubber products stocks and compare them to that of auto parts & equipment stocks. This screener shows stocks from the auto parts and tyres industries with the highest QoQ growth in operating profit margins in the latest quarter.

Of the total number of 36 stocks in the screener, only three stocks belong to the auto tyres & rubber products industry. The most notable stocks in the screener are Greaves Cotton, Banco Products (India), Sharda Motor Industries, Subros, SJS Enterprises, Pix Transmissions, JK Tyre & Industries, and Balkrishna Industries.

Greaves Cotton saw the highest growth of 6.6% QoQ in its operating profit margins in Q1FY25. This auto parts & equipment company’s operating profit margin improved on the back of lower raw material costs, employee benefits, and depreciation expenses. However, the company’s revenue declined by 4.3% QoQ to Rs 656.7 crore during the quarter due to a reduction in the engines and cables & levers segments.

Auto tyres & rubber products stocks, however, witnessed a slower growth in operating margins due to a sharp rise of 11.9% in rubber prices from April 1 to June 7. JK Tyre & Industries’ operating profit margin grew marginally by 1.4% QoQ in Q1FY25, helped by the company’s effort to offset the rise in rubber costs by reducing the cost of sales and product premiumisation.

You can find some popular screeners here.

The Baseline

26 Sep 2024

Cut-throat competition in India's cement industry | Screener: Stocks with strong revenue estimates for Q2

By Swapnil Karkare

On May 15, 2022 - a Sunday - Adani did not have a cement business. On Monday, he was India's second biggest cement player. The announcement by the Adani Group of a massive $10.5 billion deal to buy Swiss company Holcim's India business, changed the industry overnight.

When India's richest billionaire makes eye contact with a sector, the existing players get nervous. Adani's entry has set off an intense fight between him and the industry leader, Aditya Birla's Ultratech Cement, for market share.

Over the past several months, the top two players have been busy filling their concrete shopping bags. Ultratech Cement acquired over 50% of India Cements in July 2024. Meanwhile, Ambuja Cements, part of the Adani Group, has fully acquired Penna Cement and is reportedly eyeingITD Cementation.

Since 2016, there have been 21 significant deals totalling at least Rs. 1.6 trillion. This surge in acquisitions is rapidly reshaping the sector. While such consolidation excites financial markets, it poses challenges for both the industry players and investors.

In this week's Analyticks:

Adani versus Birla: Growing pains in the Indian cement industry
Screener: Rising stocks with strong Forecaster revenue estimates for Q2FY25

Trying to find the shortest route to the top

The Adani Group is in a hurry. It became the second-largest cement player after it acquired Swiss-based Holcim’s India business, which included Ambuja Cements and ACC. It has also reportedlyset aside $3 billion for more acquisitions.

Its production capacity has jumped from 68 million tonnes per annum (mtpa) in 2022 with the Holcim acquisition to 89 mtpa today with the addition of Sanghi Industries and Penna Cement. It plans to reach 140 mtpa by 2028.

Meanwhile, Ultratech Cement, once known for its organic growth strategy, is also in acquisition mode. In the last few months, it has acquired Burnpur Cement, Kesoram Industries and India Cements. From 115 mtpa, its capacity has reached 155 mtpa today with a target of reaching 200 mtpa by FY27.

CareEdge Ratings estimates that the top four cement companies’ share of India's capacity has increased from 35% in FY12 to 50% in FY24, with projections to hit 60% soon. Their share in cement demand has jumped from 47% to 65% over the same period. Smaller players have lost ground, and could see their market shares fall further.

Acquisition fever has South India in focus

The cement industry is not homogenous; it varies by region. Regional dynamics define pricing as well as market leadership.

In South India for instance, the market is more fragmented, with the top five players holding 47% of the market share compared to 83% in the North. The capacity utilisation level is lower (60-65%) than the North (85%). This complicates acquisition strategies.

However, the competitive landscape has intensified in the last few years as large players seek to expand their market share.

The acquisition spree is not over yet. Southern companies such as Deccan Cement, Chettinad Cement, MyHome Industries and Bharthi Vicat, holding 9% of India’s capacity, could be prime targets for acquisition, according to an Emkay Securities report. Higher capacities, fragmented markets, and rising cement demand have made the region an attractive hunting ground.

Large players are pricing to the bottom as they fight for market share

While demand usually drives up prices, rising competition has disrupted this in cement.The big companies are using aggressive pricing strategies to undercut smaller, regional players. For instance, leading companies have sold cement cheaper by Rs.10-15 a bag to compete with Orient Cement in the South.

Orient Cement’s management explained how this strategy has hurt them. “We see that their goal is to sweat the asset, and sell more volume in the market. But their aggression in driving volumes is pushing pricing lower, while demand is not robust enough."

"So the only option for people like us is to either succumb to the pressure of very low pricing and start losing money, literally losing money, or to follow our own strategy and make sure that the business being done is not at a loss”, Deepak Khetrapal, Orient's MD & CEO, saidrecently.

As a result, smaller companies are facing lower margins, and if their financial position isn’t healthy, they risk becoming acquisition targets.

Are cement companies overvalued?

The acquisition wave has inflated valuations for cement players. As the market anticipates more M&As, the large companies are seeing their valuation multiples soar. Stock prices of smaller companies tend to spike even on rumours about potential acquisitions, as seen recently with ITD Cementation.

Although most experts are positive about the sector, analysts at Kotak Institutional Equities have flagged valuation concerns. Cement is a capex-heavy commodity business, with a low fixed asset turnover ratio (around 1x). A ratio of 1x means that if the company adds Rs. 100 in assets, it generates Rs. 100 in sales. If that ratio is higher, then it can generate more revenue with low investments.

But the low ratio of cement companies means that capex drags free cash flows (FCF) down, resulting in a low FCF to profit-after-tax (PAT) ratio. Kotak analysts believe that FCF to PAT is a better metric than the price-to-earnings (P/E) ratio for such sectors. That number suggests the sector is overvalued at 30-40x PE.

