Trendlyne Blog: The Baseline, Latest on stock market and finance in India and the world.

29 Dec 2023

Chart of the week: Cooling inflation, interest rate cuts make the dollar less attractive

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.

The Baseline

27 Dec 2023

5 stocks to buy from analysts this week

By Abhiraj Panchal

1. Devyani International:

KRChoksey maintains its ‘Buy’ call on this restaurant chain manager with a target price of Rs 230. This indicates an upside of 19.6%. Analyst Unnati Jadhav remains optimistic about the company with its entry into the Thailand market. Devyani has acquired a controlling interest in Thailand’s Restaurants Development Co for Rs 1,066.1 crore. The analyst notes that chicken is a favourite dish in the region, “Thailand is a strong market for poultry consumption, presenting significant growth opportunities.”

Jadhav is optimistic that this acquisition will position Devyani as a key player in the QSR/LSR market in Thailand and the surrounding region and pave the way for additional growth. While still awaiting the management’s commentary about their growth and profitability plans for the newly acquired business, the analyst retains her estimates. She expects revenue and EBITDA to grow at CAGRs of 22.5% and 21.9%, respectively, for FY24-FY25.

2. JK Lakshmi Cement:

Axis Direct retains its ‘Buy’ call on this cement manufacturer with a target price of Rs 1,000, indicating an upside of 11.9%. Analysts Uttam Srimal and Shikha Doshi say, “Cement demand is expected to remain robust on the back of the government’s infra push, better real estate demand, private capex, and pickup from individual home builders.”

The analysts remain optimistic due to JK Lakshmi Cement’s ongoing capacity expansion. They expect this expansion, along with strategic initiatives, to improve the company’s EBITDA/tonne from the current Rs 700/tonne to Rs 900 and Rs 970 in FY25 and FY26E, respectively. They estimate the company to deliver revenue, EBITDA and profit growth of 10%, 24% and 26% CAGR respectively over FY24-FY26, backed by an 8% volume growth CAGR over the same period. The management is aiming for a 7-8% volume growth CAGR over the next 3-4 years, driven by higher demand and cement consumption.

3. Delhivery:

BP Wealth assigns a ‘Buy’ rating to this logistic services provider with a target price of Rs 450, indicating an upside of 17.6%. Analysts at the brokerage say, “Delhivery's strategic positioning as the most efficient player in the logistics market has poised the company for significant growth in the rapidly expanding e-commerce sector.” They believe that this operational efficiency enables Delhivery to price its offerings competitively.

The analysts are also optimistic about Delhivery's adaptability, underscored by its successful expansion into new markets, and the diversification of its customer base. A key aspect of its strategy is reducing its dependency on its top five customers, which currently account for 40% of its revenues.

They also expect the anticipated growth of over 20% in the third-party logistics space, supported by category expansion, improved return logistics and a focus on tier-2 and 3 cities. They say, “Delhivery's focus on improving its market share and adapting to changing customer preferences positions it as a key player in logistics.”

4. Persistent Systems:

HDFC Securities maintains its 'Buy' rating on this IT consulting and software company with a target price of Rs 8,530, indicating an upside of 15.3%. Analysts Apurva Prasad, Amit Chandra, and Vinesh Vala are upbeat, citing its strength in product engineering services, consistent deal flow, market-share gains over tier-1 competitors, and strategic additions to its senior management. The analysts believe that the recent acquisition of enterprise software platforms of Software AG by IBM and the company's focus on GenAI solutions will boost its growth prospects.

Anticipating improved margins, Prasad, Chandra, and Vala highlight Persistent Systems’ ability to secure deals exceeding $50 million, with a notable focus on managed services and cost optimization. The analysts are confident that the company's expertise in software product engineering will drive market-share gains. New senior management hires from Microsoft, Tech Mahindra and other major players have been key in growing the business and attracting larger clients, helping the company's goal to hit the $2 billion revenue milestone.

5. Manappuram Finance:

Motilal Oswal maintains its 'Buy' rating on this non-banking financial company with a target price of Rs 205, indicating an upside of 19.3%. Analysts Abhijit Tibrewal and Nitin Aggarwal say, "To mitigate the cyclicality in the gold loan segment, the company is actively diversifying into non-gold lending." They anticipate achieving a target 50:50 mix between gold and non-gold businesses and foresee increased gold loan demand due to growth in economic activities.

Tibrewal and Aggarwal expect the company to use data analytics for informed credit decisions, reducing lending risk. They foresee growth in the vehicle loan segment, particularly with the introduction of automated two-wheeler loans. The company’s recent partnership with JCB, venturing into the used equipment business, adds to its vehicle finance portfolio.

With an in-house field collection team and about 94% of customers using NACH (automated payment systems), Tibrewal and Aggarwal expect timely recovery to be a strength. The analysts view the company's diversified geographical presence as an effective de-risking strategy, that will be key to its long-term growth.

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

(You can find all analyst picks here)

The Baseline created a screener Fast-growing, cheap valuation stocks

26 Dec 2023

Fast-growing, cheap valuation stocks

The Baseline

22 Dec 2023

Five Interesting Stocks Today

1. Jubilant Foodworks

This restaurant chain touched a new 52-week high of Rs 586.9 today, after its unit, Jubilant Foodworks Netherlands, launched a cash offer to acquire the remaining 45.3% in Domino's Pizza Eurasia. DP Eurasia operates the Domino's Pizza brand in Turkey, Azerbaijan, and Georgia.

The acquisition is expected to take place at an average price of €1.1 per share, totaling approximately €73.4 million (Rs 668.8 crore). This move will help the company to expand its presence in pizza delivery, particularly in Turkey, Azerbaijan, and Georgia.

