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India is all set to go 5G as major telecom companies, including Jio and Bharti Airtel, have started the rollout. India's 5G entry was made official at the Indian Mobile Congress (IMC) event held in New Delhi on October 1. 

Reliance Jio picked Diwali to launch 5G, hinting that beta testing had launched on October 5. Bharti Airtel launched the service in eight Tier 1 cities on October 8. Vodafone Idea however, has not yet announced the date of its 5G launch or the cities where the service would be available.

5G will be the next big battle for domination among India's telecom companies. In the meantime, we take a look at their monthly subscription numbers over the past six months in this edition of chart of the week.

Reliance Jio’s active subscriptions took a hit in July but bounced back in August as it rose almost 1% to 38.5 crore. The data indicates that 91.8% of its total subscribers are active. The company had posted an average revenue per unit (ARPU) of Rs 176 in Q1FY23. 

Bharti Airtel’s active subscribers in August rose 0.5% to 35.8 crore. It has the highest proportion of active subscribers to total subscribers, 98.3%. The company’s average revenue per unit (ARPU) has also been the highest, at Rs 183.

Vodafone Idea on the other hand, has seen its active subscribers decline in the past six consecutive months and fell 1.4% to 21.4 crore in August. Only 84.8% of the company’s total subscribers are currently active. The company had posted an average revenue per unit of Rs 128 in Q1FY23.

According to ICICI Direct, the telecom sector is due to see a rise in ARPU in H2FY23. This rise will come on the back of a higher number of days and residual benefits of the tariff hike. 

Investors and traders are always on the hunt for alpha –  gaining excess returns on an investment relative to the benchmark index. But managing a portfolio that delivers this magic consistently, and over a period of time is something very few investors/traders are capable of. 

Why is this so difficult? A lot of factors come in the way of consistent alpha. A rising dollar may force foreign investors to temporarily exit the market, and cause indices to fall. Stocks in entire industries may fall as the sector struggles. Trading volumes may decline with changes in government regulations, or with a sharp economic downturn.

Investors also differ from traders, in seeking returns over a longer period, while investing in fewer stocks.  These investors don’t like bear market periods as a result, as even sound investments can see share price declines. Traders on the other hand, take advantage of both rising and falling markets to enter and exit positions over a shorter period, and take smaller and more frequent profits. 

Using DVM scores to deliver alpha on investments

Trendlyne’s durability (D), valuation (V), and momentum (M) scores allow investors to evaluate all aspects of a stock. By choosing from curated screeners or by creating your own, users can make use of these stock scores to devise a high-return trading or investing strategy. One can also backtest these screeners on Trendlyne to see how a particular strategy performed in the past. The backtests also have various filters that let you change the frequency of portfolio review, control for the number of stocks invested in each period, etc. 

There is no one-size-fits-all strategy in investing or trading. A Momentum Score strategy, which looks for stocks with bullish technicals, is more suitable for traders with an appetite for higher risk, who are very active in the stock market. While the Valuation Score strategy is suitable for value investors who are always looking for stocks that are undervalued, a Durability Score strategy which selects financially healthy companies, is for those looking for lower risk and in it for the long game.

Finally, combinations of these scores help investors identify high-quality stocks that may favor one approach over another. 

Let’s look at strategies that use these three DVM metrics individually, evaluate the results and then move on to combining these parameters in search of a better strategy. 

A Momentum Score strategy favours traders, but comes with caveats

This Momentum Score screener helps select high-momentum (technically bullish) stocks with sufficient volumes, so that it is easy for investors to enter and exit. This strategy outperformed all others as it delivered the highest CAGR over a shorter time frame (one to three years). This is optimal for short-term traders who are active in the stock market. Surprisingly, it also performed the best even in volatile markets, as it focuses only on stocks with the highest momentum score. With weekly portfolio reviews, this strategy delivered a stellar three-year CAGR of 301% against Nifty 50’s CAGR of 16%. 

The period analysis, which shows the returns every week, is also mostly in green. However, the maximum drawdown over longer investing time periods. 

