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In 1908, the Ford Model T set off a transportation revolution as the first mass-produced car with an internal combustion engine (ICE). It had no seatbelts or windows, 20 horsepower (hp) and a top speed of 72 km/hr.

ICE vehicles have evolved a lot since that first car - the modern Ford GT MK IV has 40 times the power, with 800 hp and a top speed of 472 km/hr.  

Before the Model T, roads across cities had to be cleaned every day of huge amounts of horse manure, because people were mostly travelling in horse carriages. The car was a relief to everyone who had to walk around while trying not to step into horse poop. Now more than a hundred years later, electric vehicles are emerging as a cleaner, better alternative to traditional cars.

Elon Musk, the poster boy worldwide for electric cars, made EVs a disruptive force against ICE cars with Tesla. Several auto manufacturers before him had tried to sell electric vehicles without success - small, cramped cars that nobody wanted to be seen in. Tesla paved the way for EVs to become both competitive and a status symbol.

But so far, the Indian story has been different. Despite India introducing its first domestically manufactured electric car, the Reva, in 2001, the country has lagged behind major markets in increasing electric vehicle usage. 

In this week’s Analyticks:

• Facing speedbumps: EVs in India need an ecosystem boost
• Screener: Stocks in the PE Buy zone with reasonable durability score, rising momentum score and strong Q4FY23 performance

Let’s get into it.

Tata, Mahindra, Ola, Hero, and TVS have become leading electric mobility manufacturers in India. In FY23 alone, the country saw a hockey-stick change in demand, with 11,71,944 electric vehicle sales - more than the total EVs sold in India over the past decade.

Fortune Business Insightsexpects India's electric vehicle market to grow from $3.2 billion in 2022 to $114 billion by 2029 – a CAGR of 66.5%.

Norway has the highest EV penetration in the world right now, with 79.2%. The Norwegian government has passed legislation requiring that all cars sold in 2025 be zero-emission (electric or hydrogen-powered) vehicles. In comparison, the Indian government is far behind and is targeting to achieve 30% EV penetration by 2030.

Station shortage: 2,577 for EVs vs 80,000 for ICE

To promote electric vehicles, the Indian government has adopted a three-pronged approach by subsidizing EV  consumption, building charging infrastructure across the country, and incentivizing local EV manufacturing. 

Under the National Electric Mobility Mission Plan (NEMMP), the goal is to set up one charging station every three kilometres in cities and one every 25 kilometres on highways. However, only 2,577 charging stations have been installed so far, a  stark contrast to the nearly 80,000 fueling stations India has for ICE vehicles.

The government's Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme offers subsidies for electric vehicles. To qualify, the vehicle must have at least 70 km of range and a minimum speed of 40 km/hr. Additionally, the government has set norms requiring 50% of the vehicle’s manufacturing to be done in India. These initiatives have led to a price decline of Rs 10,000 - 15,000 for electric two-wheelers.

Data source: moneycontrol

To make lithium-ion battery packs more competitive in terms of pricing, the government has reduced the Goods and Services Tax (GST) on these batteries from 18% to 5%. The new Production Linked Incentive (PLI) programme for this industry is also expected to promote domestic battery manufacturing. 
Government initiatives have shown positive results for the electric two-wheeler segment, which registered sales of 1 lakh units in the month of May 2023, double the average during FY23. However, problems such as the lack of charging infrastructure on highways and battery limitations continue to hinder the growth of EV passenger vehicle sales. 

Two-wheeler startups, auto equipment manufacturers lead the EV revolution

Electric two-wheelers account for nearly 61.5% of all EVs sold in India, followed by three-wheelers (34%) and passenger vehicles (3.4%). As two-wheelers are designed for traveling a shorter distance, the technology makes them more attractive.

Electric two-wheeler sales have captured 3.2% of India's two-wheeler market, while the share for passenger vehicles stands at 1.6%. As of December 2022, EVs accounted for 16.8% of all vehicle sales in Delhi, marking a YoY growth of 86%.

Startups like Ola Electric (21.9%), Okinawa Autotech (15.6%), Hero Electric (12.9%) and Ampere Vehicles (12.1%) account for nearly 50% of the total two-wheeler electric vehicle sales in India.