Emkay Global says that the potential expansion into other underpenetrated regions is a future opportunity for Jubilant Foodworks. However, it remains cautious of the adverse currency movements and inflationary pressures in Turkey. The brokerage has a ‘Sell’ rating on the company.

Meanwhile, on December 19, the company initiated a makeover drive for its pizza chain brand Domino’s. Under the campaign, 'It Happens Only with Pizza’, Jubilant Foodworks plans to upgrade its pizza stores, and introduce new packaging & delivery systems with an aim to boost consumer demand. According to Sameer Khetarpal, the MD and CEO, “Priority remains on growing Domino’s as well as our fried chicken brand Popeyes”. He also highlights that the company targets to have 3,000 Domino’s outlets in the medium term.

2. Varun Beverages:

This non-alcoholic beverages firm rose 12% to an all-time high of Rs 1,380 on December 20 as it announced the acquisition of South Africa’s The Beverage Company for Rs 1,320 crore. According to Trendlyne’s Technicals, VBL rose 19.4% in the past month, outperforming the food, beverage & tobacco sector by 13.4% in the same period.

The Beverage Company’s (BevCo) acquisition gives VBL a presence in 10 African nations, including the five existing ones, with control over most of southern Africa. The market is projected to grow to 153.7 crore cases by CY27, with an expected Compound Annual Growth Rate (CAGR) of 5.3% from CY22 to CY27E. BevCo achieved a sales volume of 11.7 crore cases in FY23 across its five manufacturing facilities. The volume distribution included 14.6% for the company's energy drink (Reebost), 14.9% for Pepsi brands, and 70.5% for other in-house brands.

Revenue from Sting and Gatorade increased by 50% YoY. Energy drink Sting contributed 15% to the revenue, and Gatorade contributed 7% in Q3CY23. The greenfield facility in the Democratic Republic of Congo (DRC) has an investment of Rs 1,600 crore for future expansions. VBL plans to launch another energy drink in India with PepsiCo which is forecast to further increase its volumes by 24%.

PepsiCo branded carbonated drinks contributed 15% to the revenue of the company in India, with a growth in sales of 7.5% for Q3CY23. The company expects reduced seasonality as the South and West regions become more important. In Q3CY23, VBL reduced prices on major packs, boosting volumes.

KR Choksey says that PepsiCo and market leader Coca-Cola dominate over 80.0% of the carbonated drinks market in India. VBL, contributing around 90% to PepsiCo's beverage sales in India, benefits from industry growth factors like rising income, increased spending, large youth population, growing urbanization, and improved electricity and cooling equipment availability in rural areas. After completing significant capital expenditures in CY23 and CY24E, an increase in free cash flow is expected, helping reduce debt. The broker maintains a ‘Buy’ rating on the stock.

3. Nippon Life India AMC:

This asset management company rose by 2.9% in the last week and surged 39.1% in the last quarter. Monthly SIPs stood at Rs 17,073 crores, the highest ever, and the number of active demat accounts on CDSL crossed the ten crore mark in November. Nippon AMC is the fourth largest fund house in terms of equity assets under management (AUM).

The firm’s average AUM is expected to increase by 25% YoY in FY24 to Rs 3,664 crore with debt assets forming only 19% of total AUM, according to the management. This, they say, “signals a downward trend in debt assets due to volatile interest rates, new tax treatment restricting long-term capital gain benefits, and higher FD rates offered by banks”.

BOB Capital expects the industry to grow by 15% in the medium term factoring in a 10% rise in annual inflows and believes hybrid funds could gain traction in times of weak debt inflows.

Despite many new entrants in the industry, the firm’s focus on active management of investments could build a competitive advantage over the new entrants who focus mainly on passive funds. Analysts have noted that the firm is among the only few fund houses with a separate risk team and audit being done at both the scheme and AUM level. Additionally, the firm is looking to diversify its revenue sources by entering portfolio management services and alternative investment funds.

According to Trendlyne’s Forecaster, the firm’s net profit is expected to grow at 24.9% YoY in FY24. Due to its established core business, the firm appears in a screener of companies with strong cash-generating ability from core business.

4. Aether Industries:

This specialty chemicals company rose 1.6% on Tuesday after the company entered a strategic agreement and contract with a lithium-ion manufacturer. The agreement is for the commercial supply of one specific electrolyte additive and to initiate the discussion on three other types of electrolyte additives. The electrolyte additive industry has a market size of $1.4 billion (approx. Rs 11,581.3 crore) in 2022. The industry’s market size is expected to grow to $3.5 billion (approx. Rs 29,405.3 crore) by 2028. Owing to this, it has also risen by 5% over the past week, helping it to appear in a screener of highest gaining stocks in the same period.

The company also signed an agreement with Saudi Aramco Technologies for its converge polyols technology on June 9. With this, the company jointly developed the manufacturing process using the converge polyols technology. The company also signed a letter of intent (LoI) with a US-based oilfield services company to become its strategic supplier and contract manufacturing partner on June 7.

However, according to Trendlyne’s technicals, the stock has fallen by 19.2% over the past six months. It recently plunged by 10.8% in two sessions ending November 30 to nearly touch its listing price of Rs 744.4 per share. The stock declined after a fire broke out at its manufacturing facility in Surat on November 29 which injured 25 employees and prompted the Gujarat Pollution Control Board to forbid operations at the facility.

HDFC Securities maintains its ‘Buy’ rating on the company with a target price of Rs 1,200 per share. This implies a potential upside of 35.1%. The brokerage believes that the company’s capacity expansion-driven growth, advanced R&D capabilities, skilled management, a leading market position in most products and diversification will help with revenue growth.

5. Cochin Shipyard:

This marine port and services provider has risen by 19.1% in the past month. During the month, the company launched the first three anti-submarine warfare watercraft for the Indian Navy. The contract was signed with the Ministry of Defence (MoD) in April 2019 for eight ships. The company also signed a new contract worth Rs 488.3 crore with MoD on December 19, 2023, to repair and maintain the equipment and systems onboard the naval vessels.