Trendlyne scores do not suggest overvaluation as the scores are still above 30. Larger players are a bit pricey compared to the smaller ones, but they are fundamentally strong.

Capex plans stay ambitious, thanks to manageable debt

Despite the buzz around acquisitions, companies are not neglecting organic growth. The industry has plans for an overall capex of Rs. 1.5 trillion in the next 2-3 years, almost 1.4X the amount spent in the last five years.

Analysts from Crisil note that this expansion will largely be funded through internal resources and operating cash flows, thanks to the healthy balance sheets and low debt levels of these cement firms.

The focus on both organic growth and acquisitions has made the race to the top a fierce one. It also reflects confidence in India’s economy, as the government’s infra push and a robust real estate market is driving cement demand. India right now, has lots of room to grow.

The future? Mostly sunny, with some clouds

Trendlyne forecasts suggest moderate revenue growth for cement companies in FY25. In the first half of this fiscal year, elections and monsoons dampened demand. Higher raw material costs and a weak pricing environment could impact profitability too.

However, analysts are predicting a demand uptick from Q3 this year, especially as government infrastructure projects kick off after the Diwali festival. Whether this increase in demand will translate into pricing power remains uncertain, amid fierce competition for market share.

The cement sector is going through a major transformation. The big companies are on top right now, dictating prices and turning smaller players into acquisition targets. Once the dust settles in a few quarters, the industry will look very different.

Screener: Rising stocks with strong Forecaster revenue estimates in Q2FY25

Forecaster expects construction and cement stocks’ revenue to grow in Q2FY25

As we enter the last week of Q2FY25, we take a look at stocks that have risen over the past quarter, and where Forecaster expects YoY revenue growth. This screener shows stocks in the cement & construction sector rising over the past quarterwith strong Forecaster estimates for quarterly revenue YoY growth in Q2FY25.

Stocks from the construction & engineering and cement & cement products industries dominate the screener. Notable stocks in the screener include Capacit’e Infraprojects, ITD Cementation, Kalpataru Projects International, Grasim Industries, Larsen & Toubro, Ahluwalia Contracts (India), Dalmia Bharat, and UltraTech Cement.

Forecaster expects ITD Cementation’s revenue to grow by 32.6% YoY in Q2FY25. This construction & engineering stock has also risen by 16.8% over the past quarter, after reports emerged that the Adani Group is planning to buy a 46.6% stake in the company for Rs 5,888.7 crore. Analysts at Asit C Mehta Investment Intermediates expect the company’s revenue to grow, driven by the government push in the infrastructure sector, and strong order inflows. The brokerage expects the company’s revenue to grow at a CAGR of 17% over FY25-26.

Kalpataru Projects International, another construction & engineering company, shows up in the screener as Forecaster expects its revenue to grow by 17.7% YoY in Q2FY25. Its stock price rose by 12.9% in the last quarter. ICICI Direct believes the company is well positioned for revenue growth owing to its strong order pipeline in the transmission & distribution (T&D), buildings & factories (B&F), and water segments in the domestic market. It expects the company’s T&D business to win orders in the international market. The brokerage anticipates the company’s revenue to grow at a CAGR of 23.5% over FY25-26.

You can find some popular screeners here.

The Baseline

19 Sep 2024

Singapore has become a major Indian investor | Screener: Rising stocks with growing FII investments

By Swapnil Karkare

Singapore, a rich, tiny nation of just 5.8 million people, has long had many Indian connections. It is the only country outside Sri Lanka with Tamil as one of its official languages. The iconic Singaporean fish head curry was invented by a Kerala chef. Our trade links are old: traders on the Singapore island were buying spices, pearls and even elephants from Indian merchants in the 10th century.

In recent years, this chaddi-buddy relationship has intensified. One sign of this: Singapore Airlines now flies to more destinations in India than anywhere else in the world, with eight cities on its route. PM Modi’s visit to Singapore in early September pushed for a closer partnership around industries like semiconductors, healthcare and manufacturing.

Singapore now ranks second only to the US among India's foreign institutional investors (FIIs) - as of August 2024, total Indian assets of Singapore-based FIIs crossed Rs. 7.7 trillion, which includes debt, equity and hybrid instruments.

In this week's Analyticks:

Best friends?: India and Singapore are tying themselves closer together

Screener: Rising stocks with FIIs increasing their stakes in the past eight quarters

India and Singapore find more reasons to work together

In FY 2024, India exported goods worth $14 billion to Singapore, with petroleum and bituminous products accounting for half of it. Changing demand-supply dynamics in Europe, led India to divert its diesel and jet fuel to Singapore and Australia. This turn increased the share of fuel exports from 37% in FY10 to 49% in FY24.

On the imports side, India bought goods worth over $21 billion, with electrical machinery the biggest segment. From FY10-24, exports to Singapore grew 5% annually (CAGR) while imports rose by 9%, leaving India with a trade deficit of $7 billion in FY24. Singapore ranks sixth in India’s total trade (exports + imports) while India ranks twelfth in Singapore’s trade.

Foreign direct investments shift in Singapore's favour

The cumulative FDI into India from Mauritius, the top country, stands at $175 billion. Singapore is at $150 billion and surging fast. The declining attractiveness of Mauritius is clearing the way for Singapore to become the top foreign investor in India in a few years.

Mauritian investments tend to be 'foreign' in name only - many businesses register themselves in Mauritius and operate in India to dodge taxes. Mauritius’ tax haven status has made it a transit point rather than a true source of investment. The infamous 2007 share transfer case of Vodafone, which routed investments through Mauritius, cemented its reputation for tax avoidance. In response, India plugged loopholes in its treaty with Mauritius in April 2017.

In FY17 and FY18, Mauritius invested $15 billion in India each year. But from FY19 onwards, this has plummeted to an average of $8 billion. Singapore, on the other hand, invested $15 billion annually on average during the FY19-24 period, becoming the top investor based on annual inflows.

