Articles by Deeksha Janiani

The Baseline    
26 Nov 2022, 11:49AM
MFs choose mid and smallcap stocks, prefer healthcare and banks in Q2FY23
By Deeksha Janiani

Most people have the intelligence to pick stocks - but not everyone has the stomach. This is especially true in a volatile stock market, as downside risks increase. Even India's mutual fund managers have become cautious about fresh stock buys, as markets grew moody in a slowing global economy. Their investments in Q2FY23 rose at the slowest rate since Q1FY22, and they preferred sectors with good potential while cutting stakes in those losing traction. 

In this week’s Analyticks:

  • MFs make their bets: Where did the smart money go in Q2FY23?
  • Screener: Companies in which promoters bought or sold over 0.5% stake in Q2

Let’s get into it.


Domestic mutual funds pick new favourites in Q2FY23

Indian indices rode turbulent seas in the past year. After touching their lows in mid-June, the Nifty 50 index and BSE Sensex gained around 18% by mid-September.

Domestic mutual funds pumped over Rs 70,000 crore into equities in Q1FY23, when valuations were comfortable. However, their buying activity slowed down to approx Rs 22,000 crore in Q2 as they became more selective. One reason was rising valuations: according to reports, Nifty 50 is trading at an average 1-yr forward PE of around 20X, which is 22% higher than its long-term average of 16X.

The stock market is commanding a premium despite a series of downgrades for India’s GDP growth rate in FY23 and in the earnings of top companies. This has kept domestic funds on the fence. 

In this week’s edition, we take a look at the top companies and sectors which mutual funds are still bullish on, buying significant equity stakes on a QoQ basis in Q2FY23. We also analyze sectors that saw intense selling action.

Mutual funds pick up over 2.5% stake in key small and mid-cap companies

Mutual funds led by SBI MF bought over 6% stake in auto ancillary player Sona BLW Precision and construction company G R Infraprojects,  in Q2FY23. This buying activity specifically took place as the promoters of these firms sold off partial stakes in the open market. Triveni Turbine saw its promoters selling over 11.5% stake in Q2, after which FIIs and domestic mutual funds increased their holdings in the company. 

MFs led by Nippon India funds, Mirae asset funds and ICICI Prudential funds picked up 2.9% stake in Gland Pharma. Notably, this company lost over 25% of its value in Q2 on intense selling by foreign and retail investors. The financial stress on its promoter entity, Fosun International, spooked markets. 

Auto OEMs and ancillaries see fresh buying on improved demand and easing chip supply 

Passenger and commercial vehicle makers saw a robust rise in their wholesales in the first two quarters of FY23 on the back of healthy festive demand and easing semiconductor supplies. However, two-wheeler makers are yet to see the sales levels of the pre-covid era. 

Prices of key base metals used in auto manufacturing like steel, aluminium and copper cooled off by 25-35% from the highs of March 2022. Rising sales volumes and lower metal costs helped the margins of auto OEMs and ancillaries. 

Mutual Fund houses picked up stakes in auto majors like Maruti Suzuki and Hero MotoCorp in Q2. In fact, Maruti saw consistent buying from mutual funds between May and September 2022. Fund houses also raised their holdings in auto ancillaries like Bosch, Ceat and Sundaram Fasteners

Small and mid-cap banks and NBFCs attract mutual fund investments in Q2

Banks and NBFCs are the flavour of this season for many investors. The industry saw a strong rise in their advances in both Q1 and Q2 backed by robust traction in retail loans, particularly housing, auto and personal loans. This led to healthy growth in their net interest incomes. The recent interest rate hikes also improved their net interest margins. 

Domestic MFs bought stakes in small and mid-cap banks like Au Small Finance Bank, Federal Bank and RBL Bank. They also raised their stake in NBFCs like Muthoot Finance, IDFC and LIC Housing Finance in Q2. 

Ambitious expansion plans of healthcare players pique MF interest 

Top hospital chains saw their occupancy levels improve steadily from Q4FY22, which was  hit by the omicron wave. Their average revenue per operating bed also saw a healthy rise sequentially as their payer mix improved. But what has caught investor interest is their aggressive expansion plans, which were paused between FY20-22 due to the pandemic. 

Mutual fund houses picked up a 1%+ stake inKIMS, Max Healthcare and Apollo Hospitals in Q2. MFs also bought over 12% stake in Max Healthcare in the past four quarters. These chains plan to expand their bed capacity by 20% in the next three years. 

MFs pour in funds in top hotels and restaurants ahead of the upcoming holiday rush

The hospitality sector saw strong demand in the summer of ’22 and the monsoon months, thanks to leisure travel and an increase in corporate events. The outlook is encouraging for this sector as highlighted by the management of Indian Hotels. The upcoming wedding and holiday season as well as the influx of foreign travellers during the winter months in H2FY23 is set to drive higher topline growth for hotels. 

Mutual funds bought over 1.5% stake in Indian Hotels and EIH in Q2. They also raised holdings in QSR chains like Jubilant Foodworks, Sapphire Foods and Westlife Development, backed by strong consumption trends. 

MFs place bets on general industrials, as capex activity picks up in key sectors

Heavy electrical equipment manufacturers saw strong demand from sectors like railways, mining, data centres, commercial realty, biotechnology and pharma. As a result, most companies saw their order book jump by over 30% YoY at the end of September 2022. 

The outlook for these companies is positive, backed by the government's focus on infrastructure development, the Make-in-India initiatives and 14 PLI schemes approved for encouraging higher private capex. 

Domestic fund houses added on to their stakes in CG Power, Cummins India, Bharat Heavy Electricals and Triveni Turbine in Q2FY23. DSP Funds led the buying activity in CG Power, while Nippon India, Tata Funds and Edelweiss led purchases in BHEL. 

