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1. Amber Enterprises India:

Axis Direct maintains its ‘Buy’ call on this consumer electronics manufacturer with a target price of Rs 3,700, indicating an upside of 19.1%. Analyst Akshay Mokashe says, “The company reported robust growth outlook across all segments, resulting in strong earnings visibility from FY23 to FY26.” He notes rising contribution from the railway and mobility (R&M) division, which yields higher operating margins, and expects it to help improve operating profits in the coming quarters. 

Revenue from Amber Enterprises’ electronics division grew at a 48% CAGR over H1FY21-H1FY24. Mokashe believes this was backed by its strategic JV with NOISE, which helped the company expand its market reach in the wearables segment and other smart electronics categories. He remains optimistic about the company on the back of a robust order book in the R&M division, increasing value-added products, and improving operating leverage, which he expects to drive higher ROE, ROCE and operating margins by FY26. He projects a revenue and PAT CAGR of 15% and 34%, respectively, over FY24-26.

2. Siemens:

BOB Capital Markets maintains its 'Buy' rating on this heavy electrical equipment company with a target price of Rs 4,600, indicating an upside of 13.8%. Analysts Vinod Chari, Arshia Khosla, and Swati Jhunjhunwala are optimistic as the company's order backlog increased by 165% YoY to Rs 45,520 crore at the end of Q2FY24. They expect Siemens to benefit from a Rs 26,310 crore order for 1,200 electric locomotives from the Indian Railways.

Chari, Khosla, and Jhunjhunwala forecast a surge in incoming orders/tenders from private companies, as the capacity utilization in the private sector has reached 75% (the point at which companies make new capex plans). They note that margins have expanded across segments as Siemens was able to negotiate better prices, except in the mobility segment due to factory ramp-up costs and R&D expenses for the new rail order. The analysts are also closely monitoring the demerger of its energy business, which is expected by 2025. They believe that Siemens, with its strong order book and diverse customer base, is well-positioned to sustain different capex cycles.

3. Coal India:

Motilal Oswal reiterates its ‘Buy’ call on this coal company with a target price of Rs 430. This indicates an upside of 9.5%.  According to analysts Alok Deora and Parthiv Jhonsa, Coal India has made a long-term commitment through FSA agreements to meet the increasing demand in the power sector amid government push for reliable 24x7 electricity supply.” They say that the company aims to increase production to 780 mt in FY24 and 850 mt in FY25. 

They also note that the revival in demand and rise in international prices have led to e-auction premiums of 80-100% over the past few months. 

Deora and Jhonsa say that Coal India has intensified its focus on capex to improve its evacuation infrastructure. Its capex has tripled from FY20 to Rs 18,600 crore in FY23, and analysts expect it to surpass the budgeted target for FY24. They conclude, “Considering the limitations of renewable energy, the dependence on thermal power plants is expected to grow in the coming years. This will likely increase the demand for thermal coal from Coal India.”

4. Bata India:

Geojit Financial Services maintains its 'Buy' rating on this footwear company with a target price of Rs 1,870, indicating an upside of 17.1%. Analyst Vincent Andrews holds a positive outlook due to margin improvements backed by growth in the premium segment and an asset-light expansion model. 

In Q2FY24, the company’s revenue had declined by 1.3% YoY to Rs 834.6 crore, driven by a shift in festive season buying, weaker demand in the mass category due to inflationary pressure, and increased GST rates.

With the premium segment growing at 1.5 times the overall rate, Andrews forecasts an improvement in gross margins. He believes that the recent licensing and manufacturing agreement with the globally renowned fashion brand Nine West will contribute to Bata’s top line, leveraging the company's strong brand recall and reach.  

Bata India added 28 stores in Q2FY24, taking the total to 476. It aims to reach 500 franchise stores by 2024. Andrews believes that the company's asset-light, franchise-based expansion model will help in controlling fixed costs and contribute to a gradual improvement in margins. As of December 2023, Bata India has 2,150 stores in 725 cities.

5. Saregama India:

ICICI Direct assigns a ‘Buy’ rating on this movies and entertainment company with a target price of Rs 445. This implies a 19.2% upside. Analyst Bhupendra Tiwary believes its “B2B licensing revenue will grow at 24% CAGR over FY23-25 to Rs 692 crore, supported by monetization of existing music copyrights and new music acquisitions”. 

Tiwary believes that growth in licensing revenue will be further aided by the transition into a subscription model, which could increase revenue by 150% to 300% as the industry moves towards a paid subscription model. According to the management, increasing their share of new content across regional languages and acquiring minority stakes in regional music companies will raise licensing revenue by 22%-25% in FY24.