Singapore has become a major FII investor

Singapore isn’t just shining in FDI. It also ranks second only to the US among top foreign institutional investors (FII). Here as well, Mauritius used to dominate a decade ago, holding 27% of total FII assets in India as of March 2012. Today, its share is close to 5%.

Besides the Singapore Government, Nalanda Capital and Amansa Capital are the two major Singapore-based funds investing in India. Nalanda’s portfolio value as on June 2024 was $5 billion (Rs. 45k crore) and that of Amansa’s was $2.5 billion (Rs. 21k crore).

Which stocks are Singaporean investors buying?

Nalanda owns shares in 24 companies, and its top investments by holding value include Havells, AIA Engineering, Thermax, Page Industries, Supreme Industries, Info Edge, Berger Paints, MRF, Ratnamani Metals & Tubes, and Amara Raja Energy & Mobility.

Amansa has invested in 22 companies and top 10 constitutes Trent, SRF, Eicher Motors, Cyient, Bharat Forge, Sundram Fasteners, Intellect Design Arena, V-Mart, Poonawalla Fincorp, and Fortis Healthcare.

But Singapore’s role in India’s financial markets is beyond private wealth management firms or hedge funds. The government’s involvement is significant. It is the largest FII and the eighth-largest institutional investor in India.

The Government of Singapore’s portfolio value was close to $32 billion (Rs. 270k crore) as of June 2024. It has invested in 57 companies. Its top investments include Reliance Industries, HDFC Bank, ICICI Bank, Bajaj Finance, Bharti Airtel, L&T, Infosys, Shriram Finance, M&M and NTPC.

Apart from the government, which invests through GIC, a sovereign fund of Singapore, two other government agencies manage investments. They are the Monetary Authority of Singapore, the central bank, and Temasek Holdings.

The Monetary Authority of Singapore’s portfolio value was over $600 million (Rs. 5k crores). It has invested in 6 companies: Shriram Finance, Max Healthcare, Godrej Properties, Sona BLW Precision Forgings, Affle, and Sapphire Foods.

Temasek Holdings’ net portfolio value as of March 2024 was $20 billion. Its website and news sources suggest that it holds HDFC Bank, ICICI Bank, Manipal Health (unlisted), NSE India (unlisted), Schneider ElectricandZomato, to name a few. Last year, it had announced that it would invest $10 billion over the next three years.

Analysing the Government of Singapore's investments

The Singapore government’s Indian portfolio has favoured the Banking & Finance sector, making up one-third of its total investments. Other prominent sectors include Oil & Gas, Cement & Construction, Software and Auto.

Reliance Industries and HDFC Bank have the lion’s share in its portfolio – accounting for 10% each. However, the actual stakes are 1% in Reliance Industries and 2% in HDFC Bank. The highest stakes were in Samhi Hotels and Sapphire Foods, it holds 8% in these companies.

The Singapore government has increased its shareholding in Sapphire Foods, Max Healthcare, Sona BLW Precision Forgings, Bharti Airtel and M&M in the past year while reducing it in Petronet LNG, Phoenix Mills, Syngene International, Prestige Estates Projects and L&T.

In the last couple of quarters, the government has also added a few new names to its portfolio, like Data Patterns, Entero Healthcare Solutions, Timken, Apollo Hospitals, Indigo, etc. These changes reveal a preference towards healthcare, technology, and capital and intermediary goods.

More investments in the pipeline

Given its historically strong relationship and the recent investment roadshow in Singapore, India is at a sweet spot in receiving investments. A moneycontrol report notes that Singaporean companies have already committed investments over Rs. 5 trillion (~ $60 billion) in the coming years. The Indian High Commission in Singapore has been working on getting more investments in India's infrastructure, renewable energy, and advanced technology sectors.

It will be interesting to see if the sum of all these parts becomes something significant. As Rajat Verma, Head of Institutional Banking at DBS Bank suggests, this partnership could create an international shift, as the industry relationships deepen.

Screener: Rising stocks over the past year with increasing FII holding in the past eight quarters

Banking and IT stocks see the highest rise in FII holdings

As we enter the last couple of weeks of Q2FY25, we take a look at stocks that saw an increase in their foreign institutional investor (FII) holdings during the past two years. This screener shows stocks rising over the past year, where FIIs increased their stake over the past eight quarters.

The screener is dominated by stocks from the software & services, banking & finance, automobiles & auto components and general industrials sectors. Major stocks that appear in the screener are Zomato, 360 One Wam, Max Healthcare, PB Fintech, ITC, Computer Age Management Services, Sona BLW Precision Forgings and Max Financial Services.

Zomato’s FII holding increased the most, by 44.1 percentage points in the past eight quarters, while its stock price also surged by 163.7% over the past year. The Government of Singapore was the largest buyer, acquiring a 2.02% stake in this internet & software services company followed by Camas Investments (bought a 1.9% stake) and Canada Pension Plan Investment Board (bought a 1.3% stake). Public holding dropped significantly to 28.6% in June 2024, down from 84.6% in June 2022, suggesting that public investors are likely the primary sellers due to their reduced stake.

Max Healthcare saw its FII holding rise by 33.7 percentage points in the last two years, the stock has also surged by 62.9% over the past year. The Government of Singapore is the largest buyer in this case as well, acquiring over 6% stake. New World Fund Inc and Monetary Authority of Singapore also bought a 6% and 1.5% stake in this healthcare facilities stock. These shares were sold by public shareholders and DIIs, whose stakes declined from 6.6% to 3.9% and from 19.4% to 15.4%, respectively, between June 2022 and June 2024.

You can find some popular screeners here.

The Baseline

05 Sep 2024, 11:42AM

A rising preference for pricey goods among Indian customers

By Swapnil Karkare

I don’t want to sound like that building uncle (I haven’t reached the ‘uncle’ age yet) who complains about the modern world and “kids these days”.

But I have to say, life was a lot simpler for Indian consumers a few years ago. At least, it felt that way. Let's take this cup of tea, simmering by my side while I type. A cup of tea was black tea powder, milk and sugar. Dessert meant a sizzling brownie or gajar halwa. “Skincare? What’s that?”men would ask. But in the last few years, and especially after Covid, things have changed.

