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

25 Sep 2024

Five stocks to buy from analysts this week - September 25, 2024

1. Yatharth Hospital & Trauma Care Services:

Edelweiss initiates a ‘Buy’ rating on Yatharth Hospital & Trauma Care Services with a target price of Rs 740, suggesting a 30.4% upside. Analysts Thakur Ranvir Singh and Pawan Bhatia highlight that this healthcare facilities provider aims to increase its bed capacity from 1,605 in Q1FY25 to around 3,000 beds by FY28 through organic and inorganic growth.

Yatharth Hospital recently acquired a 200-bed hospital in Faridabad and announced expansions in Noida, boosting total capacity to 1,300 beds by FY27. The company plans to acquire one hospital annually and improve occupancy rates, which rose to 61% in Q1FY25. Yatharth's focus on specialty care like oncology and cardiology is expected to increase average revenue per occupied bed (ARPOB), while its healthy balance sheet supports expansion plans.

Singh and Bhatia project a CAGR of 31% in revenue, 30% in EBITDA, and 31% in net profit over FY 25-27. They highlight that the stock trades at 14 times its FY26 EV/EBITDA, about 39% lower than its peers like Max Healthcare, Fortis, and Global Health.

2. Senco Gold:

Emkay reiterates its ‘Buy’ rating on this Bengal-based jewellery company with a target price of Rs 1,600, indicating a potential upside of 10.1%. Analysts Devanshu Bansal and Vishal Panjwani say, “We expect a strong pick-up in jewellery retail as recent cooling in gold prices rushed consumers to stores.” They highlight that the firm’s price-to-earnings (PE) ratio is currently trading at a 45-55% discount to its peers Titan and Kalyan, and ~25% lower than the recent IPO, PN Gadgil.

Senco plans to expand its footprint in non-eastern regions, focusing on Delhi-NCR and Uttar Pradesh. Bansal and Panjwani anticipate the initial expansion coming from company-owned stores, with plans to transition towards asset-light franchisee stores once the brand is established. They estimate a lower investment of Rs 2 crore in inventory for franchisee-owned, franchisee operated (FOFO) stores, compared to Rs 25 crore for company-owned, company-operated (COCO) stores.

Senco's revenue per store is lower due to reduced gold consumption in eastern India (200g/wedding compared to 350g in the south). However, it benefits from higher margins on handmade jewellery and lower inventory needs, maintaining a competitive return on capital compared to peers.

3. Pitti Engineering:

Axis Direct maintains its ‘Buy’ rating on this electrical equipment manufacturer with a target price of Rs 1,572, indicating a potential upside of 22.3%. Analysts Sani Vishe and Shivani More note that the company is expanding its production capacities from 56,000 tonnes per annum (TPA) to 90,000 TPA, with plans to reach 100,000 TPA by Jan '25. The company is expanding its Aurangabad facility with new capacity, while closing its lamination operations in Hyderabad. In Hyderabad, it will now focus on machining, while Aurangabad will handle lamination, machining, assemblies, and shaft manufacturing.

Analyst highlights that the company is upgrading to 4 & 5 Axis computer numerical control machines and importing advanced machinery from Germany and Taiwan. In terms of the value chain, lamination and copper winding each represent 25% of motor manufacturing. Additionally, to reduce logistics costs, it is restructuring operations and building a new manufacturing unit in Hyderabad alongside a large plant in Aurangabad, supporting a multi-year deal with Wabtec.

Analysts Vishe and More expect the company's revenue, net profit, and EBITDA to grow at a CAGR of 36.6%, 42.2%, and 38.6% respectively, over FY 25-26.

4. HEG:

ICICI Direct continues to recommend a ‘Buy’ on this industrial goods company, setting a target price of Rs 2,520, which suggests a possible upside of 3.5%. Analysts Shashank Kanodia and Manisha Kesar note that the company is well-positioned for growth, driven by the global steel industry's transition to Electric Arc Furnace (EAF) technology, which reduces carbon emissions by 75% and cuts production costs. EAF’s share in crude steel production (excluding China) is projected to grow from 50% to 55% in the next 3-4 years.

The analysts note that the company expects demand recovery by the second half of FY25. The company is also entering the graphite anode business by setting up a 20,000 ton capacity at an investment of Rs 1800 crore, driven by the increasing demand for Li-ion batteries, with production starting in FY27.

Kanodia and Kesar are optimistic on HEG, driven by the global shift towards the EAF route and expansion-led volume growth. They project a revenue CAGR of 11.8% and an EBITDA CAGR of 35% for FY 25-26.

5. Transport Corporation of India:

Sharekhan maintains a ‘Buy’ rating on this logistics solutions provider with a target price of Rs 1,400. This indicates an upside of 26.2%. Transport Corporation of India (TCIL) reported a 12.9% YoY growth in daily average e-way bills and a 6.8% YoY increase in FASTag volumes for August 2024. The company’s management anticipates revenue and net profit growth of 10-15% YoY for FY25, aligning with analysts' projections of 10% and 12.5% respectively.