Cochin Shipyard’s current order backlog stands at Rs 22,000 crore, which will be executed over the next few years. The pick-up in execution provides strong earnings visibility in the coming years. The company expects to receive repeat defence orders and other opportunities worth Rs 13,000 crore in FY24-25. This increasing order inflow will be backed by the expansion of the dry dock and the completion of the international ship repair facility (Q1FY25). This will double the operational capability of the yard and enable the company to construct and repair larger vessels.

In Q2FY24, Cochin Shipyard’s net profit grew by 60.9% YoY to Rs 181.5 crore while the revenue increased by 47.7% YoY. It beat Trendlyne Forecaster’s net profit estimate by 44.4% and revenue estimate by 22.7%. The company also appears in a screener for stocks with improving cash flow from operations for the past two years.

ICICI Direct gives a ‘Buy’ call on Cochin Shipyard and estimates its revenue, EBITDA and PAT to grow at 34%, 78% and 52% CAGR respectively over FY24-25. The analysts expect growth to be led by execution pick-up in all the segments.

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

The Baseline

22 Dec 2023

The punches you don't see coming | Screener: outperformers of 2023

The boxer Mike Tyson once said, "Everyone has a plan, until they get punched in the mouth". The world economy gets punched in the mouth, a lot.

In the leadup to 2024, news headlines are filled with predictions for the future. Economists and analysts look at political and macro trends, as well as their financial models to forecast what the next year holds for us.

The problem is that many of these predictions end up being wrong. The future is full of punches that we don't see coming.

Consider The Economist—a starchy, well-respected magazine - which makes a set of predictions in January every year. The writer Morgan Housel points out that the Economist's predictions for 2020 said nothing about Covid, even though China had informed the World Health Organization in December 2019 about "cases of pneumonia in Wuhan of unknown origin".

In 2022, the Economist did not mention a chance that Russia would invade Ukraine, even though by then, Putin had been assembling a huge military force along the Ukraine border for months.

But that’s the point: the biggest risks, which turn our markets and politics upside down, are often underestimated, and obvious to us only in hindsight. People thought Covid was a regional flu; few believed Putin would actually attack.

Even smaller predictions analysts regularly make and have good models to fall back on - like GDP growth and stock market levels - are rarely accurate. At the start of 2023, analysts were all over the place in their estimates for India's GDP growth and likely Nifty levels. India grew faster thanks to a spending boost from the Indian government, a healthy financial sector, and China's unexpected slowdown, which drove down oil prices.

Goldman Sachs came the closest when it came to predicting the levels Nifty would hit in 2023.

What are the risks that we are currently under-estimating, and not paying enough attention to? This week, we look at:

Three risks that may affect 2024, as we head into the new year
Screener: Stocks and industries that outperformed the index in 2023

Let's dive in.

1) The Red Sea turns red: Rising tensions in the Suez Canal can hit oil prices

The 192-km long Suez canal is the fastest sea route between Europe and Asia, andh transports 10% of the world's oil - around 92 billion barrels every year. With the Israel-Gaza war, the canal and the Red Sea have become conflict zones, as Iran-backed rebels, the Houthis in Yemen, have started attacking transport ships and oil tankers.

The tensions in the Suez have driven Brent crude oil prices up from a low of $73 per barrel earlier this month to over $80. If tensions worsen, it could spill over into a regional war that drags additional players like Iran into the mix. And of course, with a war cheap oil would go out of the window, hitting importers like India hard.

The other flashpoint is China and Taiwan. China has long claimed Taiwan as its own, and the US has pledged to defend it from any attack. Analysts have been saying that Chinese Premier Xi Jinping is more risk-averse than Putin, and unlikely to invade. But they have been wrong before.

Taiwan has its elections in January, and a win for the China-unfriendly Democratic Progressive Party may force Xi's hand. China is also in a bad spot economically. Exports have shrunk in 11 out of 13 months, and consumers are not spending. Leaders in a bad spot like Xi usually tend to look for a distraction.

2) Unexpected results: A Trump win in the US, a mixed election result in India

The 2024 US election will likely be between two senior citizens: a 76 year old Donald Trump versus a 80 year old Joe Biden. This rerun of the 2020 election has many American voters disappointed about the choices available.

Trump is fighting a raft of legal cases, and running on a platform of revenge against his enemies and closing down the US economy. Despite all that, he is neck-and-neck in the polls with current President Biden. Some even show Trump leading. Many American analysts still think that the election is a likely Biden win. A win for Trump on the other hand, threatens many global efforts the Biden administration has signed onto, including the climate agreement and funding for the Ukraine war.

Back home in India, Modi remains a popular leader as we approach the Lok Sabha elections. But a spike in inflation, or rising worries around issues like unemployment, could dent the BJP's vote bank. Opposition parties have mainly focused on freebies instead of laying out an economic vision. A coalition or opposition win could threaten India's ambitious economic program.

3) Lies, lies and more lies: AI driving scams and misinformation

A fake video that triggers a riot in Tamil Nadu. A scam call to your parents asking for an OTP, telling them that their bank needs to verify their identity. A link in your gmail that when you click on, steals your passwords. There has been a 200% spike in cybercrime in India this year, and 54% of urban Indians say that they have been targeted by scammers. Disinformation and scams have become a problem for the internet and digital payments like UPI.

The rise of AI can can potentially make this even worse. Already, spoofing the voice of a family member using AI has become noticeable in phone scams. OpenAI CEO Sam Altman talked about this last week: “A thing that I’m concerned about is what happens if an AI reads everything you’ve ever written online … and then right at the exact moment, sends you one message customized for you.” If scams and attacks become more high-volume, automated and personalized, frauds can become an even more significant problem for India in the coming year.