The simplicity of electric vehicles, with fewer than 20 moving parts compared to the 2,000+ parts in IC engines, has put traditional OEM manufacturers at a disadvantage. Consequently, their focus has shifted towards technological development like sensors, software, wiring and batteries. 

OEM manufacturers are signing joint ventures with electric vehicle startups to update their product portfolio. Uno Minda, for instance, has signed a JV with foreign firms to manufacture battery packs, smart plugs, residual current device (RCD) cables and motor controllers. This will enhance its kit value from the currentRs 8,000 per vehicle to Rs 50,000 per vehicle.

In the hunt for technology neutrality, Igarashi Motors is developing motors that can be used for both IC engines and electric vehicles. The firm, through a third party, supplied motor parts to Tesla for a short while.

Bosch has also been investing in the development of electric mobility solutions like battery management systems, electric axles and vehicle control units. While these have fewer takers in India, there has been a noticeable global uptick in the sales of such technology. 

India struggles in battery manufacturing, lags behind China

Battery manufacturing has a crucial role in the electric vehicle industry, accounting for nearly 30-40% of the total vehicle cost.  India lags behind in this key aspect, with China controlling around 75% of the battery manufacturing market. The United States, Hungary and Germany also have a significant presence in this space.

Indian firms have not made big investments in battery technology, unlike global players who are working on improving the energy density of batteries to give EVs more travel range. Some of the highest-performing battery cells – Tesla’s upcoming 4,680 cells and LG Energy Solutions’ Ultium cells – can reach energy densities of over 300 Wh/kg, up from around 100-150 Wh/kg a decade ago. 

Major economies are making rapid progress in setting up giga-factories. China has an installed capacity of 5,462 GWh for lithium-ion battery manufacturing, followed by Europe (1193 GWh) and North America (1047 GWh).

Indian firms are yet to make much headway here. Some Indian companies are taking steps now in battery manufacturing - Tata Group is developing a 20 GWh plant in Gujarat, Exide Industries plans to invest Rs 6,000 crore in a 12 GWh plant, and Amara Raja Batteries is investing around Rs 9,500 crore to set up a 16 GWh plant along with a 5 GWh plant for a battery pack assembly unit. Many non-technical players like Reliance, Amperex and OLA are betting on lithium-ion battery manufacturing by acquiring or investing in new plants.

However, the current trend suggests that battery manufacturers may struggle to scale up production to meet the rising demand for EVs. Many Indian auto manufacturers instead import battery packs from China, assemble them domestically, and sell them under different brand names.  

India's electric vehicle ecosystem has witnessed significant growth and government support in recent years. But it still relies heavily on imports, and India needs to ramp up its battery manufacturing capabilities a lot faster. Building out manufacturing and improving charging infrastructure is essential to reduce oil imports and unlock the full potential of electric mobility for India.

Screener: Stocks in PE Buy zone with reasonable durability score, rising momentum score and strong Q4FY23 performance

To find promising stocks, investors often look for a combination of factors that indicate a good investment opportunity. This screener looks for automobile & auto componentsstocks in the PE Buy zone with reasonable durability and rising momentum scores, all while delivering strong YoY growth in net profit and revenue in Q4FY23. A stock is in the PE Buy Zone if it is trading at a PE lower than its historical PE average.

Major stocks in the screener include Titagarh Wagons, Eicher Motors, Maruti Suzuki, Banco Products and Mahindra & Mahindra.

Titagarh Wagons has traded below its current PE only 1.7% of the time. This commercial vehicles manufacturer posted a 102.6% YoY revenue growth in Q4FY23, while its net profit improved by 293.3% YoY, supported by strong demand and the government’s increased budgetary allocation for railways. This has helped the stock to grow by 20.7% over the past month, boosting its Trendlyne Momentum score by 5.6 points to 74.7 in the same period. The company also plans to increase its wagon manufacturing capacity from 8,400 units to 12,000 units per annum.

Eicher Motors, known for its two and three-wheeler vehicles,  has traded for 22.8% of the time below its current PE. The company witnessed its revenue increase by 19.1% YoY in Q4FY23, while its net profit grew by 48.4% YoY, backed by a higher-than-estimated average selling price (ASP) and falling input costs. The stock has a high Trendlyne durability score of 60 and saw a 5.9 point increase in its momentum score to 56.6 over the past month. The company also plans to launch multiple new products in the next 18-24 months.