Mutual funds rejig their holdings in the pharma space

Pharma players have seen muted growth in the past few quarters due to intense competition in the US Generics market. The Indian pharma market performed well in comparison. Now that companies are diversifying away from generics and into speciality drugs, hopes are high for this space. 

Mutual funds have cut more than 1% stake in large-cap players like Dr. Reddy’s and Torrent Pharma. On the other hand, they have added to their holdings in mid and small-cap companies like Alkem Labs, Syngene International and Suven Pharma

Mutual funds cut stake in an oil marketing company and consumer durable makers

OMCs like Bharat Petroleum and Hindustan Petroleumsuffered material net losses in the past two quarters. This was on account of negative marketing margins on diesel, as pump prices were not in sync with global levels. Accordingly, mutual funds sold 3% stake in BPCL in Q2. This was led by Nippon India funds, Mirae asset funds, Aditya Birla funds and Franklin India funds. 

Mutual funds also cut their stake in consumer durable players like KEI Industries, Voltas and Orient Electric. Higher inflation has impacted the demand in mass market segments of these companies in the past few quarters. 

MFs reduce holdings in metals and mining companies on reversal of fortunes 

Correction in metal prices and higher input costs led to a substantial contraction in the EBITDA of top steel and aluminium producers in H1FY23. Subdued demand, particularly from China and other developed nations, weighed on the international prices of key metals. 

Seeing the metals cycle heading downwards, mutual funds cut stake in Tata Steel, Hindalco and Vedanta in Q2FY23. The selling activity in Tata Steel was led by SBI mutual funds, Nippon India funds and Kotak funds. 


Screener: Increasing or Decreasing Promoter Holding QoQ

In this edition, we take a look at major stocks which saw over 0.5% QoQ rise or fall in the holdings of their respective promoters in Q2FY23. This screener features 33 stocks from Nifty 500 and 4 stocks from the Nifty 50 index. 

Stocks from industries like cement & cement products, IT consulting & software, healthcare facilities, auto parts & equipment and pharmaceuticals show up in this list. Major stocks in the screener include UNO Minda, ACC, Infosys, Max Healthcare Institute, Sona BLW Precision Forgings and HDFC Asset Management.

Uno Minda’s promoter holding increased the most, by 2.7% QoQ in Q2FY23. Axis Securities believes that the company’s well-diversified product portfolio and increasing electric vehicle kit value will lead to higher wallet share with existing and potential clients. 

ACC saw its promoter holding rise by 2.2% QoQ in Q2FY23. BNP Geojit Paribas believes that the recent reduction in energy prices and a traditional post-monsoon rebound will boost the company’s performance in the upcoming quarters. 

Max Healthcare Institute’s promoter holding fell the most by 26.8% QoQ in Q2FY23. PE firm KKR sold its entire stake in the company for over Rs 9,000 crore via its affiliate, Kayak Investments, in August 2022. 

You can find some popular screeners here.

Chemicals & Petrochemicals    
SECTOR | 21 Nov 2022
Agrochemical players see clear skies ahead after robust Q2 growth
By Deeksha Janiani

Weather, geopolitics and financial markets have come together to bring intense volatility this year. This has left people wanting stability more than ever. The prolonged Russia-Ukraine conflict, supply shortages and erratic climate patterns have sent prices soaring,  not sparing the prices of evenfood grains. 

International prices of staple cereals and pulses like wheat, corn, rice and soybeans touched …

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ICICI Securities Limited released a Sector Update report for Chemicals & Petrochemicals on 23 Nov, 2022.
Global Health Ltd.    
02 Nov 2022
451.80
-1.81%
Global Health emerging as key healthcare player, but growth plans will test its capabilities
By Deeksha Janiani

Fireworks are happening in the stock market as well, with the Nifty 50 reclaiming the coveted 18,000-mark post-Diwali after a month-long low drift. It’s a bustling week for IPOs as well. Two IPOs have already gone live and two more are due to open for subscription on November 3. One such offer is that of Global Health, which operates …

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The Baseline    
30 Oct 2022
Can India keep rising as the world economy slows? | Companies with strong results and outlook
By Deeksha Janiani

Everyone thought that the pandemic would devastate global markets. But it is the post-Covid period that is proving to be dangerous, with sharp interest rate hikes around the world, a prolonged war in Europe and Xi's ‘zero-covid’ policy in China. As the overall outlook darkens, India may also face roadblocks. 

In this week’s Analyticks:

  • Storm on the horizon?: India feels the heat of a worsening global economy 
  • Screener:Stocks which saw growth in Q2FY23, and where analysts predict strong FY23

Let’s get into it.


Can the Indian economy steer through a worsening global environment?

The going was good for India until August 2022. Foreign institutional investors had finally become net buyers in Indian equities in July and August, after selling stocks for nine consecutive months. India offered shelter in the global economic storm. 

Numbers and facts supported the idea that India was recovering rapidly. The country’s retail inflation was lower than that of advanced economies like the US and Europe. Economic activity was rising, GDP growth was up and India was projected to be the fastest growing economy both this year and the next. In another major relief, crude oil prices slipped below $95/bbl in August. 

There were theories explaining India's outperformance: that the Indian economy was 'insulated' from the world due to domestic growth, and had ‘decoupled’ from the US market. The Nifty 50 index rode high and gained over 12% between June end and August end. 

Cut to September 2022: the US Federal Reserve did another big interest rate hikeof 75 bps. And the ‘insulated economy’ story began to crack.

Rupee hits fresh lows against dollar, retail inflation hits a 5-month high

Last week, a statement by finance minister Nirmala Sitharaman became the talk of the town. According to her, the problem is not the falling rupee, but the strengthening dollar. Prima facie, this statement seems correct, as the greenback has gained strength against most currencies, including the euro, pound and yen. 