Finally, there is of course 4) the placeholder risk. The one that we don’t know about yet. The future is a place full of sharp turns and blind corners. Hopefully 2024 will be less surprising than the past three years. We could all use a break.

Screener: Stocks from industries beating Nifty 50 in year change %, outperforming their industries in 1-year change %

Shipping industry leads in Nifty 50 outperformance in year change %

This screener shows stocks from industries that have beaten the Nifty 50 index in terms of one-year change %. These stocks have also outperformed their industries in 1-year change, return on capital employed (RoCE) and return on equity (RoE).

Industries outperforming the Nifty 50 index include shipping, electrical equipment and construction & engineering industries. These industries outperformed the Nifty 50 index by 91.2, 86.8 and 66.1 percentage points over the past year respectively. Two stocks each represent the other electrical equipment and construction & engineering industries.

Major stocks that appear in this screener are Power Finance Corp, Apar Industries, The Fertilisers and Chemicals Travancore, Rail Vikas Nigam, Mazagon Dock Shipbuilders, Olectra Greentech and Polycab India.

Among the stocks in the screener, Power Finance Corp has risen the most over the past year by 261.7%. This has helped the stock outperform its finance industry by 175 percentage points. The company has also outperformed its industry in terms of return on capital employed (RoCE) and return on equity (RoE). Strong power demand and government PLI schemes have helped power sector financing companies.

Apar Industries has outperformed the other electrical equipment industry in year change % by 114.2 percentage points owing to a 218.1% surge in its stock price over the past year. The stock has been on the rise for the past year thanks to premium product launches and growth in exports. This has helped the company to register a net profit CAGR of 35% over the previous five years.

You can find more popular screenershere.

The Baseline

21 Dec 2023

Chart of the Week: Nifty 50 rises 17.3% in a volatile year, set to close 2023 in the green

By Akshat Singh

As we near the end of 2023, the Indian benchmark index, Nifty 50, is set to close in the green for an eighth straight year. The rise in the benchmark index has accelerated in the past month, arising 7.6% to hit new life-highs. There’s been a shift in mood from the previous year, when most of the global indices were under pressure amid high inflation and recessionary fears.

In this edition of Chart of the Week, we will be looking at India’s benchmark index, Nifty 50’s performance in 2023. As of December 21, the Nifty 50 is up 17.3% over the year, despite facing global inflation, recessionary risks in the US and Europe and conflicts in Ukraine and the Gaza Strip.

According to the International Monetary Fund (IMF), India is expected to be among the fastest-growing economies in 2024 with a projected growth of 6.3%, thanks to its fast-growing middle class that is driving consumer spending.

Nifty 50 gets off to a good start in 2023, but Hindenburg report crashes Adani stocks

2023 started well for equity markets, as Federal Reserve Bank of Chicago’s CEO Charles Evans hinted at a slower rate of increase in interest rates. Due to this, the Nifty 50 rose 1.4% on January 9.

This rise was later offset by the benchmark declining 2.4% during the week ending January 22, due to Hindenburg's short position and explosive report on Adani group stocks. Hindenburg's report accused the group of stock manipulation and accounting fraud. In addition, the SEBI moved to the Supreme Court with regards to the NSE’s co-location scam involving its previous chief Chitra Ramakrishna, which led to a 1.2% fall in the index on January 25.

On January 27, the Nifty 50 continued to fall by 1.6% due to the US GDP rising by 2.9% QoQ in Q3FY23, lower than the previous quarter's growth of 3.2%. This raised fears of a global recession.

However, the index recovered with a rise of 1.4% on February 3, as the growth rate of the Indian services sector in December remained above the long-run average (53.5). The positive upturn was linked to good demand conditions.

The Nifty 50 fell 1.5% on February 22 on fears of the US Federal Reserve hiking its interest rates. The Nifty 50 fell by 2.7% in the week of February 19. The Adani-Hindenburg effect started fading on March 3 with the index rising 1.6%. This can also be attributed to a 5% rally in the Nifty PSU Bank index on the same day, following the central government's 'bad loan initiative'.

Improved sovereign rating limits India’s exposure to the Silicon Valley Bank crisis

The US-based Silicon Valley Bank declared bankruptcy on March 10, leading to a fall of 1.5% in the benchmark on March 13. The Nifty 50 rose by 1.6% on March 31, after Morgan Stanley upgraded India to ‘Equal-Weight’ citing reduced valuation premiums and a strong economy.

In the week of June 25, the Nifty 50 rose 2.8%. This rise was due to the Reserve Bank of India pausing its rate hikes and weak production data from China. Various restrictions on Chinese goods by the US and other countries shifted supply chains to India and lowered production for China. The Nifty Bank and Nifty 50 indices hit their respective record highs.

There continued to be some pressure on the index, however, with Nifty IT falling by 4% due to pessimism and poor earnings by some large-cap IT companies like Infosys (which fell by 8%).

Israel-Hamas conflict raises volatility in markets

The Israel-Hamas conflict intensified on October 7 after which the index fell by 1% and 2.5% in the following weeks of October 15 and 22. The bearish streak was broken by the dovish stance of the US Federal Reserve, as it indicated that its interest rate hike cycle was coming to an end.

In the week of November 26, the index rose by 2.4%. Master Capital Services attributes the impressive rise in the index to a combination of factors. A more dovish Fed, and the return of Foreign Institutional Investors (FIIs) buying Indian stocks, as well as significant investments by domestic investors, boosted the index. Investors put in Rs 11,139 crores into the cash segment for November.