Car manufacturer Maruti Suzuki India has traded 26% of the time below its current PE. It posted a 19.9% YoY rise in revenue and a 42.4% YoY growth in its net profit in Q4FY23, backed by increased demand for SUVs in the domestic market, higher sales volume and product prices. The stock has a Trendlyne Momentum score of 64.6, an improvement of 12.3 points MoM, and a high Durability score of 80.

You can find more popular screenershere.

Signing off this week,

The Trendlyne Team

1. Star Cement: Axis Direct keeps its ‘Buy’ rating on this cement company and raises its target price to Rs 165 from Rs 145. This implies an upside of 15%. In Q4FY23, the company’s net profit rose 8.7% YoY to Rs 96.1 crore, while revenue grew by 10.1%. 

Analysts Uttam K Srimal and Shikha Doshi believe the company’s growth will be driven by higher sales volume and lower input costs. They believe the firm is well-placed to benefit from the growing demand for cement in East and North-East India, given its massive presence in the regions and its production capacity expansion initiatives. “The company is the leading producer of cement in the North-East region, which contributes 70-75% of its total revenue," they add. 

The analysts also see the management’s plan to increase the share of its premium cement products to 8% from 4% of total revenue as a key positive. Srimal and Doshi expect the company’s net profit to grow at a CAGR of 14% over FY23-25.

2. Hindustan Unilever: Bob Capital Markets maintains its ‘Buy’ call on this FMCG company with a target price of Rs 3,069, indicating an upside of 14.7%. In FY23, the company’s revenue increased by 15.9% YoY to Rs 61,092 crore. Analyst Vikrant Kashyap says, “Despite persisting macroeconomic challenges such as tepid market growth, high commodity inflation, and geopolitical uncertainties, the company has increased its market share in more than 75% of its portfolio.”

The analyst believes that with its strong brand portfolio, Hindustan Unilever is tapping into emerging demand through new launches. According to the annual report, market development initiatives added Rs 10,000 crore to the company’s turnover in FY23. The analyst expects investments in brand building and innovation to lend further momentum to the company’s growth.

Kashyap is also optimistic about Hindustan Unilever’s strong distribution network and resilient supply chain. With 29 owned factories and 50+ manufacturing partners, the company has a strong production capacity to meet market demand.  

3. Graphite India: ICICI Direct maintains its ‘Buy’ call on this industrial goods company with a target price of Rs 440, indicating an upside of 13.6%. In Q4FY23, the company’s consolidated capacity utilisation was at 55%, lower than the brokerage's estimate of 60% and down from 76% in Q4FY22. During the quarter, it reported a revenue of Rs 820 crore (down 10.4% YoY), as against the brokerage’s estimate of Rs 729 crore. Graphite India’s price rose 106.1% in the past three years, as against the Nifty 50’s 87.7%.
   Analyst Dewang Sanghav says, “The World Steel Association forecasts that steel demand will see a 2.3% rebound to reach 1,822 million tonnes (MT) during 2023, and a further 1.7% growth to reach 1,854 MT by 2024.” He believes that this bodes well for graphite electrodes demand. 

Sanghav is also optimistic about the shift of steel manufacturer’s towards the Electric Arc Furnace (EAF) process. He expects this transition to drive sustainable demand for graphite electrodes in the long term. The analyst emphasises that this environmental-friendly process will attract companies looking to reduce their carbon footprint. 

4. Angel One: ICICI Securities maintains its 'Buy' rating on this capital markets company, setting a target price of Rs 1,590. This implies a potential upside of 6.5%. In Q4FY23, the company delivered a YoY growth of 30.4% amounting to Rs 266.9 crore as net profit, accompanied by a 23% increase in revenue. For Q1FY24, they forecast a net profit of Rs 230 crore, taking into account the company's strong performance in May 2023.

Analysts Ansuman Deb and Ravin Kurwa maintain a positive outlook on the company due to its digital business model, which allows it to sustain higher revenue from clients in the post-acquisition years. Moreover, the company has established a strong track record in terms of order volume, experiencing a growth of 2.3 times over the past two years. As of May 2023, it holds a retail volume share of 24%.