Now, tea can be green, fifty kinds of herbal, black, iced. Milk can be low-fat, lactose-free, A2, or oat and nut-based varieties. In addition to the usual Indian desserts, we have to resist gelato, baklava, tiramisu, parfait. And skincare? It’s a full-blown daily routine with people casually dropping names like paraben, niacinamide, and hyaluronic as if they are talking about apples, mangoes and bananas. Every decision feels complicated.

The market is all about wellness, quality and experimentation. Whether it’s food, clothes, cars, or home décor, we’re seeking premium and niche products and services.

Remember when Uber offered its ill-fated Mercedes taxi rides in India, via Uber Black? It didn’t appeal to enough customers, and Uber discontinued it in 2014. Earlier this year, Dara Khosrowshahi, the company’s CEO said, 'Indians are extremely demanding, but are not willing to pay for anything'.

But now, Uber’s premium service is growing at a much faster rate than its budget rides. That has prompted the company to bring Uber Black back. So perhaps enough Indians are willing to pay.

As India gets wealthier, a significant number of people are upgrading their lifestyle, and firms are getting on board fast to cater to them.

In this week's Analyticks:

Going premium: The rise of the 'discerning' Indian customer

Screener: Rising stocks where Forecaster expects a high target price upside in the next 12 months

Indian pockets are getting deeper

Goldman Sachs recently noted that India’s affluent class–people earning above $10,000 (equivalent to Rs. 8.3 lakhs) per annum–rose in the last couple of decades. It jumped from 20 million in 2011 to 60 million in 2023, and accounts for 4.1% of the total population. GS expects this to reach 100 million by 2027.

People Research on India’s Consumer Economy (PRICE) expects the middle-class to increase to 61% of the total population by 2047, from 31% in 2021. The combo of upward income mobility, more choices, better tech and economic growth has already upgraded the lives of many Indians. It's visible across different pockets of the country, including smaller towns and villages.

Plus, we have access to global trends, thanks to the internet. We are not just comparing our house to the people next door. Instead we are discussing the viral kitchen renovation we saw online.

Food brands react to premiumisation and rising health awareness

A positive fallout from Covid, if any, has been rising health awareness. It started with at-home workouts and better food habits. Consumers are now spending more on healthier options, and companies have noticed.

Parag Milk Foods which owns a popular dairy products brand, Govardhan, also operates a premium brand called ‘Pride of Cows’, known for single-source and organic dairy products. In 2020, it forayed into premium curd and ghee.

Tata Consumer acquired Soulfull, a health-focused millet cereals company, in 2021, and Organic India, Fabindia’s herbal tea brand, in 2024. Amul has launched a high-protein segment selling milk at Rs. 396 a litre, which is seven times the price of the Amul Taaza pouch.

Hindustan Unilever (HUL) has launched over 70% of its new products in the premium segment in the last two years while Parle has shifted 60-65% of its new launches to the premium segment, up from 40% pre-Covid. Premium products now account for 25% of total sales for HUL, up by 300 basis points (bps) in the last three years and 12% for Nestle, up by 150 bps over last five years.

Tapping high-end consumers in fashion

“Premiumisation gives us better realisation,” Shailesh Chaturvedi, Arvind Fashions’ MD & CEO says. That’s how the company managed to improve its gross margins by 80 bps last quarter. In the previous quarter, sales of Aditya Birla Fashion & Retail (ABFRL)’s luxury segment and AjioLuxe, Reliance Retail’s online luxury shopping platform, jumped 18% and 39% YoY, respectively. Shoppers Stop’s premium brands now account for 57% of total sales, up from 54% last year.

People are becoming picky about the labels they wear, thanks to influencer marketing, global exposure and rising aspirations. Google Trends shows folks getting increasingly curious about premium products – checking out reviews, buying something because their friends or colleagues have it.

Brands are figuring out how to market high-end products to mid-premium customers. This is especially crucial in a weak season, as these consumers are less sensitive to downturns, and companies can offset lower sales in the budget segment with higher margins on premium items. India’s luxury fashion revenue is projected to cross $1.5 billion in 2024, compared to $11 billion in China and $28 billion in the US.

'Premium' is becoming a whole lifestyle

Once we have fancier clothes, taking care of them means more spending. We switch from semi-automatic machines to fully automatic, from powder soap to liquids, and fabric conditioner. This has benefited the likes of P&G and HUL. India's Electronic stores are complaining that semi-automatic washing machines have become a slow-moving inventory.

It doesn’t stop here. We need everything a notch up: accessories, skincare, shoes, phones, homes, cars and so on. Surveys shows that more Indians especially prefer buying premium in 'visible luxury' categories like smartphones, clothes, shoes, and laptops.

Banks vie for affluent customers

Recently, SBI announced it would hire 2000 executives to revive its wealth management arm and attract wealthy clients. Similarly, Axis Bank has expanded its wealth management business Burgundy Private, to Tier II and III cities.

HDFC Bank has launched the BizBlack Metal Edition Credit Card this year to tap self-employed and business people. Such premium metal credit cards have become a status symbol. A few years ago, only a few big banks offered them. But in the last few years, IndusInd Bank, IDFC First Bank, Yes Bank and AU Small Finance Bank have entered this segment.

Credit cards in general are gaining popularity as more Indians indulge in high-end shopping and air travel. The allure of loyalty points, deep discounts, and lounge access is driving growth. As of July 2024, Indians hold around 10.5 crore credit cards. In the last one year, the number of outstanding cards have increased by 16%, the transaction value has jumped 19% while the number of transactions have spiked by 38%.

Impact on industrial goods

The rise of luxury products has also affected other sectors, boosting the demand for better-quality raw materials and intermediary products. For example, rising sales of sports utility vehicles (SUVs), electric vehicles (EVs) and luxury cars have benefitted the auto components industry.