BJP state wins ahead of general elections drive Nifty 50 to all-time highs

On December 4, the index rose 2.1% as the BJP won three out of four state elections, Rajasthan, Madhya Pradesh, and Chattisgarh. Nuvama Institutional Equities says these results reduce the chance of a change in power at the center. On December 13, the Federal Reserve kept the interest rate constant in its policy meeting. This led to the market rise by 1.2% on December 14.

As we head into general elections in 2024, Nifty 50 is set to scale new highs. In seven of the previous eight instances of an upcoming Lok Sabha election, the average gain over six months leading up to the election period was 15.3%. It remains to be seen if investors will get lucky this year as well, considering that much of the gains may be baked in, and the indices are already near all-time highs

The Baseline

19 Dec 2023

Five stocks to buy from analysts this week

By Satyam Kumar

1. Tata Consumer Products:

Motilal Oswal maintains a 'Buy' rating on this packaged foods company with a target price of Rs 1,110, indicating an upside of 16.9%. Analysts Sumant Kumar and Meet Jain have a positive outlook, especially with 32% of the company's consolidated revenue originating from the tea business in India.

Kumar and Jain attribute part of the growth in Indian tea exports to increased demand from Russia and the UAE, due to reduced production/exports from Sri Lanka. Despite facing market share loss due to the resurgence of small players in the segment, the company achieved a 3% volume growth from January to September 2023. This growth was driven by consistent domestic demand. To offset this loss, analysts anticipate a 5% volume growth in H2FY24 through the expansion of the distribution network and brand promotion.

The analysts also highlight the company's strategic focus on new ready-to-eat products. A growing distribution network and an increasingly digital supply chain have enabled a two-pronged growth strategy that they believe will drive future growth. They project revenue and PAT CAGR of 10% and 22% respectively over FY23-26.

2. ITC:

KR Choksey maintains a 'Buy' rating on this cigarettes and tobacco products company with a target price of Rs 533, indicating an upside of 18%. Analyst Unnati Jadhav holds a positive outlook on the stock. While the cigarette business remains the top contributor to revenue and profitability, the non-cigarette segment has seen robust growth, gradually claiming a larger share of the overall revenue. The non-cigarette business’s share in segment EBITDA has risen from 18.1% in FY18 to 27.3% in FY23, with ROCE doubling from 11.0% in FY18 to 22.0% in FY23.

Jadhav expects the company to benefit from a stable tax environment, which will help combat illicit trade and strengthen market share. She believes the hotel business is poised for strong growth and profitability, thanks to favourable market conditions, efficiency improvements, and expansion plans.

Jadhav expects growth in nicotine, spices, and agri products, driven by ITC’s focus on its agribusiness. She foresees the company's paper & packaging business, which is the only segment currently under pressure due to its cyclic nature, hitting a bottom before showing improvement in the coming quarters.

3. United Spirits:

ICICI Direct maintains a 'Buy' rating on this breweries and distilleries company with a target price of Rs 1,250, indicating an upside of 13.1%. Analyst Harshal Mehta holds a positive outlook, pointing to the company's focus on the premium segment, which accounts for 80% of its volumes.

Mehta expects the company to benefit from India's dominance in the spirits market, where 92% of alcohol consumption is spirits and the remaining share is split between beer and wine, areas where United Spirits has a significant presence. He predicts that the opening of more premium retail shops, especially in metro cities, will boost sales.

Mehta adds that the firm’s portfolio will reshape strategy in FY23, accelerating revenue growth in the premium segment to compete with global brands like Johnny Walker and Black and White. The analyst also expects India's drinking population to increase from 33% in 2021 to 39% in 2025.

Harshal Mehta expects the spirits segment overall to grow in higher single digits, driven by these favourable demographics, an expanding middle class, rising disposable incomes, and an increased acceptance of alcoholic beverages in social circles.

4. Star Cement:

HDFC Securities maintains its ‘buy’ rating on this cement products manufacturer with a target price of Rs 190, implying an upside of 5.7%. The firm’s volumes surged by 10% YoY in H1FY24 and are expected to grow at a 19% CAGR between FY23 and FY26, due to rapid expansion plans in the North Eastern region.

The firm’s cement manufacturing plants in Guwahati and Meghalaya will be operational by 2023 and 2024, respectively. This expansion is expected to boost its production capacity to 7.7 million metric tonnes in FY24. Star Cement is also expected to commission a 25MW solar plant for captive use and a concrete block plant in Guwahati in FY25. Due to its established position in the North Eastern region, analysts Rajesh Ravi and Keshav Lahoti foresee the firm becoming the largest seller in the area with robust margin growth.

The analysts expect the firm to benefit from stabilizing oil prices and increasing share of green energy. Green energy is expected to constitute over 55% of the firm’s total energy consumption by FY26. They predict a cost reduction of Rs 75 per Metric tonne in H2FY24 and Rs 100 per metric tonne in FY25.

5. Equitas Small Finance Bank:

Axis Direct maintains its ‘buy’ rating on this bank with a target price of Rs 125, implying an upside of 16.8%. Analysts Dnyanada Vaidya, Prathamesh Sawant, and Bhavya Shah, after an interaction with the bank’s management, report that it has retained its guidance of 25%-30% credit growth in FY24.

The bank is aiming for a 40% YoY growth in deposits for FY24, driven by the attractive pricing of senior citizen deposits, which account for 35%-40% of total deposits. Notably, the bank has increased its deposit rates over its peers, gaining first-mover advantage and a lower churn rate in this segment.

The analysts note that the bank plans to diversify into two new segments – personal loans and credit cards – in FY25 to offer services to both existing and new customers through cross-selling. They believe that the RBI’s increased risk weights will have minimal impact on the banks’ capital ratios, as secured lending constitutes over 80% of total lending. The secured lending is dominated by small business loans and commercial vehicle loans.