Deb and Kurwa believe that Angle One's super-app will be instrumental in achieving market leadership and enhancing customer lifecycle value. They forecast an earnings CAGR of 16% over FY23-25, with an expected profit after tax of Rs 1,150 crore in FY25.

5. Trent: Motilal Oswal maintains its ‘Buy’ rating on this retail company with a target price of Rs 1,835. This implies an upside of 8.9%. In Q4FY23, the firm’s net profit jumped 337.5X YoY to Rs 54.2 crore and revenue surged by 64.3%.

Analysts Aliasgar Shakir, Harsh Gokalgandhi and Tanmay Gupta note that despite muted discretionary demand, Trent has outperformed its peers. They also see the firm’s ability to manage its balance sheet effectively, even with aggressive store additions, as a key positive. The analysts add, “There are near-term growth headwinds given the high pent-up base and demand weakness, but Trent continues to outperform its peers and offers a huge runway for growth over the next three-to-five years.”

Shakir, Gokalgandhi and Gupta expect the company’s gross margins to improve in the coming quarters on the back of falling raw material costs. Overall, they believe Trent will maintain its growth trajectory, supported by strong same-store-sales growth, productivity, healthy footprint additions, and Zudio’s strong brand value. The analysts expect the firm’s revenue to grow at a CAGR of 28.9% over FY23-25. 

Note: These recommendations are from various analysts and are not recommendations by Trendlyne.

(You can find all analyst picks here)

2022 was a year of upheaval for global trade, as Putin’s war turned major western powers against Russia, and the US imposed sanctions against China, a major trading partner. Higher inflation and rising interest rates also caused pain and shifted buying patterns. This caused global trade to grow at  12.3% to $32 trillion in CY22 -  slower than the previous two years.

Key economies may also be facing recessions in FY24 – Germany, for instance, entered a technical recession in May 2023 as its GDP fell for two consecutive quarters in Q4FY23. This could put further pressure on trade growth. 

In this edition of the Chart of the Week, we take a look at the trends in trade for major economies and assess their performance in exports and imports. Countries like the US and China have witnessed sharp changes in their trade balances in April and May 2023. 

China is the world’s biggest exporter, leading the number 2 country, the US, by a wide margin. But it has struggled with demand in recent months. China’s trade surplus in May dropped 27% MoM to $65.8 billion, its lowest level since April 2022. Despite lifting its Covid lockdown restrictions in January 2023, lower demand for Chinese manufactured goods caused a 7.5% YoY fall in exports, much worse than the decline expected by Reuters (-0.4%). Imports also fell by 8% YoY. 

On the other side of the world, the US saw its trade deficit widen by 23% MoM to its highest level in the past six months, at $74.6 billion in April 2023. The US Commerce Department claims that this was the biggest MoM worsening in the trade deficit since April 2015. The increase in imports due to high demand for imported manufactured goods, coupled with a decline in exports of energy products, has contributed to this deficit. 

As China and US trade balances moved in the negative direction, India’s trade deficit contracted to its lowest level in the past 20 months at $15.2 billion in April 2023. But this is not necessarily a sign of rising exports. 

India actually saw a 12.7% YoY decline in exports due to weak global demand. But it also witnessed a 14% YoY decrease in imports on the back of reduced commodity prices like petroleum. With imports falling faster than exports, India’s trade deficit narrowed. 

Germany, on the other hand, provided a silver lining as its April trade surplus reached its highest level since January 2021 at $20.3 billion. Exports rose 1.2% MoM, driven by increased demand for German manufactured goods from the US, UK and China. At the same time, imports declined by 1.7% MoM, reflecting the country’s economic slowdown.

Vietnam has emerged as a new success story in global trade, with the small country making outsized progress in textile, chemicals and other exports. The country has turned a trade deficit into a surplus over the past year. However, Vietnam’s May trade surplus fell by 12.5% MoM to $2.2 billion. In April, the country’s exports had fallen by 17.1% YoY, while imports declined 20.5% YoY, aiding causing a net trade surplus that month. 