Recently, the company acquired Pocket Aces, a digital entertainment firm with access to more than nine crore digital followers. Analysts expect revenues from TV, films, and events to grow at a 33% CAGR between FY23 and FY25, thanks to Pocket Aces’ digital presence and distribution strength. The management also expects the combined revenues to grow at 27% in the medium term.

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

(You can find all analyst picks here)

We started the year fearful and anxious. Goldman Sachs’ strategy group sent out a warning to its clients, regarding the economic outlook:  “Caution: Heavy Fog.” January 2023 began ominously, with rising energy prices, high inflation, a global growth slowdown, a war of words between US and China, and recession fears.

Luckily for us, the pessimists lost this round.

We end the year with two ongoing wars, Russia-Ukraine and Israel-Gaza. But despite this, the fears of 2023 turned out to be more manageable than expected. Volatility fell, and most major global indices delivered high returns over the year. Japan's Nikkei 225 hit a 33-year high, and the US' S&P 500 is just 1% shy of its all-time high of 4,796 points. Even the broader MSCI World Index has given 21% returns year to date.   

The Indian stock market has mirrored this global trend, with the benchmark Nifty 50 delivering around 20% returns over the year and reaching an all-time high of 21,779.

In this week’s Analyticks:

• Global indices soar: Major markets make big gains in 2023
• Screener: Stocks outperforming Nifty 50, with rising FII holdings and strong financials 

Let’s get into it.

Inflation soared, but markets made a big comeback

Inflation peaked at the start of 2023, and central banks scrambled to pin it down with interest rate hikes. The US started the year with an inflation rate of  6.4%, way over the Federal Reserve's target of below 2%. Despite the Fed raising interest rates to a 22-year high, US inflation was stubborn for most of the year, thanks to rising energy prices and a hot job market.

The Fed's rate hikes claimed victims early in 2023 –  regional banks like Silicon Valley Bank and First Republic Bank toppled. Higher rates also resulted in ballooning debt for economies like Argentina, leading to the Argentinian peso’s collapse againstthe US dollar and  hyperinflation, with 161% inflation in November 2023.

Inflation in Argentina rose so fast that restaurant menus and shops used peel-off stickers for prices, since they went up every week.

China was an inflation outlier. Its economy failed to take off post-COVID, resulting in low demand and inflation. China’s inflation even hit the negative zone at -0.5% in November, a deviation from its historical range of  1.5% to 2.5%.

India has been trying to balance its interest rate and inflation. While RBI kept inflation in the targeted range of 4%-6%, it held the interest rate at 6.5%. The RBI has made a hike of just 250 bps since April 2023, compared to a 450 bps increase in the US.

Most of the gains for major indices came in the last quarter of 2023, as inflation tapered down and global central banks finally signaled a pause in rate hikes.

AI gives US indices a boost, while China struggles

The West is in the throes of a new Cold War. The trade war between the US, Europe and China - on everything from chips to cars - has escalated in 2023. The US imposed sanctions on chip exports to China. China retaliated by limiting exports of rare earth materials needed for chip manufacturing. This led to chip shortages and cost increases that affected industries from automobiles to televisions.

Rising chip demand and advances in AI were a boost to American semiconductor/chip companies and AI players, whose stocks (NVidia, Intel, Microsoft, Google) saw huge gains. The Nasdaq 100 delivered 54.3% returns YTD as momentum built around AI. Among the largest markets, the S&P 500 index was the outperformer.

S&P 500 delivered the highest returns in 2023 in USD

China is a different story. There are so many empty houses in China right now that these can accomodate 3 billion people. The country's real estate meltdown, as major companies defaulted on their debt, has spooked investors. The trade war and sanctions also hurt China a lot more than the US.

Anyone trying to predict oil prices in 2023 got their fingers burned. The OPEC cartel tried to keep prices high but failed, as Russia undercut their prices and US ramped up oil exports. Oil briefly traded above $85 per barrel when Hamas attacked Israel. But for most of the year oil prices stayed below that level, despite OPEC+ production cuts.

Lower oil prices limited the Middle East’s revenue. Consequently, the benchmark indices of UAE (ADX General) and Kuwait (BK Main 50) fell 6.8% and 5.2% YTD, respectively.  

UK FTSE delivered the highest returns across major indices

India comes out on top 

2023 was the year India put a rover on the moon, hosted the G20, and Modi's hugs got international coverage. We were very visible on the global stage, and the Indian economy had a lot of good news as well. The country recorded one of the highest GDP growth rates for the year (7.6% in the first half of 2023). The realty and automobile sectors in India saw the biggest gains in 2023.