Strong demand for 3BHK, 4BHK and luxury homes means better quality cement and construction materials. Cement companies data reinforce this trend. Star Cement registered its highest-ever sales of premium cement in Q1 FY25 (9% of total sales). Dalmia Bharat continues to improve its premium share from 11% in FY19 to 21% in FY24 while that of Nuvoco Vistas from 34% in FY22 to 37% in FY24.

Take Apar Industries, the world’s largest aluminium and alloy conductor manufacturer. The company leads in premium quality conductors and cables used in various sectors like renewables, power, railways, EVs, etc. In the last three years, the volume of those conductors has grown by 37% CAGR while that of cables by 48%. That’s because its clients are shifting to better quality products.

At the end, consumers are better taken care of

While I may complain about having to take so many decisions about the smallest things, it's clear that premiumization helps both businesses and consumers. But going back into 'uncle' mode - the trend also highlights the widening gap between the rich and the poor. The premium segment is still very small, even if it's fast growing.

There is an expectation however, that India's GDP growth, combined with more effective social programs, will bring more Indians into this aspirational demographic. As India continues to grow, we can expect this trend to gain ground across industries.

Screener: Rising stocks where Forecaster expects a high target price upside in the next 12 months

Fashion & lifestyle stocks see high target price upside by Forecaster

The Indian markets have been trading flat over the past week, with the Nifty 50 index rising by just 0.5%. In this environment, we look at FMCG, consumer durables, food and fashion & lifestyle stocks which have risen over the past month with a high target price upside by Trendlyne’s Forecaster. This screener shows rising stocks where Forecaster expects stock prices to gain in the next 12 months.

Notable stocks that appear in the screener are Sai Silks (Kalamandir), Raymond, Electronics Mart India, Eureka Forbes, La Opala RG, Pitti Engineering, EID Parry (India), and Arvind.

Raymond features in the screener due to its 53.3% target price upside expected by Trendlyne’s Forecaster in the next 12 months. Analysts like Motilal Oswal believe that the textile company’s de-merger of its real estate and engineering businesses will help carve out individual growth strategies for both businesses. According to the broker, the company has created strong value by selling its FMCG business, demerging the lifestyle business, and setting up an engineering unit ‘Newco’ after the MPPL acquisition. The demerger of the lifestyle business has also helped the company’s stock price to rise by 7.9% over the past month.

Electronics Mart India comes next with a Forecaster estimated target price upside of 25% in the next 12 months. According to Anand Rathi, this specialty retail company’s revenue will grow on the back of volume growth. It expects the company to increase its profitability, driven by optimising store operations and improving inventory management.

You can find some popular screeners here.

The Baseline

19 Jul 2024

Rising credit is causing investors worry around bank stocks | Screener: Banking stocks with higher prices, healthier NPAs

By Swapnil Karkare

The Godrej steel almirah, first launched in 1923, came with a sturdy inside locker for storing valuables: jewellery, cash bundles, land deeds, letters from faraway family members. The almirah was just one signifier of a country of savers. Indian households have long been reluctant to take on debt.

That however, is changing fast. India's household debt has grown steadily, hitting new highs of over 39% of India's GDP in FY24. The biggest growth has been in non-housing loans.

With household debt rising and and corporate borrowings also up, banks have seen a big shift over the past two years, with their credit growth surpassing deposit growth. While the credit surge in a typically credit-starved country should be celebrated, the falling savings rates and rising household debt are red flags.

Banks make money from the difference between the interest they earn on loans, and the interest they pay to depositors. So a rising credit deposit gap should be good news for their profts, right? The reality is more complicated. Let's take a closer look.

In this week's Analyticks:

The credit boom for banks: Is rising credit growth turning into a pain point?
Screener: Bank stocks with falling non performing assets

Are banks getting stressed with high credit growth?

From April 2022 onwards, banks have seen credit growing at an average rate of 16% YoY, surpassing deposit growth of 11% YoY. The figures exclude the merger of HDFC Ltd. with HDFC Bank.

Credit growth has even outpaced India's nominal GDP growth rate for 7 consecutive quarters. In the June monetary policy statement, RBI governor Shaktikanta Das said that bank management should try to address this persisting gap.

RBI’s Financial Stability Report (FSR) cautioned that credit growth beyond current levels may not be sustainable. As of 28^th June 2024, credit growth slowed to 14% while deposit growth was at 11%. RBI's previous analysis showed that these high-credit cycles usually last for 41 months on average.

Banks’ provisional data and estimates from brokers also suggest that the unwinding of credit growth may have begun from Q1 FY25. But the credit-deposit gap still persists, and public sector banks in particular have been struggling with deposit growth.

Walking the tightrope

The credit-to-deposit (CD ratio) tells us how much money banks have lent out, compared to their deposits. A very low ratio means banks are not lending enough, while too high a ratio could mean that banks have few liquid assets (deposits) left.

The problem with a too-high ratio is also that if depositors suddenly withdraw their funds in large amounts, banks may face liquidity challenges, making it difficult to meet short-term obligations. It's a tightrope that banks need to walk.

The tolerable or 'normal' range for the CD ratio is around 80%. RBI does not prescribe any ideal level. The ratio has been in general, lower for public sector banks indicating better asset-liability management systems, compared to their private counterparts.

The incremental CD ratio - the ratio of additional credit and deposits over a particular period - crossed 100% in FY24, raising eyebrows. While public sector banks have been able to bring it down, private sector banks have pushed it even higher. This indicates aggressive lending techniques in the private sector, and the merger’s impact on HDFC Bank.

Some banks in the public sector have started raising the term deposit rates they offer to attract depositers. But private banks, on average, have reduced these rates as per the latest available data.

Margins are likely to see a hit if banks are pushing deposit rates higher without changing their lending rates. Brokers estimate that bank net interest margins will take a hit of 10-15 bps in Q1FY25. Although public sector banks fare better in most parameters, NIM compression as they raise deposit rates will hit their profitability.

Right now, public sector banks are at the top

It is banks with lower CD ratios, higher liquidity coverage (LCR), good fundamentals (higher Durability score) and appropriate valuations (higher Valuation score) will be able to sail through volatile times ahead.