1. Hindustan Aeronautics (HAL): This defence company has risen 21.5% over the past week till Friday, marking an uptrend for six consecutive sessions. The company also shows up in a screener for stocks with strong momentum. This follows reports of an upcoming agreement between HAL and General Electric to co-produce the new F414-INS6 jet engine in India, which will be used in the Tejas Mark-2 fighter jet. 

According to reports, a similar deal was proposed between the two companies in 2012, but it failed to materialise as the Indian government was not satisfied with the level of transfer of technology (ToT) being offered. However, this time, the ToT and the use of local components are expected to cross 60%, as per ICICI Securities.

In Q4FY23, HAL’s standalone revenue grew 8.1% YoY, while its net profit fell by 8.4% YoY to Rs 2,841.3 crore. However, it beat Trendlyne Forecaster’s revenue and net profit estimates by 3.5% and 32% respectively.  

The company’s order book at the end of FY23 stood at Rs 81,800 crore, including manufacturing orders worth Rs 60,500 crore. For FY24, the management maintains its revenue guidance of 8-9%, while Forecaster estimates the firm’s standalone revenue to grow by 6.8%. The management expects double-digit revenue growth in FY25, driven by its manufacturing segment and the execution of aircraft and fighter jet orders. 

ICICI Direct foresees growth driven by the manufacturing and repair segments from FY25 onwards. The firm also expects to bag an order worth Rs 12,000 crore from the Indian Air Force for the production of 12 Sukhoi-30 MKI fighter jets in FY25. From FY26 onwards, HAL expects revenue growth to stabilise at 12-13%. The consensus recommendation from eight analysts on the company is ‘Buy’.  

2. Mazagon Dock Shipbuilders: This shipping company touched its all-time high of Rs 1,079.3 per share on Thursday following the signing of a memorandum of understanding (MoU) with ThyssenKrupp Marine Systems. The MoU, valued at $5.2 billion, is for the construction of six submarines for the Indian Navy. The stock has risen 30.1% over the past month, helping it appear in a screener of stocks that have risen more than 20% during the same period. As per the MoU, ThyssenKrupp will provide engineering and design expertise, while Mazagon will undertake the construction and delivery of the submarines. 

This recent rise in stock price is also supported by its Q4FY23 net profit and revenue, which exceeded Trendlyne’s Forecaster estimates by 42.2% and 17.9% respectively. This helped the company feature in a screener of stocks with increasing revenue every quarter for the past two quarters. 

The company’s order book is also on an uptrend and stands at Rs 38,755 crore as of Q4FY23. The management expects the revenue to improve by 8-10% in FY24, and they have submitted bids for construction projects of vessels worth Rs 3,000 crore for the Indian coast guard and Rs 1,000 crore from international clients.

However, ICICI Securities has maintained a ‘Sell’ rating on the stock with an unchanged target price of Rs 600. This indicates a potential downside of 42%. The brokerage believes that the company’s lack of order visibility to offset its strong revenue growth estimates calls for an unfavourable risk-reward at the current market price. However, market sentiment for defence stocks has been positive over the past week on the back of talks between India and the US regarding the co-production of jet engines, long-range artillery, and infantry vehicles.

3. Suzlon Energy: This heavy electric equipment company has risen 25.6% in the past week till Friday, outperforming the Nifty 500 by 24.6%. This is despite a 7% decline on Thursday after rising for three consecutive sessions. The sharp variation in price and volume has led to Suzlon being placed under the Additional Surveillance Measure (ASM Stage 1) by the BSE. 

The recent share price appreciation could be attributed to its strong Q4FY23 results and large new orders. In Q4, the company posted a net profit of Rs 279.9 crore, compared to a net loss of Rs 204.3 crore in Q4FY22. The energy provider has also reduced its net debt by 80% YoY to Rs 1,800 crore and is trying to monetize its non-core assets to further reduce the debt.

In the post-results earnings call, JP Chalasani, the Group CEO, stated that the company's cumulative orders of 1,542 MW (as on May 30, 2023) are the highest since 2019. Suzlon Energy’s robust order book is driven by its new turbine named S144, which delivers 40-43% higher energy generation compared to the earlier S120. 