The dollar’s rising strength has been driven by sharp interest rate hikes by the US Federal Reserve. Foreign investors are flocking back to the ultimate safe haven that are US treasuries, causing renewed capital flight from India. It's a reminder of what the US Treasury Secretary John Connally said to leaders of other countries in 1971: "The dollar is our currency, but it's your problem".

The rupee could have fallen much further. But the RBI has spent over $100 billion from India’s forex reserves since January 2022 to rescue the rupee. The apex bank sold dollars in the open market to increase dollar supply, and prevent it from rising further. So while Sitharaman claims that our currency has fared better than others against the dollar, that's because the RBI put a big cushion under the rupee.  

A weak rupee has led to India importing additional inflation, as dollar-priced imports become more expensive. Some domestic factors have also worked against us. Monsoons were uneven in India with major agrarian states like UP and Bihar reporting a rainfall deficit. This caused food price inflation to soar to 8.6% and overall consumer price inflation to hit a 5-month high in September 2022. 

The silver lining here is that India’s retail inflation still trends lower than that of US and Europe. However, US inflation levels have relaxed from their 40-year highs in June 2022. The aggressive rate hikes undertaken by the US Fed tamed inflation to some extent. But European inflation is proving to be sticky, with energy shortages driving higher gas prices. 

India's economic activity slows down, China sees some GDP recovery

In September, India saw its composite Purchasing Manager's Index, which tracks business health, fall to a five-month low due to a sharp drop in services activity growth.

Growth in manufacturing activity also softened in the previous month. The Index of Industrial Production, a measure of India’s industrial output, fell by nearly 1% on a YoY basis in August 2022. This was due to a slowdown in manufacturing and mining activity. Manufacturing activity was pulled down by a fall in production of textiles, apparels, pharmaceuticals and electrical equipment. 

US and Europe numbers are even weaker - their PMI levels have contracted for the fourth consecutive month now. High levels of inflation and rise in borrowing costs have impacted their domestic demand. 

China however, finally witnessed a jump in economic activity in June after three months of decline thanks to Xi Jinping's zero-Covid policy. Although growth is still slow, it has finally turned positive - China reported a GDP growth of 3.9% in Q3-2022 (compared to near zero growth in Q2). 

Overall, economic indicators paint a better picture for India compared to much of the world. However, we will not be able to avoid the spill-over effects from weak demand in other major economies. After all, India derived 23% of its GDP from exports in Q1FY23. 

Speedbumps ahead: 2023 recessions abroad worsen India’s outlook

According to the new IMF report, the worst is yet to come for global growth, and many countries will experience a recession in 2023. If we go by recent predictions from the economist Nouriel Roubini, the world is going to face a 'triple crisis' of high inflation, high debt and low growth in 2023. He terms this a ‘stagflationary debt’ scenario, which he predicts will be worse than the 1970 or the 2008 crisis. (Keep in mind however, that the media calls Roubini 'Dr Doom', because he is an incurable pessimist about the global market outlook. He's not going to 'buy the dip' anytime soon).

As a result, the Indian government has grown cautious. The Indian Finance Ministry’s recent report noted that geopolitical conflicts may further strain the supply chains of oil, natural gas, metals and fertilizers, as well as commodities like wheat and sunflower oil. This may push up India's inflation levels again in 2023. RBI economists say that the fight against high inflation is likely to be ‘dogged and prolonged’.

Oil producers are not helping. In an effort to keep oil prices high, the OPEC nations announced a production cut of two million barrels per day for crude oil, the highest cut since 2020. Accordingly, brokerages like Morgan Stanley and Goldman Sachs have raised their crude oil price forecasts for Q1-2023 to $100/bbl and $115/bbl respectively. This might worsen inflation in India and put pressure on its trade deficit. 

Citing these concerns, analysts have cut growth forecasts for Indian GDP growth to below 7% in 2022. Although India will still be the fastest growing economy among the major nations, it may not come out unscathed in this global turmoil. 


Screener:Outperformers with healthy growth in recent results, and strong FY23 estimates

As the Q2FY23 results start to roll in, we take a look at companies which have seen a jump in their revenues and net profits. This screener shows stocks that reported high YoY revenue growth and net profit growth in Q2FY23, and are also expected to post strong growth in FY23. 

The screener is dominated by major Banks and NBFCs as well as IT Consulting & Software companies. Notable stocks are CreditAccess Garmeen, Canara Bank, Axis Bank, Avenue Supermarts and Syngene International.

CreditAccess Grameen saw a net profit growth of 2.7X in Q2FY23. All of CreditAccess' operating parameters rose to pre-covid levels, as its net customer base jumped to its highest level since March 2020, and return on assets touched pre-covid levels of 4%. Trendlyne’s Forecaster sees its annual net profit growing over 2X in FY23.

Canara Bank’s net profit in Q2FY23 grew 2.5X. The company beat forecaster estimates for revenue and net profit in Q2FY23 by 5.4% and 21.3% respectively. The bank’s asset quality has improved, as its gross and net non-performing assets declined by 205 bps YoY and 102 bps YoY, respectively. 

Avenue Supermarts’ net profit grew by 64% YoY in Q2FY23. BNP Geojit Paribas believes that the company has strong recovery potential due to its healthy balance sheet, with no debt and strong operational efficiency. Forecaster expects the company’s net profit to jump 70% in FY23. 

You can find some popular screeners here.

The Baseline    
01 Oct 2022
Festival season boosts travel, jewelry, paint sectors; stocks flying high in a volatile market
By Deeksha Janiani

For a time, it was good: optimistic growth predictions for India helped drive a market rally over the past three months. But the world is becoming sharply volatile, and multiple global factors are now rocking the boat. Russia's gas cutoff has caused an energy crisis in Europe, threatening a deep recession, and US Fed Reserve Chairman Jay Powell announced an interest rate hike of 75 bps on September 21.

Higher US interest rates have made US treasury assets more attractive, and foreign investors renewed selling Indian equities. The "fear index" Nifty Vix is back up to June levels.  