The bank is also planning a transition from a small finance bank to a universal bank, subject to RBI approval. This will require higher investment in platform upgradation, which might increase the cost of operations. Despite elevated operating costs and margin pressures, the management remains confident of delivering 2% RoA in FY24.

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

(You can find all analyst picks here)

The Baseline

15 Dec 2023

Five Interesting Stocks Today

1. InterGlobe Aviation (Indigo):

This airline company rose by 1.2% over the past week and 14.6% over the past month, mainly due to a decline in global crude oil prices and increasing demand in domestic passenger air traffic during the festive season. Fuel costs are 40% of total expenses for airline firms. Brent Crude, the global benchmark for crude oil, dropped by more than 3% on December 12 and over 18% from $90 per barrel in September to $73 per barrel in December on concerns of oversupply and low demand.

With the recent rally in its share price, the firm has now become the sixth-largest airline in the world by market capitalization, surpassing US-based United Airlines. Additionally, the firm, with an order book of 980 aircraft, received approval from IFSC Gift City on Tuesday to set up an aircraft leasing venture. This initiative, with an investment outlay of Rs 11,000 crore over the next five years, will provide operating and financial leasing services.

The management is expanding its international presence through loyalty programs and strategic partnerships like its code-sharing agreement with Turkish Airlines. This allows flights to be operated and marketed by two airlines, streamlining operations.

According to Motilal Oswal, Indigo plans to increase its fleet size to 350 in FY24, up from 306 in FY23, and add over 10 new destinations. It also expects passenger traffic to rise to 100 million in FY24 from 85 million in FY23. However, analysts predict that the decrease in expenses and the surge in demand for air travel will lead to intense competition in the industry, particularly with Air India’s turnaround and the entry of Akasa Air. This may complicate Indigo’s efforts in expanding its share of the pie.

2. Coforge:

This software and services company has been in the news as global brokerage agency Jefferies increased its target price by 5.3% to Rs 6,580. Following this report, the company's stock rose by 1.4% on Monday. According to Trendlyne Technicals, the stock touched a 52-week of Rs 6,530 today. Jefferies, after an investor meeting with Coforge’s management, reported a positive outlook for the firm despite current macro challenges.

The management outlined recent deal wins in BFSI (banking, financial services, and insurance) as proof of its resilience in a tough environment. The focus on cost optimization is also expected to improve margins by 150-300 bps over the next three years. However, longer-than-usual furloughs in the third quarter will impact efficiency. Coforge shows up in a screener for stocks with increasing revenue for the past eight quarters.

Its promoter Baring PE sold its entire stake of 26.6% through block deals on August 24. The exit of the promoter will have not much impact as the promoters had little influence on its operations. Coforge plans to increase its revenue to $2 billion through its four new verticals: public sector, healthcare, HiTech and retail.

Coforge reported deal wins of $331 million in Q2FY24, resulting in a 12-month executable order book of $935 million. The firm has maintained a revenue growth guidance of 13-15% for FY24. Margins are expected to expand by another 50 bps on the back of higher utilisation levels and currency hedging positions.

3. Syrma SGS Technology:

This electrical equipment/products firm rose by 3.9% on December 6 after incorporating a semiconductor subsidiary, Syrma Semicon. In November 2023, Syrma SGS Technology was one of the participants in Intel’s collaboration with local EMS companies to produce entry-level laptops. According to Trendlyne’s Technicals, the stock has risen by 25.4% in the past month, outperforming the consumer durables sector by 17.9%.

In Q2FY24, the company’s revenue improved by 52.4% YoY. The auto, consumer, and industrial segments saw significant growth, recording increases of 83.3%, 162.6%, and 27.0% YoY, respectively. However, healthcare, IT, and railways experienced a decline in revenue. The company’s EBITDA margins contracted by 306 bps YoY due to changes in the revenue mix.

The management expects a decline in revenue from healthcare over the next 1-2 quarters, with a recovery in Q4FY24. It plans a capex growth of 81% YoY to Rs 250 crore in FY24, aiming to expand its Chennai business and rent a space in Noida to meet rising market demand. The firm maintains a 35% revenue growth guidance for both FY24 and FY25.

In Q1, Syrma acquired a 51% stake in Johari Digital Healthcare (JDHL) for Rs 260 crore. With this acquisition now complete, JDHL is expected to generate Rs 100 crore in revenue in H2FY24 and around Rs 250 crore in FY24.

BOB Capital notes that Syrma is expanding its electronic manufacturing service, targeting the global and domestic markets. The JDHL acquisition helped its entry into medical devices, and it has plans for more acquisitions. However, the brokerage sees margin contractions ahead due to shifts in consumer products and expects challenges in margin recovery until FY25 due to the limited share of original design manufacturer products. It maintains a ‘Hold’ on the stock.

4. Prestige Estates Projects:

This property developer hit its all-time high of Rs 1,231.3 on Thursday, marking a 32.1% increase over the past month. This surge follows the announcement of its new residential project, Prestige Glenbrook, in Bangalore. It has a revenue potential of Rs 550 crore. The development includes 285 apartments, with a developable area of 0.7 million square feet (msf).

Prestige plans to launch 63 msf of residential projects in H2FY24 and FY25. The management expects to clock Rs 20,000 crore in gross sales bookings in FY24 and double annual residential sales bookings to Rs 25,000 crore annually over FY24-26. The developer is also expanding into cities beyond its traditional stronghold of Bangalore. Major upcoming launches in H2FY24 include Pallava Gardens in Chennai (Gross developed value (GDV) of Rs 4,500 crore), Prestige City in Hyderabad (GDV of Rs 7,000 crore), and Ocean Towers and Nautilus in Mumbai (GDV of Rs 15,000 crore).