The firm ranks medium on Trendlyne’s Checklist score and is in the PE Buy Zone as its current PE is lower than its historical PE ratios. 

4. Ajanta Pharma: Thispharmaceutical firm derives 72% of its revenue from branded generics. The stockrose 9.8% last week and touched a 52-week high, backed by a turnaround in performance. The firm’sQ4FY23 earnings have shown a revenue growth of 1.9% and EBIDTA margin contraction of 681 bps YoY. The slowdown in emerging markets like Asia and Africa drove the firm's muted performance. Factors such as strikes in France, supply chain issues, lack of funds in non-profit institutions, forex losses, and higher employee costs have impacted the top line.  However, the US and India segments reported a 17% YoY increase, with the US growth being driven by stabilised prices of branded drugs and moderation in freight costs.

As raw material costs  ease, the management expects gross margins for FY24 to expand to 74-75% from the current level of 72%. They also anticipate the EBITDA to return to historical levels of 24% from the current 17%. The increase in freight costs had a significant impact of almost 200 bps in FY23. Normalization of freight costs, moderation in drug prices in the US, and lower  employee and input costs are expected to drive margin expansion in FY24. The firm is optimistic about achieving a 13-15% growth in its branded generics business. The stock shows up in a screener for stocks with prices above short, medium and long-term moving averages.

The firm has a capex outlay plan of Rs 200 crore for FY25, compared to Rs 160 crore in FY23. It also has plans to launch five products and submit 6-8 abbreviated new drug applications (ANDA) in FY24.  

Motilal Oswal says that with headwinds of FY23 easing out for Ajanta Pharma, the firm is likely to see 10.4% and 18.1% growth in revenue and profits respectively. The brokerage maintains its ‘Buy’ rating on the company.

5. Torrent Power: This electric utility service provider has been on the rise for five consecutive days, with its  stock price increasing by 23.3% since the beginning of June. As a result, the company features in a screener for stocks that have gained more than 20% in one month. The price surge comes after the company’s impressive financial performance in Q4FY23, reporting a net profit of Rs 449.1 crore compared to a loss of Rs 488 crore in Q4FY22. Its revenue also grew by 59.7% YoY to Rs 6,133.7 crore. It shows up in a screener for stocks with growth in quarterly net profit and increasing profit margin. 

Samir Mehta, Chairman of Torrent Power, says that the company has successfully integrated five acquisitions and licensed distribution businesses in Daman & Diu and Dadra Nagar Haveli. According to the management, the rise in revenue can be attributed to consistent performance in the distribution business, achieved by reducing losses, meeting the growing electricity demand, and improved operations in the Union Territory.

Geojit Financial Services has given an ‘Accumulate’ rating to Torrent Power on the back of increased productivity in distribution businesses and its ambition to boost the top line. The brokerage expects a 28% rise in renewable capacity and projects an ROE of 16% in FY25.

Torrent Power also hit its all-time high of Rs 748.9 on Thursday. The stock price surged on Wednesday and Thursday as the company signed a memorandum of understanding with the Government of Maharashtra for the development of three pumped storage hydro projects of 5,700 MW capacity. The projects are expected to require an investment of about Rs 27,000 crore. 

Trendlyne's analysts identify stocks that are seeing interesting price movements, analyst calls, or new developments. These are not buy recommendations.

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

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

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

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

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

In this week’s Analyticks:

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

Let’s get into it.

Taming inflation is key to economic growth

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

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

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

Not so cool anymore: the declining appeal of China

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

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

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

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

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

Note: A value above 50 indicates growth

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

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

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

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

Japan, South Korea and India are drawing foreign investors 

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

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

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

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

Screener: Big changes up or down in FII holding

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

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

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

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

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

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This week we take a look at analyst picks with high upside, that have performed positively in Q4FY23.

1. Mahindra & Mahindra: BOB Capital Markets maintains its ‘Buy’ rating on this cars & utility vehicles manufacturer and raises the target price to Rs 1,665 from Rs 1,496. This implies an upside of 18.4%. In Q4FY23, the company’s net profit rose 17.9% YoY to Rs 2,636.7 crore, and revenue increased by 24.8% YoY. 