However amid this gloom, the Indian consumer story is a bright promise. Indians are preparing for get-togethers and celebrations, with big spending plans this festive season.

In this week’s Analyticks:

  • Festive plans cheer travel, home improvement and jewellery sectors
  • Screener: These stocks are holding steady, with high-momentum and strong EPS growth predicted in FY23

Let’s get into it.


The great Indian festival season is here: What’s in store for tourism, home improvement and jewellery?

The Indian festive season kick-started with the arrival of Ganesh Chaturthi and Onam in August-end. Now, it’s in full swing with the onset of Navratri. For the first time in two years, people will be able to gather for the Garba Utsav without restrictions - no mandatory masking, no one checking your Covid certificate at the door, no limits on the number of people.

Indians are itching to get into their party clothes, and are ready to loosen their purse strings. According to a survey undertaken by LocalCircles, consumer spending during the festive season is expected to hit $32 billion this year, higher than both 2020 and 2021. Although this is below the pre-Covid level (2019) of $37 billion, this will boost India Inc in an otherwise inflationary and tough global environment. 

24% of respondents in this survey plan to spend on travel and tourism in this season - the highest among all categories. Jewellers and home improvement players will also see the benefit of higher consumer spends. 

Hotels and Tourism sizzle, as consumer segments come alive

When the worst of the pandemic got over in March 2022, short-haul travel became the top priority for millennials. Businesses also restarted events and conferences as employees were back in offices. 

By the summer of ’22, there was high traction visible across both leisure and corporate travel segments. The occupancy rates and revenue per available room of the hospitality sector crossed pre-pandemic levels in Q1FY23 thanks to the demand rebound in metros. 

According to the management of Indian Hotels, robust demand especially in the corporate segment continued in July and August, despite the seasonal weakness. Now, with consumers willing to spend more on travel, the demand outlook from September to November also looks strong. 

Traveller mix shifts towards richer Indians

Overall festive spends this year are being driven by higher income groups, as they saved a lot of money in the work-from-home era, according to LocalCircles.

This may also be true for the travel sector.

Let’s consider some hard facts here: the traveller mix is changing. In Q1FY23, the premium chains of Indian Hotels like ‘SeleQtions’ and ‘Vivanta’ saw over20% growth in occupancies while mid-segment chains like ‘Ginger’ fell 11% compared to pre-covid levels.

The overall occupancy level of a mid-segment hotel chain like Lemon Tree has been consistently lower than that of premium and luxury players like Indian Hotels and EIH in the past three quarters. Clearly, higher price inflation has impacted the discretionary spends of middle-income groups, while the affluent class is relatively unaffected. 

Foreign travellers will also drive demand for hospitality and recreational sectors in H2FY23. According to a RateGainreport, foreign tourist arrivals in Delhi and Mumbai are likely to see double-digit MoM growth between September and November owing to the festivities and a favourable climate in India. 

These demand trends bode well for an online travel agent like Easy Trip Planners. This travel startup has showcased consistent profitability in the past 10 quarters despite the pandemic. This was achieved on the strength of its ‘no convenience fee’ model and easy refunds policy. The company now looks to double its gross booking revenue to Rs 6,500-7,000 crore in FY23 and makes a good proxy play in the travel sector. 

Enthused by the current travel boom, hotel chains have drawn up ambitious expansion plans. Indian Hotels looks to add 18 hotels in its portfolio this year while Lemon Tree seeks to complete a major hotel project in Mumbai. 

According to Trendlyne Forecaster’s consensus estimates, annual revenues of the top three listed hotels will jump by over 60% YoY in FY23 with all of them returning to profitability. 

Jewellery makers sparkle on lower gold prices, healthy demand

Women customers have also made a comeback - retail sales of jewellery have grown in double-digits in the past four months, backed by the correction in gold prices. This trend is likely to continue in the coming months as the peak festive season has begun, which will be followed by the wedding season. According to C K Venkataraman, Managing Director at Titan, the affluent class has amassed a lot of wealth in the pandemic years and are now ready to spend on high value items.

The period from Navratri upto Diwali is an auspicious period to buy jewellery in India. In order to leverage this, Tanishq, a brand owned by Titan, has launchednew collections like ‘Zoya’, ‘Aishani’, 'Chozha' and ‘Alekhya’. This is also in line with the company’s strategy to cater to more regional tastes to capture higher market share. 

Kalyan Jewellers aims to spend Rs 250 to 300 crore to open 10 stores across Delhi, Maharashtra, Uttar Pradesh, Orissa and Chhattisgarh by this Diwali. Meanwhile, Titan aims to launch 50 Tanishq stores in FY23 to meet rising demand. The revenue of both these players is set to jump over 20% in FY23 with profits rising faster. 

Paint companies are all set for a 'double delight' 

Another major beneficiary of this festive season will be the home improvement sector, as people repaint and refurbish their houses for Laxmi Pooja. Paint makers like Asian Paints and Berger Paints already witnessed robust sales volumes in Q1FY23, backed by premium and luxury products. Such strong demand trends will continueinto Q2FY23 with the early onset of Navratri. 

Demand growth is coming with lower costs - a double delight for paint companies. Pressure on the gross margins of these companies have eased up thanks to the 27% correction in crude oil prices since May 2022. Analysts predict oil prices will zoom back up towards the end of the year as China comes out of lockdowns, but Q3FY23 may still see the double benefit of low input costs and high demand. This is why analysts predict these companies’ net profit rising more than their revenues in FY23.

However, Kajaria Ceramicsis likely to suffer margin compression on account of higher natural gas prices. Nevertheless, the tile-maker is positive on the demand front and is putting up new capacities in the sanitaryware and bathware segments. 

Hopes are high for a bumper festive season across consumer facing sectors in India. The promise is clear: let's see which companies are able to make the most of it. 