Maximum drawdown is the biggest observed loss from a peak to a trough of a portfolio before a new peak is attained. This did not have a stop loss, so the drawdowns show the maximum possible with this strategy. 

Things to watch out for while employing this strategy: 

1. A weekly portfolio review is essential since the momentum score is sensitive to share price changes, and can cause higher stock entries and exits. A stop loss can also reduce negative return periods. 
2. Some stocks hit the upper/lower circuit as soon as the markets open–sometimes even before the market opens–in pre-market trading itself. Hence, in some cases, it can become difficult to enter/exit the stock when required. 
3. For longer term investors, other strategies are more optimal as weekly portfolio reviews may not be feasible for everyone. In those cases, valuation and other strategies perform better. 

A Valuation Score strategy delivers stellar long term returns, but has the highest drawdown

The Valuation Score trading strategy performs best in a longer time frame (10 years). This could be due to markets taking time to discover the stock’s true value and price it accordingly. The screener includes high valuation score stocks with sufficient volumes so that it is easy for investors to enter and exit.

Since the stock's Valuation Score changes with share price movement, it is necessary to review the portfolio every quarter. In fact, a quarterly review (as opposed to a yearly review) allows investors to select optimal stocks based on the screener and get maximum returns. In addition, limiting the number of stocks selected during each period keeps this number manageable (stocks can be limited under the ‘Advanced’ option in the screener - see image below)

Under these conditions, the strategy delivered a staggering 93.7% CAGR over 10 years. 

However, investors will have to endure a high drawdown when following this strategy. Another important thing to note is that a single stock could be responsible for a significant portion of the returns. 

In the top valuation score strategy for instance, Sunil HiTech Engineers (now delisted) delivered over 5,400% returns. So, missing a key stock could lead to lower-than-expected returns. In addition, not all low-valuation score stocks are undervalued stocks. There could be several reasons for low share price relative to earnings–litigations, distorted earnings due to one-time gains, etc. So, there is a chance that affordable stocks can plunge further in share price. In this strategy for example, Gitanjali Gems lost big as long-hidden fraud came into view –95% of its value. 

Good for low risk investors: With lower drawdowns, the Durability Score strategy delivers results when combined with other metrics

The Durability Score strategy is most effective in relatively short terms (three years) for investors, as it delivers higher returns during this period, compared to others. Like the other two strategies, a quarterly review of stocks and controlling the number of stocks to five shows high returns for investors.

Compared to other strategies which are heavily dependent on the share price, this has a relatively lower drawdown. This could be due to the presence of fundamentally strong companies in this screener. However, it becomes more effective when combined with other metrics like valuation score. 

One such strategy can be devised, by using a screener that lists high DVM-score stocks with tradable volume. Another option is to use one of Trendlyne’s expert screeners–DVM - High Return, Highly Durable Companies. This includes companies with high DVM scores with rising stock prices and strong fundamental growth. When this expert screener is used, returns increase significantly, compared to the high DVM strategy that only uses stock scores. 

This is particularly effective for a long term (10 years), with quarterly portfolio review, and controlled for five stocks. The top strategy in this category delivered 85.4% CAGR with a maximum drawdown of 53%. In addition, filtering for Nifty 500 stocks made marginal changes in the returns, but reduced drawdown. But filtering for Nifty 50 stocks led to underperformance, mainly because of the low number of stocks selected due to stringent parameters. 

Not surprisingly, period analysis is mostly in the green as the stocks selected here are fundamentally strong. 

The DVM expert screener performs the best, when accounting for drawdowns

When mid to long-term strategies across different categories are considered, high-valuation stocks deliver the highest returns. But when we consider the maximum drawdown along with the CAGR, the expert screener comes out ahead as it has a lower drawdown. 

The expert screener (DVM - High Return, Highly Durable Companies), delivered returns at a whopping 85% CAGR–meaning an investment of Rs 10,000 10 years ago is now worth over Rs 38.2 lakh. All an investor needed to do was to review the portfolio quarterly and shuffle it according to the entry and exit of stocks in the expert screener and stay invested. 