India is the fastest-growing economy among large countries

While China struggled with a real estate crisis, the Indian realty sector boomed. The housing sales value in the top seven metros for the first nine months of 2023 exceeded 2022’s total. Nifty Realty was the biggest gainer of the year with 78% YTD returns.

India’s robust GDP growth has been driven by rising domestic consumption. The country recorded its highest-ever automobile sales in November, surpassing Japan and becoming the third-largest market after the US and China. The Nifty Auto index also saw an increase of 42% YTD.

IT stocks focused on services were badly hit due to global reductions in IT spending by major financial institutions. However, new geos and sectors have helped bridge this gap, leading to Nifty IT delivering  25% returns. 

India also benefited from an FII inflow of Rs 146,721.1 crore into the Indian equity market. This has positioned the Nifty50 among the top 10 best-performing indices among major economies. 

2024 looks more promising at the start, compared to 2023. Let's hope the optimists keep winning.

Screener: Stocks outperforming Nifty 50 with increased FII holdings and strong financials

HDFC Bank has the highest FII change

This screener consists of stocks outperforming both their respective industries and the Nifty 50 index, with increased Foreign Institutional Investor (FII) holdings in the past quarter and strong financial performance.

The stocks are from industries like banks, electric utilities, housing finance, electrical equipment, IT consulting & software, department stores and cement & cement products. Major stocks in the screener are HDFC Bank, Adani Power, LIC Housing Finance, KEI Industries, Sonata Software, Trent and Ultratech Cement. 

HDFC Bank tops the list of outperformers with the highest rise in FII holding, which increased by 18.8% QoQ to reach 52.1% in Q2FY24. The Government of Singapore and Invesco Developing Markets Fund have bought 2.3% and 1.2% stakes respectively. The company’s stock price has risen by 11.2% over the past month.

You can find more screeners here.

1. JSW Steel:

Thismetals and mining firm has been in the news after its CEO Jayant Acharya announced plans to expand its capacity from 28.5 million tonnes (MT) to 50 MT in the next seven years. This jump will incur an expense of around Rs 1 lakh crore. The stock rose to its 52-week high of Rs 895.8 on Thursday after the news broke. According toTrendlyne’s Technicals, the stock has gained 12.5% in the past month.

In November, JSW Steel reported a 7% YoY steel production increase in India. The firm also achieved 90% capacity utilization for the month. The rise in production is linked to the booming realty sector and higher government spending ahead of the election year, which have improved volume offtake.

However, the arrival of large quantities of cheaper Chinese steel on Indian shores has brought down steel prices by 4.6% over the past three months. In response, JSW has boosted its revenue share from value-added products, which contributed nearly 60% of its Q2FY24 revenue. The firm shows up in ascreener for stocks with increasing net profit and profit margin.

The recent hike in coking coal prices to above $300 per tonne is likely to pressure JSW Steel’s margins further. Import expenses for Australian coking coal have risen by $25-50 per tonne in the past three months. The company is now exploring cheaper alternatives like Russian coal.

ICICI Securities says that JSW Steel’s massive capex outlay in an uncertain demand environment poses a huge risk and might balloon its debt. Also, the constant threat of cheaper Chinese imports could keep margins under pressure. However, the recent uptick in domestic demand and a better product mix should support profitability in the near term. The brokerage maintains a ‘Hold’ rating on the stock. 

2. Bharat Electronics:

This defence company touched an all-time high of Rs 185.2 today. This was after it secured an order worth Rs 678 crore from the UP government to develop the UP Dial 112 project. In addition, on December 22, it received orders worth Rs 2,673 crore from Goa Shipyard and Garden Reach Shipbuilders & Engineers for the supply of sensors. 

So far in FY24, BEL has accumulated orders worth Rs 26,613 crore, surpassing the management’s guidance of Rs 20,000 crore. This has resulted in a 30% increase in the company's stock price over the past month. It also features in a screener of stocks with prices above their short, medium and long-term moving averages.

ICICI Securities expects BEL to win more orders in the defence space before March 2024, potentially raising the order inflow to Rs 30,000 crore in FY24. The brokerage maintains its ‘Buy’ rating with a target price of Rs 203. 

Bhanu Prakash Srivastava, Chairman and Managing Director of BEL, said “Our FY24 margin guidance (21-23%) and revenue growth guidance of 15% are intact, and we will be able to maintain that.” According to Trendlyne’s Forecaster, the company’s revenue is expected to grow by 17.2% in FY24. With a strong order pipeline in place, the focus now falls on the execution of projects. 