Prestige registered its highest-ever presales in Q2FY24, with bookings worth Rs 7,090 crore, a 102% YoY increase driven by new launches. Despite strong bookings, the company's net debt level is increasing as it continues to incur annual land/stake buyouts. It plans to invest Rs 5,500 crore in commercial capex in FY24 and Rs 6,600 crore in future commercial capex. Its profit increased 6x YoY and beat Trendlyne Forecaster’s estimate by almost 7x.

HDFC Securities remains positive on Prestige Estates Projects on the back of a strong launch pipeline and robust collections. The company features in the screener for stocks where brokers have upgraded recommendations or target prices.

5. GMR Airports Infrastructure:

This construction and engineering company has risen by 25.6% in the past week, reaching a new 52-week high of Rs 78.9 on Thursday. This jump comes after GQG Partners and Goldman Sachs Trust II bought a 4.7% stake (28.3 crore shares) in the company for Rs 1,671.5 crore on December 8. Nomura India Investment Fund Mother Fund also picked up a 1% stake (6.25 crore equity shares) in the company. The company makes it to a screener of stocks with prices above short, medium and long-term moving averages.

GMR’s passenger traffic grew 19% YoY to 98.4 lakh in October. According to CAPA India, India is expected to be the third-largest aviation market by 2030. Analysts believe that GMR Airports will likely be a key beneficiary. The increase in passenger traffic and the addition of new domestic and international airports are expected to drive earnings growth for the company.

On December 9, the company’s arm, GMR Visakhapatnam International Airport, signed a Rs 3,215 crore financing agreement with a consortium of five banks. This funding is earmarked for the partial financing of Bhogapuram International Airport.

Kotak Securities remains cautious due to risks such as debt for projects like the Bhogapuram airport. However, the brokerage is optimistic about increasing passenger traffic and the company’s capabilities to cater to the rising traffic. It has a ‘Reduce’ rating on the company.

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

The Baseline

14 Dec 2023

Modi factor boosts election results and markets | Screener: the outperformers of 2023

By Tejas MD

'It's the economy, stupid': one of the most famous political slogans in recent history was spoken by Bill Clinton, when he successfully ran for the US Presidency. Clinton had an uncanny political instinct for what worked, and knew that most voters when headed to the ballot box, are thinking about their economic future.

So when the BJP rode to victory in three out of four states this month, the voters were telling us something about the economy. And the markets seem all set for a Santa rally after these wins.

What explains the wins for the BJP? Well, let's go back to Clinton's slogan, and underline it.Over 2023, the Nifty 50 has surged by 14.2%, with sectors like fertilizers, telecommunications equipment and general industrials leading the gains over the past year. Tata Motors, Bajaj Auto and NTPC have risen the most in the Nifty 50 during the same period.

India has also been the fastest growing economy worldwide, boosted by positive signals like slowing inflation and falling crude oil prices. So across key state elections, it appears that the voters have placed their trust in the BJP over the opposition.

Markets celebrated the election wins: the Nifty index closed 2.1% higher on December 4, after the results. The rise took the Nifty to record highs on three consecutive days after election results. As we step into 2024, let’s look at where Indian equity markets are headed in an election year.

In this week’s Analyticks,

Election results give the market a boost: BJP wins and macro factors fuel stock markets
Screener: Stocks that soared in 2023, with high 1-year change % and the highest Forecaster estimates surprise % for revenue and net profit in Q2FY24

Modi magic wins the Hindi heartland, signalling strong show for BJP in 2024

The BJP won the Chhattisgarh and Rajasthan elections, seizing the states from the Indian National Congress (INC). It also beat anti-incumbency in Madhya Pradesh to secure a record fifth term. These wins come just six months before the general elections in 2024.

The pro-BJP tilt of the voters in these states is good news for the party ahead of the 2024 elections. The electoral success is also expected to boost India’s appeal to foreign investors, on the argument of political stability.

Matthew Haupt, a portfolio manager at Wilson Asset Management, said, “The BJP’s victory will likely lead to continued capital inflows into India.” Markets are counting on a 2024 win - Chris Wood, the global head of equity strategy at Jefferies, said that an unexpected BJP defeat could cause a 25% correction in the market.

It's not as if analysts don't have any complaints about the BJP goverment. T N Ninan noted last week that "many Indian businessmen fear the BJP", and are afraid to criticize the governement, in case they send agencies to raid their offices or open an investigation. Overall however compared to Congress, the BJP is seen as better for business and the economy.

Stealing the opposition’s thunder: ‘Modi ki guarantee’ draws voters

The Congress had used what they called a 'guarantee card of promises' to win voters in the Karnataka state elections. This time, the BJP launched a ‘Modi ki guarantee’ campaign to outshine the Congress party.

The BJP, once called the Brahmin-Bania-Zamindar party for its pro-business stance, has under Modi, focused more on welfare schemes. This was especially effective in Madhya Pradesh, where the BJP promised voters LPG cylinders at Rs 450 (a significant discount from the market price of around Rs 910) and free education to disadvantaged families. It also pledged additional benefits to farmers and the tribal community, at an estimated cost of around Rs 24,000 crore.

A welfare scheme introduced by the BJP in Madhya Pradesh in June, the Ladli Behna Yojna, provides Rs 1,000 to over one crore women. The party promised to increase this to Rs 3,000 if re-elected.

PM Modi's campaigning in these states was also a factor. At a 76% approval rating, Modi remains a popular figure, with the highest approval among global leaders, according to a survey by Morning Consult Political Intelligence.

Ahead of the general elections, the BJP plans to continue focusing on welfare schemes. But rising food inflation could play spoilsport.

BJP’s tenure saw moderate GDP growth. But the future may be brighter

When we pull the curtain back and compare different Indian governments, the BJP's track record is not very shiny. Under BJP rule, India’s GDP growth has averaged 5.7% over the past nine years, below the average growth rate of 6.3% from 2000 to 2013. But this is partly on account of structural changes before Covid-19, and the impact of the pandemic itself.