This is just the tip of the possibilities available to investors. Investors can use several different parameters such as PE ratio and ROE  to create screeners and backtest it to calculate the returns that particular strategy has delivered over a selected period. Combining these with Trendlyne’s stock scores can, as we saw above, substantially increase your alpha.

Investors can also choose several expert screeners encompassing different parameters and investment philosophies and backtest them to come up with a trading strategy that works for them. 

This week we look at analyst picks from the Pharmaceutical and Chemicals & Petrochemicals sectors.

1. Granules India: ICICI Direct maintains its ‘Buy’ rating on this pharmaceutical company with a target price of Rs 410, implying an upside of 10.0%. In Q2FY23, the firm’s net profit rose 79.8% YoY and revenue, 29.5% YoY. Analysts Siddhant Khandekar and Utkarsh Jain say Granules’ revenue growth in this quarter has beaten their estimates, mainly driven by higher paracetamol sales in the US, increased market share and new launches. They added that the company’s EBITDA margins also beat their estimates. It grew by 409 bps YoY to 21.1%. 

Khandekar and Jain believe that the company’s margin will improve in the coming quarters on the back of a focus on economies of scale and gradual expansion of complex products. Overall, they are positive about the company’s prospects, given its focus on product portfolio diversification, improving backward integration, and cost management. The analysts expect the firm’s net profit to grow at a CAGR of 27.8% over FY22-24.

2. Glenmark Life Sciences: BoB Capital Markets keeps its ‘Buy’ rating on this active pharmaceutical ingredient (API) manufacturer but reduces the target price to Rs 535 from Rs 560. This implies an upside of 25.9%. Analyst Saad Shaikh reduces the target price on the expectation of higher costs to commission the new plant in Dahej and a fall in the firm’s Q2FY23 revenue. GLS’ revenue fell on the back of a 33% YoY reduction in API business from its  parent company Glenmark Pharmaceuticals, the analyst noted.

However, Shaikh remains positive about the company’s growth prospects for its “strong market position in key APIs and focus on product value over volumes, which translates to a superior margin profile”. He also believes that an increase in production capacity will benefit the company in the medium to long term. The analyst expects the company’s net profit to grow at a CAGR of 9.8% over FY22-25.

3. Torrent Pharmaceuticals: ICICI Securities maintains its ‘Buy’ rating on this pharmaceutical company and increases its target price to Rs 1,853 from Rs 1,769. This indicates a 12.3% upside. Analysts Vinay Bafna and Rohan John say that the firm’s Q2FY23 revenue and EBITDA margin growth was broadly in line with their estimates. But then, its profit growth came in below estimates. They attribute this to higher other expenses and lower other income. Despite its profit growth missing their estimates, the analysts remain positive on Torrent Pharma, considering “its strong branded franchise supported by a dominant chronic segment in India and Brazil”.

Bafna and John believe that the company’s recent acquisition of Curatio will augur well for it, despite the acquisition diluting the earnings per share in the near term. They also expect the firm’s operational leverage, cost optimisation, and resolution of its plants will drive margin growth in the coming quarters. The analysts estimate Torrent Pharma’s net profit to grow at a CAGR of 35.5% over FY22-25.

4. UPL: Prabhudas Lilladher maintains a ‘Buy’ call on this agrochemical manufacturer with a target price of Rs 1,020. This indicates an upside of 39.7%. UPL has announced a strategic realignment of its businesses into four distinct business verticals. Himanshu Binani remains optimistic about the company on the back of this business restructuring strategy. 

Marquee investors like ADIA, TPG, Brookfield, and KKR are investing a total of $500 million in UPL. But ADIA and TPG will receive $241 million for their exit from non-crop protection in UPL Corp business resulting in net proceeds of $259 million. Binani believes that these net proceeds are likely to be utilized towards debt reduction and working capital requirement and would not meaningfully impact the earnings profile in the near term. “In terms of unlocking the fair value of each of the business segments, It will be a positive move in the long term,” he added.