3. Larsen & Toubro:

This construction and engineering company has risen by 15.6% in the past month, reaching an all-time high of Rs 3,559.9 on Thursday. It has also secured multiple new orders –. Its construction arm won a Rs 5,000-10,000 crore order to establish renewable energy generation, power utilities and water systems in Saudi Arabia. It also bagged orders worth Rs 2,500-5,000 crore for its power transmission and distribution business to develop substations and overhead transmission lines in the Middle East. The company completed the acquisition of the entire shareholding of Sapura Nautical Power (JV Partner) in L&T Sapura Offshore on December 27, 2023.

L&T’s tender prospects for H2FY24 stand at Rs 8.8 lakh crore, across sectors like infrastructure, hydrocarbon and power. The order book, as of Q2FY24, stands at a record high of Rs 4.5 lakh crore (up by 21% YoY). Of this, domestic orders account for 65% and the rest are international. While the majority of the orders came from energy projects (Rs 40,100 crore), Rs 2,800 crore were from infrastructure. 

In Q2FY24, L&T’s profit increased by 44.6% YoY to Rs 3,222.6 crore, while its revenue grew by 19.9% YoY. It beat Trendlyne Forecaster’s net profit estimate by 16.1%, with its revenue aligning closely with projections. It features in a screener of stocks effectively using their capital to generate profit (improving RoCE over the past two years).

ICICI Securities maintains its ‘Buy’ call on Larsen & Toubro on the back of its robust order book, which the brokerage believes provides strong execution visibility. According to Trendlyne Forecaster, the company has a consensus recommendation of ‘Buy’ from 32 analysts, with 24 giving a ‘Strong Buy’ and 6 recommending a ‘Buy’.

4. Laurus Labs: 

This pharma firm has risen by 16% in the past month, outperforming the pharmaceuticals & biotech sector by 9.3%. The company appears in a screener of stocks with strong momentum. The rise follows the management’s optimistic projections regarding the firm’s capacity expansion plans, and its focus on reducing dependence on the antiretroviral (ARV) business. Laurus Labs holds an equity stake of 40% in ImmunoAct, a cell and gene therapy firm. ImmunoAct recently received approval for India’s first Chimeric antigen receptor (CAR) T-cell therapy, a significant development in cancer treatment.

Laurus Labs is working to reduce its reliance on the ARV business while increasing focus on active pharmaceutical ingredients (API), finished dosage forms (FDF), contract development & manufacturing organizations (CDMO), and biologics segments. The management expects growth in non-ARV, FDFs, and APIs to come via new approvals and contracts. It has guided a 31% CAGR in FDFs and a 20% CAGR in the biologics segment for FY24-26. 

However, the CDMO synthesis business, which has a revenue share of 19.7%, is slowing due to ongoing R&D projects and delayed sales. In H1FY24, the company’s revenue declined by 23% YoY due to the CMDO slowdown. 

The company hopes to boost profitability in the short term by focusing on high-margin non-ARV businesses. Laurus’ shift to higher-value segments has involved an investment of Rs 2,600 crore over the past three years. 

KR Choksey is positive about Laurus Labs on the back of its transformation to a more diversified play, from a pure ARV-focused company. The brokerage expects the company’s revenue to grow at a CAGR of 11.6% in FY24-26 and maintains an ‘Accumulate’ rating on the stock. 

5. Kansai Nerolac Paints: 

This furniture, furnishing, and paints firm rose 3.8% on December 27, following the news of a land sale in Mumbai for Rs 726 crore. At a strategy session conclave on December 10, the firm announced new investment plans in marketing and network distribution, along with the addition of high-margin products in automotive and decorative paints. According to Trendlyne’s Technicals, the company has risen by 3.2% in the past month. It appears in a screener of stocks nearing their 52-week highs with significant volumes.

The company’s 11 new paint products have contributed to a margin expansion of 150 bps. It also aims to expand its network to another 75 towns. Growth is expected in the auto and powder segments, driven by higher sales during the festive season. The construction chemicals sector, currently accounting for 5% of the total business, is also expected to double in size within the next 2-3 years.

Despite subdued rural demand in Q2FY24, the management is optimistic about rising paint consumption in Q3FY24 due to festivities and the harvesting season. Kansai Nerolac’s lower pricing is expected to help it gain market share in the price-sensitive rural market. The company is expanding its presence in weaker geographies, particularly in the South and West regions, by adding more dealers and distribution centres. It is also running campaigns via influencers to announce its presence in these regions.

In Q2FY24, the company’s gross margin improved by 678 bps YoY to 35.6%, thanks to declining crude oil and titanium dioxide prices. However, increased promotional activities and staff costs limited EBITDA to 14%, a margin growth of 364 bps YoY. The company is expected to see further margin improvements in H2FY24, driven by higher demand for premium decorative paints and favourable oil prices. 