Screener: Stocks flying high in a volatile market, with medium to high momentum score and rising EPS forecasts

With the result season just around the corner, we take a look at stocks which have a medium to high momentum score, with high EPS growth forecasts. This screener consists of 34 companies within the Nifty 500 index. The companies belong to industries like telecom services, realty, non-alcoholic beverages, two-wheelers among others.

Major stocks featured in the screener are Bharti Airtel,Phoenix Mills, Adani Enterprises, Varun Beverages and Eicher Motors. Bharti Airtel has the highest annual EPS growth forecast of 237%. According to Prabhudas Lilladher, the telecom company’s customer focused strategies along with digital investments has helped increase revenue and subscriber market share. It has a Trendlyne momentum score of 60.7, indicating that it has high buying interest and improving sentiment.

The second highest annual EPS growth forecast is for Phoenix Mills. The company saw a 316% rise in its annual EPS in FY22. According toICICI Securities, the realty player has a strong pipeline of projects which will aid its bottomline growth. It has a Trendlyne momentum score of 61.8.

Analysts see Eicher Motors clocking an EPS growth of over 65% in FY23. Axis Securitiesbelieves that lower commodity prices, improving demand and easing of supply-side constraints will aid its earnings growth. 

Varun Beverages has a healthy EPS growth estimate of 88% for FY23. The demand outlook for this Pepsico franchise is strong given that its juices, energy drink and dairy segments are performing well,and it is expanding into newer markets.

You can find some popular screeners here.

The Baseline    
17 Sep 2022
Winners and losers among India Inc promoters; companies expected to deliver strong growth in Q2
By Deeksha Janiani

When it comes to wealth creation, the last 12 months have been a topsy turvy time. The sharp upward swing in stock markets last year was followed by a period of high volatilty. It wasn't just the fortunes of retail investors that were affected - Indian promoters and big business families also saw unexpected changes. 

In this week’s Analyticks:

  • India Inc's promoters: Big winners and losers in net worth
  • Screener: Companies predicted to deliver strong QoQ revenue growth in Q2FY23

Let’s get into it.


India's promoter families: Who gained and who lost big time in the past one year?

This year has been a mixed bag for Indian markets. While some consumption-oriented sectors like hotels and restaurants, retailing, and food and beverages zoomed in value, others likeIT and Pharma got beaten down.

This created a new batch of winners and losers: some Indian promoter families saw their net worth figures reach new highs, while others saw their net worth fall from record levels between September 2021 and September 2022.

To arrive at public net worth estimates for September 2022, we have considered the stock price as on September 9, 2022 and promoter holdings in companies as of the most recently available date - end of June 2022. The previous year’s net worth estimate is based on September 2021 month end prices and shareholding. 

The Winners: Some promoter families see wealth soar as consumption recovers in India 

Who said fast food is bad for you? Not for the Jaipuria family. After India emerged out of the Omicron wave, outdoor leisure and travel activity rebounded strongly. Out of home consumption of food and beverages also rose, benefitting promoter Ravi Jaipuria and his family. 

The family’s net worth touched nearly Rs 60,000 crore, up over 70% for the period in question. This stellar jump was mainly driven by their official franchisee of PepsiCo brands, which is Varun Beverages. The company doubled its sales volumes to 300 million cases in Q2-2022 backed by the intense heat wave, IPL season and higher outdoor activity. 

A second notable contributor to the rise in the Jaipuria family’s net worth was the quick service restaurant player Devyani International. The franchisee of KFC and Pizza Hut grew ahead of Jubilant Foodworks in Q1FY23. Devyani’s average daily sales from KFC stores touched an all-time high and same store sales growth crossed 60% in Q1FY23. 

Promoters of specialty chemical companies like Pidilite Industries and Fine Organics have also gained in the year gone by. The Parekh family’s net worth scaled the Rs 1 lakh crore mark in September 2022, led by the healthy stock price performance of Pidilite. The correction in crude oil prices from June 2022 added to the fortunes of this family. Vinyl acetate monomer is a key input used in the company’s adhesives like Fevicol and is linked to crude prices. 

Rise in demand for food and beverages also aided the revenue growth of Fine Organics as it caters to the food additives market. The Shah and Kamat family saw their combined net worth double to Rs 15,000 crore as Fine Organics' share price moved steadily upward.  

The Losers: Promoters of IT and Pharma companies suffer a dip in their fortunes

As the IT sector boomed, backed by new digital transformation projects, the demand for quality talent rose. The tide was in favor of the techies as companies competed to hire them by offering higher packages. As the bidding war escalated, attrition rates started to climb. 

Many engineers saw a revolving door of opportunity, exiting new companies in six months or less to join the next one at even higher pay packages. Before the Ashneer Grover fiasco, BharatPe was making headlines for tempting engineering hires with BMW bikes and trips to Dubai. IT companies had to incur higher costs in form of incentives to retain talent. The effect of these costs could be clearly seen on the margins of top-tier IT companies from Q3FY22.

Soon, demand concerns also emerged. Worries of an economic slowdown in the US and Europe surfaced towards the end of March 2022. Margin pressures coupled with uncertainty on the demand front spooked foreign investors, leading to capital flight from the Indian IT sector and causing the Nifty IT index to correct over 25% from its highs. 

Accordingly, the prominent promoter families of Azim Premji and Shiv Nadar saw their net worth fall by more than Rs 50,000 crore in this period. This was driven by the underlying correction in the stock prices of Wipro and HCL Technologies respectively. 

Divi Satchandra Kiran and his family was another major loser in terms of net worth. The combined family’s net worth fell below Rs 50,000 crore on the poor near-term outlook for Divi’s Laboratories. As the pandemic started to recede from Q2FY22, analysts expected the company’s revenues from sale of Covid-19 drugs, especially molnupiravir, to fall in FY23. The evidence of this was clearly seen in the company’s financial performance for Q1FY23. 