Analysts Milind Raginwar and Yash Thakur attribute the healthy Q4 performance to volume growth, price hikes, a better product mix and higher realisations. They add that falling raw material prices helped increase gross margins and profitability. Overall volume growth was driven by rising passenger vehicle sales, but its farm equipment segment’s volumes were subdued. 

Raginwar and Thakur remain optimistic about the firm’s prospects on the back of increasing production capacity and new launches. They say, “New capacity and high-end launches are likely to boost M&M’s revenue even as moderating cost, a good product mix and improving realisations support margin gains and mitigate supply chain issues.” The analysts expect the company’s net profit to grow at a CAGR of 21.9% over FY23-25. 

2. Tata Consumer Products: KRChoksey maintains its ‘Buy’ rating on this packaged foods manufacturer with a target price of Rs 964. This implies an upside of 22.7%. In Q4FY23, the company’s net profit grew 23.5% YoY to Rs 268.6 crore, while its revenue rose 14% YoY.

Analyst Abhishek Agarwal believes that the company successfully offset volume pressures in  Q4 through stronger distribution, new product launches, and cost efficiencies. He adds that modern trade and e-commerce have also contributed to growth. The analyst sees the company’s focus on improving distribution as a key positive, as it will drive future growth. He says, “During FY23, the firm increased its direct distribution by 15%, allowing it to take its portfolio to a larger outlet universe with more impact.”

The company is also increasing its expenditure on research and development, with a focus on innovation and new products. The analyst expects the firm’s net profit to grow at a CAGR of 17.5% over FY23-25.  

3. TCI Express: Sharekhan retains its ‘Buy’ call on this logistics services provider with a target price of Rs 2,070, indicating an upside of 27.2%. The company’s profit in Q4FY23  grew by 7% YoY to Rs 38.5 crore, while its revenue increased by 9.2% YoY.  Analysts at Sharekhan believe that profits have been better than expected, led by higher utilisation and demand from corporate and SME customers.

The analysts say, “TCI Express has been affected by a sluggish macro environment during H2FY23, although it performed well vis-à-vis industry peers.” They expect the company to continue its revenue growth and margin expansion over the next two years as the domestic economy revives. They believe that expansion in terms of new centres, automation of existing centres, addition of new branches and scale-up of new businesses will contribute to a net earnings growth of over 20% CAGR in FY24-25.

The analysts also remain positive on the back of TCI’s strong balance sheet, healthy cash flows and high return ratios. 

4. KNR Constructions: HDFC Securities maintains its 'Buy' rating on this construction and engineering company with a target price of Rs 318, indicating an upside of 30.8%. In Q4FY23, the company's net profit increased by 5.8% YoY to Rs 147.3 crore, and revenue increased by 13% YoY. Analysts at HDFC Securities believe that the company’s growth exceeded expectations across all areas. 

The analysts expect the revenue/EBITDA for the previous fiscal to guide the company towards achieving revenue of Rs 40+ billion in FY24. KNR Constructions’ order book as of March 2023 stands at Rs 88.7 billion, which is 2.3 times its revenue. They believe that the company is effectively tackling tough competition by expanding into different segments such as state highways, metro, railways, and irrigation.

The analysts further emphasise that the company maintains a strong net cash position with zero gross debt. The management has partly offset the impact of higher input costs and raw material prices by reducing employee expenses and improving overhead utilisation.

5. Praj Industries: Axis Direct maintains its ‘Buy’ call on this construction and engineering company with a target price of Rs 500. This indicates an upside of 29.2%. In Q4FY23, the company reported a 52.8% YoY rise in net profit to Rs 88.1 crore, while its revenue increased by 21.9% YoY. According to analyst Prathamesh Sawant, the company beat analyst estimates on all fronts. 

Sawant says, “Praj Industries is now marching its footprints globally.” Due to its focus on the engineering business, providing solutions across segments that cater to a growing industry, Sawant remains confident in the company’s growth prospects.

The analyst has increased its FY24-25 EBITDA estimates to factor in higher margins from new projects, increased exports, and a decrease in raw material prices. He also believes that the management's focus on growth and an increase in service segment revenues will support better margins.

Note: These recommendations are from various analysts and are not recommendations by Trendlyne.

(You can find all analyst picks here)