Pandemic and structural reforms drag average GDP growth during BJP tenure

Structural reforms and policy changes, especially the implementation of the real estate Act RERA in 2016 and the GST in 2017, contributed to the growth slowdown. Demonetization also had an effect.

And while the government increased the capex budget significantly in the past nine years, private sector capex investment has been slow to pick up.

History suggests markets are poised for a pre-election rally

Historically, the Nifty 50goes up in the six months leading to the Lok Sabha election - it has risen in seven out of eight instances. The average gain during this period is 15.3%. The only exception is a 2% fall in 1998 when the BJP was re-elected.

Indian markets have mostly risen leading up to the general elections

However, the six months after elections are volatile, even if largely positive. The two times markets fell during this period were in 1996 and 1998.

Of course, past performance doesn’t always predict future results. The ruling party is riding high right now, and led by a popular leader. However, voter mood can quickly shift if prices rise or the economy worsens. The next few months will be an interesting watch.

Screener: Stocks with high 1-year change % and the highest positive surprise for revenue and net profit

Jindal Saw gains the most in the past year

As we end 2023, let’s take a look at stocks that have surprised analysts positively in revenue estimates while posting gains over the past year. This screener shows stocks with a high 1-year change %, which also have the highest Forecaster estimates surprise % for revenue and net profit in Q2FY24.

The screener is dominated by sectors like realty, general industrials, cement & construction, banking & finance and utilities. Major stocks that appear in the screener are Jindal Saw, Ircon International, Prestige Estate Projects, Cochin Shipyard, Trent, Brigade Enterprises, Oberoi Realty and Oil & Natural Gas Corp.

Jindal Saw has risen the most, by 371.5% over the past year. At the same time, the company surprised Trendlyne Forecaster’s revenue and net profit estimates in Q2FY24 by 30.7% and 42.2% respectively. Its revenue improved by 35.2% YoY to Rs 5,466.1 crore during the quarter, owing to increased sales in the iron & steel segment.

The screener also consists of three stocks from the realty sector: Prestige Estates Projects, Brigade Enterprises and Oberoi Realty. Prestige Estates rose the most among realty stocks, by 145.1% over the past year, followed by Brigade Enterprises (71.6%) and Oberoi Realty (60.5%). Brigade Enterprises beat Forecaster estimates for revenue and net profit by 40.8% and 49.7% respectively in Q2FY24. Its revenue grew by 54.3% YoY to Rs 1,407.9 crore in Q2FY24 on the back of improvement in the real estate and hospitality sectors.

You can find more popular screenershere.

The Baseline

13 Dec 2023

Chart of The Week: RBI pumps the brakes on rising unsecured loans

By Bhavani Eswar

The Indian financial sector has been on the rise in the past two years, with high loan growth amid soaring domestic consumption. As a developing economy, the demand for credit growth in India is on a sustained rise. This has boosted the health of the banking sector, which has seen a turnaround in the past two years, thanks to healthy balance sheets and decade low gross non-performing assets (NPA) ratios. However, one aspect of high loan growth has worried the Reserve Bank of India (RBI) - unsecured loans significantly outpacing overall loan growth.

In this edition of Chart of the Week, we analyze the RBI’s recent directive on unsecured loans, the first major regulation since 2014-15 that is aimed at reducing risks in unsecured lending.

Bad loans can have spillover effects across economies. The unprecedented rise in India’s unsecured loans – loans which lack collateral – is a major risk. While credit growth in unsecured lending stood at 23% in the past year, the overall credit growth in the banking system was just 13%.

On November 16, the RBI directed banks to increase risk weights for unsecured consumer loans like personal loans (below Rs 50,000) and credit card receivables from 100% to 125%. This means that banks must now show Rs 125 in risk-weighted assets for every Rs 100 lent as an unsecured loan. This will prompt banks to increase the capital set aside for these loans. The RBI has set 9% as the minimum capital adequacy ratio to be maintained on total risk weighted assets.

Risk weights for home loans, for example, range from 50% to 70% depending on the size of the loan. Meanwhile, it is 75% for gold loans. Segments with higher risk, like business loans, have 100% risk weightage.

Cost of funds likely to increase for top private and public sector banks

High exposure to unsecured lending leads to a marginal decrease in capital ratios

An analysis of the RBI’s increased risk weights on capital requirements finds that banks with substantial exposure to unsecured loans will see an increase in capital requirements. Banks like SBI, ICICI Bank, HDFC Bank, and Axis Bank, which have allocated over 15% of their total lending to unsecured loans, may see their capital ratios decline. These four banks may see a decrease of more than 50 bps in their CET 1 (Core Equity Tier 1 (CET 1) is an important metric as it includes only equity and reserves, which form the core capital for banks).

On the other hand, banks like Bank of Baroda, IndusInd Bank, and Canara Bank, with less than 10% exposure towards unsecured loans, could see their capital ratios fall by just 30-40 bps.

The new regulation will affect banks with higher exposure to unsecured loans in three ways. Firstly, banks have to maintain certain ratios like CET 1, which is calculated as a percentage of total risk weighted assets. Due to the increase in risk-weighted assets, banks now have to keep more capital while lending, which could result in higher lending rates.

Secondly, due to an increase in capital requirements, banks may have to raise capital from bond markets at higher rates. Finally, this could moderate growth in consumer credit, which is traditionally a high-margin segment for banks.

Regulations that make changes in risk weights, provisions, exposure limits or loan-to-value ratios aim to manage risk at a broader level rather than focusing on individual institutions. RBI’s latest regulatory move is aimed at controlling risks in vulnerable segments without constraining credit to other sectors of the economy.