Ajay Piramal and family also saw their net worth fall by over Rs 15,000 crore, mainly due to the demerger of their pharmaceutical business. However, even when the business was combined with Piramal Enterprises, the pharma unit saw its revenues fall by over 30% QoQ in Q1FY23. Notably, the demerged entity will get listed on the bourses in Q3FY23, adding back to the family’s public net worth.

Outlook stays strong for specialty chemicals and consumption related sectors

In the earnings call of Q1FY23, the management of Devyani International sounded confident of the demand trends in the second half of the fiscal. This expectation is backed by India's upcoming festive and holiday season. The company is also set to expand its domestic store count by over 50% by FY24. So it's no surprise that the consensus estimates of analysts expect its net profits to double in the next two years. 

The demand outlook for Varun Beverages is also strong given that its juices, energy drink and dairy segments are performing well, and it is expanding into newer markets. The Jaipuria family is riding high on upbeat sentiment in this sector.

The Speciality chemical sector is set to grow at a CAGR of 11-12% in next five years as the demand shifts to India, owing to the ‘China+1’ policy of global suppliers. The favorable demand environment augurs well for players like Pidilite Industries and Fine Organics. Analysts expect these companies to clock robust revenue growth in FY23 as well. 

Among the losers, the near-term challenges for Indian IT continue to persist. High attrition rates will take a few more quarters to stabilize while a weak macroeconomic environment may impact the technology spends of these companies. Accordingly, analysts see top-tier IT firms clocking lower revenue growth in FY23. 

As India continues to cope with a challenging global environment of high inflation and growth slowdown, it will be interesting to see which promoter families emerge as the big winners and losers over the next year. 


Screener: Some segments set to clock strong QoQ revenue growth in Q2FY23

As we approach the end of Q2FY23, we take a look at companies which are likely to report strong topline growth in the September quarter as well as in FY23, according to Trendlyne’s Forecaster. Analysts have also recommended a Buy/Strong Buy rating for these stocks. 

This screener reflects 15 companies that qualify within the Nifty 500 group. The festive season in India began with Ganesh Chaturthi and Onam in August end, and is expected to drive higher sales for home appliance and consumer durable makers in September. Companies like TTK Prestige and Crompton Greaves are predicted to clock over 20% QoQ revenue growth in Q2FY23, backed by the premium segment. 

Online beauty and fashion retailer Nykaa will also see strong sales growth in Q2FY23 according to analysts, as redder lipsticks and hair treatments fly off the shelves during the festive season. Higher consumption among Indians will also drive demand for retail credit, aiding the expected double-digit revenue growth of HDFC Bank and Axis Bank

Fertilizer maker Coromandel International is set to deliver QoQ revenue growth of nearly 60% in Q2FY23 on the positive impact of Kharif season, according to estimates. 

You can find some popular screeners here.

The Baseline    
03 Sep 2022
Reliance Jio v/s Bharti Airtel: Who will win the 5G war?
By Deeksha Janiani

India registered strong double-digit GDP growth in the first quarter of FY23. But the 13.5% growth rate is lower than RBI's estimate of 16.2%. India faces multiple speedbumps - rising interest rates, uneven monsoons - but is better placed than developed countries that are struggling with high inflation, and China with its self-goals of city-wide Covid lockdowns.

A rebound in the services sector has helped deliver India's Q1 growth. Within services, a Big Two rivalry in a key industry - telecom - is driving a big cycle of spending.

In this week’s Analyticks:

  • Reliance Jio v/s Bharti Airtel: Who will win the 5G war?
  • Screener: Companies outperforming their industry in returns on capital, and growth

Let’s get into it.


Will Reliance Jio's 5G launch help it gain over Bharti Airtel?

For businesses, the rise of a new technology is a fresh chance to win market share. And it looks like Reliance Jio is counting on its 5G rollout to build a massive lead over its competitors. Reliance Chairman Mukesh Ambani announced a special Diwali present for Indians in the 45thannual general meeting of Reliance IndustriesIf you are a Reliance Jio user living in any of the four metros or major cities like Bangalore, Ahmedabad and Pune, you will be able to  access 5G technology by this Diwali.

5G opens the door to much faster data. While 4G gives us a download speed of upto 150 mbps, 5G offers speeds of upto 10 gbps, nearly 67 times higher. The upload speed is also 20 times higher than that of 4G. People living in smaller cities and towns are expected to get Jio 5G by December 2023. 

This ambitious plan comes at a hefty price tag for Reliance. 

The company will incur a capital expenditure of Rs 2 lakh crore via its telecom arm Reliance Jio Infocomm, to roll out 5G services. The planned capex spend includes Rs 88,078 crore spent on the 5G spectrum auction held recently. The remaining amount is earmarked for setting up 5G network infrastructure. 

Notably, the spectrum cost is evenly spread out over a period of 20 years. So including two spectrum installments, Reliance Jio is set to spend over Rs 1.25 lakh crore on the rollout of 5G services in the next 18 months. This is 20% more than the last three years of combined capex for Jio.

Meanwhile, Bharti Airtel is also focusing on its 5G rollout plans. The telecom major plans to cover the entire country with its 5G services by the end of March 2024, at half the cost Reliance is spending.

According to its recent earnings call, Bharti will incur a capex for the next three years similar to what it spent between FY20 and FY22 - which is around Rs 75,000 crore. The majority of the capex will be spent in the next 18 months itself. 

Now, the key question is: which of these telecom majors will emerge as the more successful 5G service provider?

Throwing money at the problem, and winning: Reliance Jio’s lightning fast growth in the last five years

Thanks to its parent company’s deep pockets, Reliance Jio witnessed massive network expansion as well as revenue growth (which jumped 4X) in just five years. This growth was fueled by the doubling of its total subscriber base, which crossed the 40 crore mark in FY21. In fact, Jio surpassed Airtel on this metric by FY20, within three years of its 4G launch. 