Our analysis finds public-sector banks such as Bank of Maharashtra and Karur Vysya Bank are in better shape than the private sector. State Bank of India and ICICI Bank, also have a good trajectory.

Bank of Maharashtra:

The bank’s credit growth has been remarkable at 3% QoQ during the quarter ending June 2024. With an ROE of more than 20%, a healthy CD ratio and liquidity (LCR), and favourable Trendlyne scores, BoM emerges as a strong performer compared to its peers.

Karur Vysya Bank:

A bank that has maintained an LCR of more than 200% for a long time is worth adding to the watchlist. A recent ICICI Securities report highlighted that it has the lowest cost of deposit and net NPAs, compared to its peers. Provisional data for the quarter ended June 2024 showed a 4% QoQ increase in loans and deposits, one of the highest amongst peers.

Risks are rising, favouring the most cautious bank players

A strong economic outlook, a possible interest rate cut and a good monsoon all point to a booming bank sector. However, we cannot ignore a key risk: rising credit.

Considering over-leveraged households, weak consumption growth and weak rural incomes, the RBI has been taking actions to safeguard the banking system. But risks like seasonal slippages in the agricultural and microfinance sectors, lower recoveries, and NIM compression will haunt banks for at least a couple of quarters.

In such times, investors need to be cautious. Any one or a combination of these factors can shake up the sector.

Screener: Banking stocks rising over the past quarter with falling NPAs in Q4FY24

PSU and small finance banks see a decline in gross NPAs

With the start of the Q1FY25 results season, we take a look at banks and financial institutions that saw a fall in their non-performing assets (NPAs) YoY in Q4FY24. This screener shows banking and finance companies that rose over the past quarter with a YoY decrease in gross and net non-performing assets (NPAs) in Q4FY24.

The screener primarily consists of PSU and small finance banks. Major stocks that appear in the screener are Jana Small Finance Bank, Federal Bank, Indian Bank, Bank of Maharashtra, Bandhan Bank, Yes Bank, Punjab & Sind Bank and Central Bank of India.

Jana Small Finance Bank has surged 58.1% in the past quarter. Its gross NPAs contracted by 180 bps YoY to 2.1% in Q4FY24, while its net NPAs fell by 208 bps YoY to 0.6% during the quarter. This helped the bank’s provisions to decline by 12.1% YoY to Rs 175.4 crore. The decline in NPAs was helped by a low gross NPA of 0.3% in the affordable housing segment which contributes to 18% of the bank’s total advances. Systematix expects the company’s deposits to grow on the back of its strategy to relocate branches to areas with potential for higher deposits.

Indian Bank has risen 14.6% over the past quarter on the back of strong Q4FY24 results. Its gross NPAs declined by 200 bps YoY to 4% in Q1FY24, net NPAs also contracted by 47 bs YoY to 0.4% due to a moderation in slippages and a reduction in booking loans. This decline in gross and net NPAs helped the bank’s provisions to reduce by 51.3% to Rs 1,247.8 crore during the quarter. According to ICICI Direct, the company’s focus on improving asset quality, stable margins, healthy fee income, and low operational expenses will help sustain its performance.

You can find more screeners here.

The Baseline

04 Jul 2024, 12:33PM

A triple play: rural, renewables, and Andhra stocks | Screener: Triple-play stocks with high forecasts

By Swapnil Karkare

Later this month, Finance Minister Nirmala Sitharaman will present the Budget.

The optics may be the same -- the pink briefcase, the handloom sari -- but this time the FM is presenting a Budget on behalf of a coalition government, with somewhat different priorities.

As a result, we have three new themes that are in focus this year for the government and investors. They are 1) the rural sector 2) renewables and 3) major companies from a particular state - Andhra Pradesh.

India's changed political economy is influencing two themes in particular: rural players, and Andhra Pradesh stocks. Coalition politics and upcoming state elections are pushing the government to address rural distress. Second, Andhra Pradesh has entered the spotlight with the Telugu Desam Party's (TDP) rising power at the centre and state, and its involvement in a few businesses.

And renewables is one space where reform momentum from the previous government is likely to continue, despite coalition politics.

In this week's Analyticks:

Three themes: Rural, renewables and AP stocks are in focus for investors
Screener: Stocks in this list likely to outperform, according to analysts

Let's look closer.

Are we set for a rural rebound in FY25?

The rural economy has been taking some punches: a below-normal monsoon last year, falling agricultural growth, lower wages. The government took steps before the budget to boost this sector, by increasing MSP for crops and removing fertilisers from the GST ambit.

The forecast this year is for a normal to above normal monsoon. So its worth keeping an eye on rural-linked sectors such as fertilisers, agrochemicals, two-wheelers, tractors, and FMCG.

But government action and a good monsoon are the only hopes at the moment for rural stocks. If things don’t work out here, all the gains will be wiped out. For example, although a normal monsoon was predicted, June had a deficient rainfall of around 20%.

The hoped-for rural revival: Is a turnaround ahead for agrochem?

In the case of fertilizer stocks, Anand Rathi Institutional believes that the recent rally has already priced in everything – normal monsoon, GST, and subdued raw material prices. But Chambal Fertilisers, whose net profits grew double digits when its peers saw a decline, has managed the market better than others.

Analysts like ICICI Securities are also expecting a turnaround in agrochemicals stocks. FY24 saw an industry-wide drop in agrochemical prices and destocking in international markets. Destocking is expected to continue till the first half of FY25 in the US & Europe, and so the outlook on the domestic business is more promising than exports.

Therefore, domestic-oriented businesses with strong fundamentals and valuations, such as Insecticides India are on the radar for analysts.

Tractor sales are closely tracked when talking about the rural economy. But the year to date sales growth in FY25 up to May are flat. So although many analysts are optimistic, it may be too early to ride on this segment. Rajesh Jejurikar,ED & CEO, Auto & Farm Sectors, M&M, in its Q4 earnings call, said, “Cash will not come back so quickly right now, given they are coming off negative from last 4-5 months of rabi output. But there is a lot of optimism about how the second half can bounce back very strongly.”