Prabhudas Liladher notes the company’s focus on technological advances in auto paints (including EVs), and its B2B expansion to 75 cities. KPIL's aggressive expansion plans and an uptick in rural demand are expected to help its top line. The broker maintains an ‘Accumulate’ rating on the stock.

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

2023 began with decade-high inflation. Customers in most countries felt the pinch as prices went up across the board, from fuel to tomatoes, thanks to supply-chain disruptions and the Russia-Ukraine war. Inflation became political: people complained about ‘shrinkflation’ (where companies kept the price the same, but reduced the product size), and ‘price-gouging’. Central banks responded with sharp interest rate hikes.

But the tone of central bank governors began to shift in the second half of 2023. Many central bankers now say that inflation has come to manageable levels. The US Federal Reserve in its last meeting on December 12 sounded dovish and hinted at potential rate cuts starting in 2024. However, RBI’s governor Shaktikanta Das remains cautious and says “Any shift in policy now will be premature and risky. Past rate hikes are still working through the economy, and we will closely monitor how that plays out”.

As inflation and interest rate fluctuations impact a country’s currency, we take a look at the performance of major currencies against the US dollar in 2023.

Eurozone currencies do well as economies recover

The US dollar (USD), the most favored reserve currency due to its safe-haven status, has seen some competition from Eurozone currencies in the last year. The euro, the second-largest reserve currency in the world, appreciated by 3.7% against the dollar in 2023. Similarly, the Great Britain pound, another Eurozone currency, appreciated by 5.3% in the same period. 

The recent decline in interest rates as inflation softens, pose a challenge to the dollar, as dollar-denominated assets become less attractive to investors seeking higher yields. The Swiss franc (SFC) appreciated the most (+8.2%) among the Eurozone currencies over the past year. 

Swiss private bank J Safra Sarasin said that the Israel-Hamas conflict has driven investors to the franc as a safer option. Additionally, since late 2022, the Swiss National Bank has been purchasing francs to support its value, lowering the inflationary impact of rising costs of importing commodities. 

Asian currencies remain stable; RBI intervention keeps rupee range-bound

The Indian rupee has been relatively stable,  falling only marginally by 0.5% over the past year. This is mainly due to ongoing intervention by the RBI in both spot and forward markets. 

The RBI's total foreign exchange activity constituted 17% of the overall turnover among banks in the onshore over-the-counter market in October. This led the International Monetary Fund (IMF) to reclassify India’s exchange rate regime to ‘Stabilized Arrangement’ from ‘Floating’. 

The Chinese yuan depreciated by 2% against the dollar in 2023 as the interest rate differential with developed markets stayed high. Structural challenges like sticky inflation, US sanctions and real estate troubles have added to the depreciation in Asia’s biggest economy. The Japanese yen (JPY) weakened by 7.2%, as the Bank of Japan extended its ultra-loose monetary policy, keeping interest rates negative last year. JPY is expected to rise against the USD once the central bank reverses its monetary expansion policy. 

The Russian ruble fared the worst against the dollar, not very surprising to anyone who has been following the politics around the Russia-Ukraine war. The ruble hit a 17-month low as Western sanctions hit the country’s energy exports and the broader economy. As sanctions have tightened and international companies and investments have fled, Starbucks, IKEA and Dunkin’ Donuts have been replaced by local brands like Stars Coffee, Swed House and Donutto. Sanctions on Russian energy exports have contributed to the ruble's 32.8% depreciation against the USD this year, a stark contrast to its 40.2% appreciation last year.

In Latin America, the Brazilian real has appreciated the most against the dollar, rising by 5.5% in 2023. The currency of this commodity-sensitive country has benefited from strong exports earlier in the year, driven by increased global demand and higher commodity prices. In addition, Brazilian policymakers have cut interest rates by 2% since August, with a further 50 bps reduction in the latest policy meeting in December to 11.75%.

The Canadian dollar has also appreciated by 2.4% against the dollar, followed by the Singaporean and Australian dollars at 2% and 1%, respectively. 

Stubborn inflation all over the world has led to disparities in purchasing power and the highest-ever interest rate differences between developed and developing economies. This increased volatility in the forex market throughout 2023. 

According to the IMF, “In emerging market economies, a 10% US dollar appreciation, linked to global financial market forces, decreases economic output by 1.9% after one year.” However, expansionary monetary policies are gaining traction as central banks see reduced inflationary and geopolitical risks. This shift might improve the exchange rate outlook for emerging markets in 2024.