However, this blockbuster growth came at a high capex cost for Reliance Jio. The subsidiary saw negative free cash flows of over Rs 1.10 lakh crore between FY18 and FY20, backed by higher investments. It finally generated positive free cash flows in FY21, only to see them fall materially in FY22.

Now Jio is embarking on another capex cycle, which may once again strain its free cash flows. 

At the consolidated level, Reliance Industries generated operating cash flows of around Rs 1.10 lakh crore in FY22. This should give some comfort to investors for planned 5G investments if we assume a similar level for FY23.

However, there are also other competing investments. The company announced fresh investments of Rs 75,000 crore in the oils to chemical business. There are more long-term commitments on the new energy side which are over Rs 6.5 lakh crore. So there is a good chance that the company may see negative free cash flows for FY23 and look for external sources of funding. 

Reliance Jio is going for a costlier 5G approach. But is the price tag worth it?

Bharti Airtel and Reliance Jio have chosen two different approaches to deploy 5G technology. Airtel is going for the cheaper, and globally accepted non-stand-alone approach while Jio is opting for the stand-alone approach.

In Airtel's non-stand-alone (NSA) approach, a telecom operator delivers the 5G radio signal over existing 4G network infrastructure.  A standalone (SA) 5G network on the other hand, runs on an entirely new network infrastructure (say new radio towers) which requires higher capital investments. 

Jio will develop this new infrastructure in-house and leverage its partnership with Qualcomm. The advantage of going for the SA structure is that it offers ultra-low latency which basically means minimal time lag in data transfer. This makes it suitable for applications in remote surgeries, gaming and robotics. 

However, the challenge here is that the ecosystem for this structure is not yet developed. Very few mobile phones can actually support a 5G SA structure. 

To enable the new structure, Jio acquired the highly expensive 700 MHz frequency waves along with the 3.3 GHz waves in the recent spectrum auction. This may not give Jio much of an advantage. According to Nokia, the 700 MHz band does offer better area coverage but the speed is only a little bit better than 4G. The same sentiments were echoed by Gopal Vittal in the recent earnings call

The difference in these approaches explains why Airtel will roll-out 5G services at half the capex cost of Reliance Jio. Airtel can always opt for the advanced SA structure later on once the ecosystem is well established and there is evidence of higher revenue per user (ARPU).

Currently, none of the global telecom operators are making any incremental ARPU on the service, and it does make sense to wait and watch before going all out for an expensive architecture. 

We won't know right away which strategy will pay off. Will Jio grab a higher share in the subscriber base and better ARPU with 5G, or will Airtel, the more 'sensible' player, win out? Analysts, meanwhile, anticipate a higher jump in Bharti Airtel’s net profits in next two years.


Screener: Sector outperformers in capital returns and revenue growth

This screener reflects stocks which outperformed the industry on annual return on capital employed (ROCE), return on equity (ROE), annual net profit growth and revenue growth. 

It is dominated by stocks from the pharmaceutical industry and also includes stocks from auto parts and equipments and footwear. Major stocks featured in this screener are Divi’s Laboratories, Tube Investments, Ajanta Pharma and Metro Brands.

Divi’s Laboratories outperformed the pharmaceutical industry annual ROCE by 9.4 percentage points as well as surpassed the annual revenue YoY growth of the industry by 18.5 percentage points. Growth in the custom synthesis segment and efforts towards backward integration and debottlenecking aided this outperformance. 

Tube Investments outperformed the auto parts industry in annual ROCE by nearly 10 percentage points and in annual revenue growth by over 80 percentage points. Its revenue growth was primarily driven by its engineering business which did well owing to market share gains and doubling of exports.

Metro Brands outperformed the footwear industry in annual revenue growth by 18.1 percentage points. This is helped by the growth in sales volumes due to reopening of offices , festive and the wedding season. Its annual PE TTM is also lower than the industry average. This has helped the stock to outperform the industry returns by 18 percentage points. 

You can find some popular screeners here.

Asian Paints Ltd.    
23 Aug 2022
3108.15
-0.23%
Many shades of green: Paint makers cheer strong demand, bright forecast
By Deeksha Janiani

After the washout of a key quarter for two back-to-back years, the Summer of ’22 proved to be a double delight for paint makers. Brent crude oil prices peaked out in the last week of May and fell below the $100/bbl level over the next two months. Paint makers also witnessed robust demand across the decorative and industrial segments in …

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Asian Paints Ltd. is trading below all available SMAs
The Baseline    
13 Aug 2022
The Big Fight: Contest between ICICI Bank and HDFC Bank | 11 profitable stocks outperforming the Nifty500
By Deeksha Janiani

India turns 75 on Monday. Our generation has been especially lucky, living in a free country and post 1991 liberalization. This week in Analyticks, we do a special face-off between India's top two private banks, who have been pivotal in fuelling the nation's financial growth since 1991. 

  • ICICI Bank has gained on HDFC Bank since FY20. Can the leader get back its momentum?
  • Screener:  11 profitable stocks that are outperforming the Nifty 500 index

Let’s get into it.


ICICI Bank has outperformed HDFC Bank in the last two years

The pandemic caused a tectonic shift in the banking space, especially with customer behavior. A typical savings account holder downloaded the banking app, rather than risk a visit to a crowded bank. For many customers, this was the first time they were doing this.

In the process, they discovered convenience: no searching for their passbook, or waiting in queues, or trying to talk through bulletproof glass to a bank teller. Best of all, their applications got processed much faster.  

Banking customers now increasingly prefer a digital app to meet their regular banking needs, rather than making a branch visit. With this big shift, the growth trajectory of the top two private banks changed. 

ICICI Bank lagged HDFC Bank in terms of topline and bottomline growth between FY16 and FY20. This was owing to the turbulent years of 2016-2018, when the former was caught in a cobweb of rising non-performing loans and misgovernance. Meanwhile, HDFC Bank was like the Rahul Dravid of this space, thanks to its growth consistency during the period.