However, Bajaj Auto, one of the leading two-and-three-wheelers companies, is getting a boost on the valuation front amid rising two-wheeler sales.

In the rural theme, the FMCG sector has always been one investors track when monsoons are good. In terms of strong fundamentals, Colgate-Palmolive, Emami,Nestle and Britannia top the list. And when most FMCG companies were complaining about the rural slowdown, Colgate and Emami still saw strong rural demand. Their performances could improve even further with a rural turnaround.

Can we light up the market with renewable energy?

Investors cannot ignore renewable energy generation, whose demand is rising sharply with a rise in electricity consumption and the goal of becoming net zero by 2070.

India’s renewable energy capacity is estimated to reach 180 GW by 2026 from 130 GW in FY24, requiring an outlay of Rs. 3 lakh crores, according to Crisil.

The sector is also attractive because of the PLI scheme for solar PV module manufacturing. These facilities with a combined capacity of 39,600 MW will be operational by April 2026 in three stages. Private-sector participation through government support will keep rising in the next few years.

However, the sector has seen some policy flip-flops. Slow progress on the rooftop solar scheme, rising import duties on raw materials and policy changes in ALMM (Approved List of Models and Manufacturers) have created challenges for manufacturers. The export market is also a tough nut to crack: here India-made products have to compete with cheaper Chinese options, limiting market share internationally.

Renewable players that analysts are bullish on

Utility stocks have had a handsome run over the past few years. However, only one stock looks well-positioned to take advantage - Tata Power.

Analysts are bullish on both solar and wind energy. However wind power by itself is unlikely to be an attractive proposition anytime soon, overshadowed as it is by solar and its broader applicability. Tata Power’s diverse portfolio of renewables is therefore, hard to beat. Currently, 40% of its capacity constitutes clean and green energy (solar 24% and wind 7%) and it aims to increase it to 70% by 2030. It has a Rs. 13000 crores+ order book in the solar utility EPC business. It’s also ramping up solar cell and module production capacity by another 4GW. It is a leader in the rooftop solar market with a 13% share.

One thing to watch for is the debt levels of renewable energy players. Of Rs. 3 lakh crores of capex required for increasing India’s renewables capacity, ~70% is estimated to be met by debt funding. Tata Power’s balance sheet and credit rating would support additional borrowing, if needed.

The kingmakers: Andhra Pradesh is in the spotlight

When the Andhra Pradesh party TDP became a coalition partner in the new government, Economic Times mentioned a few key stocks with AP connections. The list included Heritage Foods, Amara Raja Energy, Aurobindo Pharma, Avanti Feeds, Sagar Cement, Godrej Agrovet, KNR Construction, Likhita Infra and KCP.

TDP chief Chandrababu Naidu’s son is a promoter of Heritage Foods. Former TDP MP Jay Dev Galla leads Amara Raja. The other stocks are based out of, or have significant operations in the state. We took a closer look at these players. It's worth keeping in mind that policy and political missteps could turn these companies sour for investors.

AP-linked stocks on the radar

Amara Raja became a stock market darling over the last month, gaining ~40% driven by election results and a deal signing with GIB. Compared to its peers, it is an outlier -- although it has long-term growth drivers, its valuation is high.

Within Andhra’s cement sector, KCP has emerged as strong performer, followed by NCL Industries. Both have lower valuations and higher EBITDA margins compared to Sagar Cements, the other Andhra-based cement company.

In heavy-engineering companies KNR Constructions has been a performer. These three companies also have lower debt, as their debt-to-equity ratios are below 1 (0.3x, 0.3x, and 0.4x, respectively).

Food companies like Heritage Foods and Avanti Feeds, and pharma company Natco Pharma have the edge over others in their sectors so far, based on analyst estimates, scores and FY24 ROE.

Stock markets don't come with guarantees. But these three themes have emerged as interesting ones as India's political and economic winds shift. The focus of the Budget will also determine how much these are worth following in the coming months.

Screener: Rural, Andhra-linked and renewables stocks that are rising, with high Forecaster growth estimates in FY25

FMCG stocks have risen the most in the past quarter

We look at stocks from the three themes – rural, Telugu Desam Party (TDP)-linked, and renewables stocks – which have risen over the past quarter with analyst forecasts for strong growth in FY25. This screener shows these stocks that have risen over the past quarter with high Forecaster YoY growth estimates for revenue and EPS in FY25.

Major stocks that appear in the screener are Heritage Foods, Emami, Chambal Fertilisers & Chemicals, Insecticides (India), Natco Pharma, Avanti Feeds, Tata Power, and Colgate Palmolive (India).

Emami has risen by 64.5% over the past quarter. Forecaster estimates the stock’s revenue and earnings per share (EPS) will grow by 9.5% YoY and 6.1% YoY, respectively in FY25. Brokers like Sharekhan believe this packaged goods company has a strong brand portfolio, and its focus on product launches, distribution expansion, a strong pipeline of direct-to-consumer (D2C) brands, and international business will help drive growth.

Tata Power also features in the screener with its stock price rising 6.3% over the past quarter. Trendlyne’s Forecaster estimates this electric utilities company’s revenue and EPS to grow 10.9% and 28.9%, respectively in FY25. Geojit BNP Paribas expects the company’s performance to improve due to rising demand, capacity expansion, and promising opportunities in the rooftop solar business, renewables, and generation segments.

You can find more screeners here.

The Baseline

07 Jun 2024

2024 is set to be a strong year for IPOs | The biggest IPOs of 2024 so far, and their listing gains

By Swapnil Karkare

What a difference a day makes.

Tuesday started with exit polls predicting that the current government would return with a huge majority; on Wednesday we were in the reality of a BJP-led coalition government. But either way, the economy will stay strong, analysts say. “The Indian economy is on course to more than double in size over the next decade,” economist Shilan Shah notes.