5. Navin Fluorine International: Edelweiss maintains a ‘Buy’ call on this commodity chemicals company with a target price of Rs 5,500, indicating an upside of 20.8%. In Q2FY23, the company’s profit decreased 8.6% YoY to Rs 57.8 crore, despite a 23.1% YoY increase in revenue to Rs 430.1 crore. Analysts T Ranvir Singh, Nikhil Shetty, and Prasad Hase said, “Navin Fluorine International’s Q2FY23 performance was below our estimates and street expectations on the revenue and bottom-line front.” 

Despite the lower-than-expected results, the analysts remain positive on the chemicals manufacturer on the back of strong hydrofluoroolefin demand, commercialization of phase one multi-product plant, robust demand outlook, ability to pass on price hikes, and healthy realizations across specialty chemical products. “The company’s long-term story is intact and we expect new capacity additions to drive top-line growth while gaining leverage after achieving optimum capacity utilization to improve profitability,” they concluded.

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

(You can find all analyst picks here)

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.

1. IDFC First Bank: This bank’s stock rose 4% on Monday during Muhurat trading after reporting robust results for Q2FY23. Its net profit rose 3.6X YoY to Rs 555.6 crore, beating Trendlyne’s Forecaster estimates by 19.5%. It also reported an increase in net interest income by 32% YoY and a drop in provisions by 11% YoY. The asset quality of the bank improved significantly as gross NPAs fell 109 bps YoY to 3.2%. The management says that NPAs in the retail and commercial segments have improved, contributing to the overall gain in asset quality. 

The stock makes it to the screener of companies with increasing net profit for the past four quarters. It also shows up on a screener which lists stock in the PE Buy Zone with a reasonable durability and rising momentum score. The stock also performed decently in the last 90 days as it rose nearly 60% and over 20% in the last month.

The bank also saw a rise in advances with credit card and gold loans growing by more than 100% in Q2FY23. V Vaidyanath, Managing Director & CEO of IDFC First Bank, says that the growth momentum for the bank is likely to continue and expects loan advances to grow by 20-25% for FY23-24. 

However, analysts maintain a diverse view of the stock. ICICI Securities downgraded its rating for the stock from ‘Buy’ to ‘Hold’ as the bank’s credit cost increased to 1.2% in Q2FY23 from 0.9% in Q1. Even though the management has plans to reduce credit costs to less than 1.5% in FY23, analysts at ICICI Securities remain sceptical. Motilal Oswal remains bullish on the stock with a ‘Buy’ rating. It expects loans to grow by 24% CAGR over FY22-24E. It also expects credit costs to moderate in the coming quarters. However, Trendlyne’s consensus estimates show a mixed view as five analysts recommend a ‘Buy’ while seven, a ‘Hold’ or ‘Sell.’

2. Dodla Dairy: This dairy company’s stock price rose nearly 5% in reaction to its strong Q2FY23 results. Dodla Dairy’s revenues increased by 22% YoY on the back of a gradual rise in selling prices coupled with strong demand for milk and value-added products during the festive season. With such strong Q2 results, Dodla comes up in the screener of companies that posted the best results in the past week in terms of YoY net profit and revenue growth. 

The company’s average milk procurement and sales rose over 10% YoY in Q2FY23. In addition, Dodla's revenue from exports registered a strong growth of 70.3% YoY in Q2, helping the company to diversify its geo mix. Exports revenue contribution rose over 200 bps YoY to 7.5% in Q2FY23. Dodla’s Q2 revenue growth beat its peers Hatsun Agro Products and Heritage Foods, which derive a majority of their revenue from milk products. In fact, according to Trendlyne’s stock comparison tool, Dodla beats both its peers comfortably in at least 24 out of 37 parameters, including quarterly revenue and net profit growth YoY. 

Dodla Sunil Reddy, the Managing Director of Dodla Dairy said the company was committed to strengthening its procurement network and continues to look for organic and inorganic growth opportunities. Post Dodla’s Q2 results announcement, ICICI Securities maintained its ‘Buy’ rating on the dairy company and raised the target price marginally to Rs 620, indicating an upside of 20%. 