Cut to the present, and ICICI Bank has found its inner Tendulkar. It has overtaken HDFC Bank in terms of growth pace in the last 8-9 quarters. 

ICICI Bank jumps post-Covid

ICICI Bank’s net interest income (NII) grew at a compounded quarterly growth rate of 4.5% between Q1FY21 and Q1FY23. This was driven by the growth in retail advances as well as SME and business banking loans. 

While the bank’s advances in these segments witnessed 20%+ growth CAGR in this period, other segments were also not far behind. Basically, ICICI Bank’s strategy of ‘One Bank, One ROE’ which focuses on tapping growth opportunities across products worked well in these two years. 

HDFC Bank’s NII growth lagged that of ICICI Bank between Q1FY21 and Q1FY23. This was owing to the slow rise in its retail advances. Sluggishness in auto and credit cards loans hurt growth in retail.

RBI had also barred HDFC Bank from fresh issues of credit cards and new digital initiatives between December 2020 and March 2022. This hit customer acquisition for the bank - and the news headlines covering the RBI ban didn’t help. It was a virtual advertisement to banking customers to go to the competition.

If we compare the NII growth of the top five private banks, ICICI Bank and Axis Bank stand out in terms of sequential and YoY growth in Q1FY23. HDFC Bank’s NII grew the slowest among other private banks. 

A higher share of retail loans, especially mortgages also led to a steady improvement in ICICI Bank’s net interest margins in the past nine quarters. 

If we look at ICICI Bank's loan portfolio, mortgages as well as the SME and business banking segments stand out. The bank’s cross-selling initiatives and its digital offering InstaBIZ aided the growth in SME and business banking loans. Infact, the InstaBIZ application saw an over 55% YoY rise in the value of transactions processed through it in Q1FY23 as the bank made this platform interoperable. 

HDFC Bank sees weaker growth, but has the lowest NPAs

For HDFC Bank, the rural banking and commercial segment grew in prominence between Q1FY21 and Q1FY23. Meanwhile, the corporate segment share reduced in its portfolio, as India Inc made its balance sheet leaner during this period. According to the management, HDFC Bank also lost Rs 40,000 - 50,000 crore worth of corporate business in Q1FY23 by deciding not to lend at lower interest rates.

HDFC bank continues to be the clear winner in terms of its asset quality. The bank had the lowest net non-performing asset ratio both in Q1FY21 and in Q1FY23, among others. A lower proportion of riskier retail loans definitely helped the bank here. 

Game on: HDFC Bank is investing in digital, ICICI Bank to benefit from rate hikes

HDFC Bank now has some serious catching up to do. Its first point of action is to increase the share of high-margin retail advances to 55% from its current 40%. When it does merge with HDFC, mortgage loans will automatically occupy a higher portion in the loans pie, helping the bank achieve its target loan mix. 

A lot is happening in Q2FY23 under the bank's new CEO Sashi Jagdishan. HDFC Bank is launching ‘PayZapp 2.0’, an advanced version of its payment app, which will enable the bank to tap the retail customer base. It launched the ‘Xpress Car Loans’ app in April 2022 to improve the digital experience for customers seeking auto finance. Jagdishan hopes to transform it into a Neo bank or a virtual bank backed by such products. 

HDFC Bank is also deepening its rural footprint and expanding its network coverage to two lakh villages, from one lakh currently. It sees potential in this region as banking penetration remains low at 20-25%. On an overall level, the bank is looking to double its network by adding 1,500-2,000 branches every year from FY23 till FY28.

ICICI Bank, which is already riding high on growth, will see a positive change in its NIMs with RBI hiking repo rates by 140 bps from May 2022. Nearly 70% of its loans are linked to external benchmarks and its credit costs remain benign. ICICI Bank is also seeing good credit demand in the retail segment, but sounded some caution for quarters ahead given the interest rate rise. 

All in all, the dynamics within the sector may change again in next 3-5 years as HDFC Bank works to reclaim its top spot in terms of growth. It has an ambitious target of doubling its balance sheet size on a merged basis in this period. The Rahul Dravid of the banking space is firmly set on the pitch after some yorkers, and is now hoping for a successful innings.  


Screener:Stocks with positive profit growth, outperforming the Nifty 500 index

As most of the results for Q1FY23 are out, we take a look at companies whose net profits consistently grew in the past four quarters, have low debt and outperformed theNifty 500 index in the past month.

This screener reflects 11 Nifty 500 stocks that qualify. Notable ones among these are Hindalco Industries, Tata Elxsi, Schaeffler India, L&T Technology Services and IDFC First Bank.

IDFC First Bank clocked a net profit of Rs 485 crore in Q1FY23 as against a loss in Q1FY22 on lower provisions and higher NII. This banking stock outperformed the index by over 24 percentage points in past month. 

Hindalco Industries comes in next with a 2X rise in its net profits in Q1FY23, led by healthy sales realizations. It recorded consistent net profit growth in the past four quarters and outperformed the Nifty 500 by over 14 percentage points. 

Meanwhile, Tata Elxsi’s net profit grew by over 60% YoY in Q1FY23 on robust demand from foreign automotive OEMs. Despite its pricey valuations, the stock has outperformed the index by 10 percentage points in past month. 

You can find some popular screeners here.

Signing off this week,

The Trendlyne Team

Rakesh Jhunjhunwala and Associates    
04 Aug 2022
Rakesh Jhunjhunwala cuts stake in key stocks in Q1, Sunil Singhania goes on a shopping spree
By Deeksha Janiani

Deeksha Janiani discusses changes in Q1FY23 in the portfolios of Big Bull Rakesh Jhunjhunwala and Sunil Singhania, who manages the Abakkus Fund.

Watch the full video.