And despite the many challenges in 2024 – the Red Sea crisis, dollar appreciation, FII sell-off etc – India's stock markets have also been remarkably resilient. 374 stocks surpassed analyst estimates of earnings per share in FY24.

The upbeat mood and strong earnings performance have fueled an IPO surge. The optimism comes after a sluggish 2022 and 2023.

28 companies debuted on the Indian bourses upto May 15 this year, compared to just seven in the same period last year. The trend is likely to continue, with big names like Hyundai, Ola Cabs, FirstCry, NSDL, and Tata Capital coming up.

So, let's explore the performance of the newly listed companies. Will the momentum continue?

In this week's Analyticks,

A bullish season for IPOs: Companies are queuing up to list in Indian markets
IPO dashboard: 2024's most successful IPOs (so far)

Let's jump in,

Indian IPOs are gaining momentum after a muted two years

2021 was a landmark year for Indian IPOs. Low interest rates and frothy valuations triggered listings for as many as 65 companies. Their combined issue size crossed Rs. 1.2 trillion. Start-ups like Paytm, Zomato, MapmyIndia and Nykaa went public. One 97 Communications, Paytm’s parent company, became the year's biggest IPO.

The euphoria dampened a bit in 2022 due to the Russia-Ukraine war. The tepid response continued in 2023. While the number of listings increased by 40%, total issue size declined by more than 10%.

Despite this, Delhivery, Adani Wilmar, Mankind Pharma and Tata Technologies together mobilised more than Rs. 16,000 crore in those two years. The undisputed champion of the Indian IPO market – LIC of India – also hit the exchanges in 2022, with an eye-watering issue size of Rs. 21,000 crore.

2024: the year Indian IPOs are making a comeback

We can sense a change in the mood as we enter 2024. IPO transactions and size have both jumped. The combined issue size has already surpassed half the total amount raised last year.

IPO issue sizes have zoomed up, as companies sense that stock markets have the appetite for larger listings.

Among 2024 issues,Bharti Hexacom and Aadhar Housing Finance are the top performers to date. We see healthcare followed by financials dominating this year so far with four and three listings, respectively.

An increase in retail participation has led to a jump in average IPO subscriptions, from 43x in 2023 to 56x in 2024. Mutual funds have also emerged as key investors in these capital issues, reports Bloomberg.

Markets have been picky in rewarding IPOs

Markets have been strong but picky in rewarding new listings. Of 28 IPOs, one-third of companies (nine, to be exact) registered negative listing gains like JG Chemicals (-16%) and Jana Small Finance Bank (-11%). Only two companies, Vibhor Steel Tubes (+196%) and BLS E-Services (+171%) recorded triple-digit bumper listings.

This trend mirrors the pre-pandemic behaviour of 2019. This suggest that the recent interest in listings with frothy valuations has subsided.

IPO Activity has been muted globally

The global market presents a contrasting picture to India’s. The Russia-Ukraine war hit market sentiment and continues to be a big drag. IPO transactions fell dramatically after the war broke out in Jan-March 2022, as can be seen in the figure below.

Even two years after the Russia-Ukraine war that began in February 2022, the global IPO market sentiment remains subdued. The number of transactions is down to less than 300 with its value below $25 billion. However, if we compare Q1 2023 with Q1 2024, we can see a slight increase in the average size.

An EY report strikes an optimistic note. It points to stable valuations and pricing levels in the US, ASEAN, and Indian markets compared to the previous year, and an upward trend in Japan, Europe, and the Middle East. “Despite restrained market activity in previous years, there’s new enthusiasm from both IPO issuers and investors," the analysts note.

India's IPO lineup is set to double in FY25

Analysts anticipate a robust IPO market for India this year, with new listings likely to double in FY25 compared to FY24. There is a strong pipeline of companies planning their public debuts in the coming months.

According to Prime Database, 40 companies have filed their offer documents with SEBI. Their combined issue size is Rs. 53,515 crore (more than $6 billion). As of 10^th May, 19 companies have received the green light.

India’s resilience and optimism around IPOs stands out in the current global environment. Experts believe that Hyundai’s listing can prod other MNCs to list their India operations. It has already tickled the top minds in Korean electronics company LG, if reports are to be believed.

With several high-profile IPOs in the queue, India is a shiny spot in the global IPO market right now.

IPO Dashboard: The biggest IPOs posted listing gains in 2024

Nine out of ten of the biggest IPOs in 2024 saw listing gain

With the Nifty 50 index rising 1.4% in 2024 (accounting for Nifty 50’s 5.9% decline on Tuesday with election results), India’s markets remain conducive to IPOs. This week, we check Trendlyne’s IPO dashboard to see how the Indian market has treated new public offerings in the stock market.

31 mainline IPOs have been released so far in the year. Major IPOs with large issue size that went public in 2024 are Bharti Hexacom, Aadhar Housing Finance, Go Digit General Insurance, Bharat Highways InviT, Indegene, Juniper Hotels, Entero Healthcare Solutions, TBO Tek, Medi Assist Healthcare Services and Jyoti CNC Auto. Out of these major IPOs, only Entero Healthcare Solutions posted an 8.6% listing loss.

Bharti Hexacom, an arm of Bharti Airtel, is the largest IPO with an issue size of Rs 4,275 crore, which went live on April 12. This telecom services company offers consumer mobile services, fixed-line telephone, and broadband services in Rajasthan and North East India. The IPO posted a listing gain of 42.7% and was subscribed for 29.9x of the available shares. The stock rose by 27.5% post listing, taking its current gains since listing to 68.5% on the back of a 7.9% YoY and 10.3% YoY growth in its revenue and net profit in Q4FY24.

TBO Tek also features in the list with the highest listing gains of 52.9% after listing on May 15. This travel support services company is a travel distribution platform in the global travel and tourism industry. It filed for an IPO for investments in technology data solutions, sales, marketing, and infrastructure with an issue size of Rs 1,551 crore and was subscribed for 86.7x of the available shares. The IPO, however, declined by 3.9% since its listing leading to a lower current gain of 48.9%.

The 2024 list of best and worst performing IPOs is here.