3. United Spirits: This leading alcoholic beverages company posted a strong quarterly net sales growth of 17.7% to Rs 2,879.7 crore in Q2FY23. Net sales of the Prestige & Above segment were up 23.1%, driven by innovation and renovation in the previous quarters.The Popular segment’s net sales rose 1.7%. The company’s net profit was up substantially at Rs 553.1 crore, supported by the gain from its recent slump sale transaction. 

Its gross margin fell QoQ and was at 39.5% due to inflationary pressures. Motilal Oswal maintains its ‘Neutral’ call on the stock with a target price of Rs 880, as it expects gross margin pressures to continue. 

Hina Nagarajan, Managing Director and CEO at Diageo India, said the company had delivered a quarter of strong top-line growth and resilient bottom-line performance. She also said that the company is focused on maintaining the momentum while driving revenue growth management initiatives and ramping up productivity across the value chain.

ICICI Direct is optimistic and has a healthy outlook on United Spirits’ growth. It maintains its ‘Buy’ rating, with a target price of Rs 1,050.

Trendlyne’s forecaster expects the company’s EPS to grow by 4.7% in FY23. It makes it to the screener with companies having strong annual EPS growth.

4. Multi Commodity Exchange of India: The stock of this commodity derivatives exchange gained nearly 15% ever since it announced its Q2FY23 results on October 22. The stock was also among the top-10 index outperformers for the past week. The company’s net profit jumped close to 2X YoY, backed by a robust rise in topline.

The revenue growth for MCX India was mainly driven by a 5X jump in average daily notional turnover reported for the options segment. The options turnover also saw a strong sequential growth of over 60% in Q2FY23. Within the options segment, it was the energy division which drove the astronomical rise in daily turnover. Options on crude oil and natural gas are the main products within this division of MCX. The heightened volatility in oil and gas prices has shifted all the action here. In contrast, the average daily turnover for the futures segment fell both YoY and QoQ. According to the management, options are the future of all types of markets, be it equities or commodities. More and more traders are switching to an options contract, owing to higher margins required for a futures contract. Recognizing this trend, the company will launch a monthly options contract for gold soon. 

There is one major overhang that remains for this stock. MCX is set to shift to a new platform developed by TCS from January 2023. The new platform is currently in the user testing phase and mock trading will begin from November. The successful transition to this new platform is now critical for MCX, according to its management. MCX also renewed its contract with 63 Moons at ‘exorbitant rates’ to ensure smooth operations in the transition period. The impact of higher software costs will be visible in the next quarter. 

5. Hindustan Unilever (HUL): This FMCG company’s Q2FY23 net profit rose 22.2% YoY and revenue grew 16.1% YoY beating the street’s expectations. It beat Trendlyne’s Forecaster profit estimates by 7.9% and shows up on the screener for companies with increasing profits sequentially over the last four quarters. The management attributed its growth to price hikes and market share gains. Despite the robust performance, the stock has dropped nearly 5.1% till Thursday since announcing its Q2FY23 results on October 21.  

The downtrend in the stock’s price is mostly due to a contraction in its EBITDA margin and lower-than-expected volume growth. EBITDA margin fell 180 bps YoY to 23.3%, while volume rose by 4% YoY. Margin pressures persist as key commodity prices of crude oil, soda ash, and milk powder are 30-55% higher compared to last year, according to reports. A depreciating Indian rupee amid elevated commodity prices made matters worse. The only commodity to decline compared to last year was palm oil. To pass on the benefit of lower palm oil prices to its customers, the firm reduced the prices of its skin cleansing products in October. HUL expects this to improve volumes, but reports suggest volume growth is contingent upon demand recovery.

The management expects growth to be price-led in the near term, as commodity prices would remain volatile. The company plans to increase its advertising & promotion spending to drive volume growth. With its focus on premiumisation and market share gains, the firm expects margin expansion in the medium-to-long term. 

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