The company has signed a contract to purchase two cellular container vessels, each with a 7,300 MT capacity, for Rs 324 crore. The delivery is expected in late 2026 or early 2027, with each vessel projected to generate Rs 80 crore in FY28. The analyst expects TCIL to benefit from an improving domestic trade environment from the end of July, thanks to the end of the monsoon and early inventory stocking for the festive season.

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

(You can find all analyst picks here)

The Baseline

24 Sep 2024

Chart of the Week: Global interest rate cuts drive markets higher

By Aditi Priya

The Indian stock market’s obsession with the US Federal Reserve is a long-standing saga. Every time the Fed meets to announce its domestic macroeconomic data and interest rates, Indian markets and participants closely scrutinize the proceedings amid considerable volatility.

However, over the past few years, it's not just the US that has adjusted interest rates multiple times. China, the EU, and Japan have also made several changes, impacting the Indian economy whenever significant global shifts in financial flows occur—from increases or decreases in major economies' interest rates.

The Fed's first rate cut in four years boosts global markets, paves way for potential RBI cuts

On September 18, the US Federal Reserve delivered what global markets had eagerly anticipated—a substantial rate cut, the first in over four years. The US central bank reduced its benchmark rates by 50 basis points, providing a significant boost to markets worldwide by reducing borrowing costs for global investors. Prior to this, the Fed had been raising rates at an unprecedented pace since March 2022.

After announcing the rate cut, Fed chair Jerome Powell said in a statement, “Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress." The current US inflation rate is 2.5%, which is the lowest it's been since February 2021.

From the perspective of the Indian market, a decreasing interest rate is positive in two key ways:

Developing economies like India stand to benefit from such rate cuts, as foreign investors are drawn to the high returns the Indian economy offers. With US rates expected to drop by over 200 basis points in the next two years, India is likely to experience sustained foreign capital inflows, driven by investors seeking the country’s robust economic growth.

Secondly, the Fed’s move could pave the way for the Reserve Bank of India (RBI) to implement rate cuts in the coming months. The Fed's rate cut reduces pressure on capital outflows in India and boosts foreign inflows. This can create favorable conditions for the RBI to implement rate cuts by aligning with global trends.

Japan ends its negative interest rate policy, affecting global investments

On another front, the Bank of Japan (BOJ) recently concluded its eight-year policy of negative interest rates. On March 19, 2024, the BOJ raised its benchmark rate to 0.25% from the previous range of 0-0.1%, marking its second rate hike in 17 years. While this increase seems modest, it can have implications for global economies, including India.

A member of the policy board of BOJ, Junko Nakagawa said, "Given real interest rates are currently very low, we will adjust the degree of monetary support, from the standpoint of achieving our 2% inflation target, if our economic and price forecasts are met.” Japan's consumer inflation accelerated to 3% in August, surpassing the Bank of Japan's 2% target and up from 2.8% in July. This rise was fueled by increased prices for food and household durable goods.

Japan has been a key source of global capital because of its very low interest rates, which pushed investors to seek higher returns in other countries. A move to positive interest rates, even if small, could lead to Japanese investors bringing their money back home. This could cause them to adjust their investments in places like India, where they've been active in both equity and debt markets. With domestic Japanese investments becoming more attractive, foreign direct investment (FDI) and foreign portfolio investment (FPI) from Japan into India could slow down.

Indian companies, particularly in sectors such as infrastructure and automobiles, often borrow from international markets, including Japan, due to lower interest rates. A rise in Japanese rates could increase the cost of borrowing for Indian firms, making it more expensive to finance projects and expansions. A hike in Japanese interest rates could also lead to the appreciation of the yen against the Indian rupee. This would make Japanese exports more expensive and Indian imports from Japan pricier, potentially widening India’s trade deficit with Japan.

Why has India not cut rates despite global trends?

India’s inflation in 2023 exceeded the target range of 4-6%, primarily due to rising food prices and supply-side challenges. Although inflation figures have improved in 2024 and are now well within the target range, the Reserve Bank of India (RBI) has maintained its key interest rate at 6.5% to prevent demand-driven inflation from escalating.

RBI Governor, Shaktikanta Das said, "It is not so much how the inflation is now; we have to look at, for the next six months, for the next one year, what is the outlook on inflation. So I would like to step back and look more carefully at what is the future trajectory of inflation and growth. Based on that, we will make a decision.”

Moreover, with aggressive rate hikes, in the past 2-3 years, in advanced economies such as the US and EU, cutting rates in India could have led to capital outflows, weakening the rupee. A depreciating rupee would have increased import costs, adding more inflationary pressure to the economy.

The Baseline

20 Sep 2024

Five Interesting Stocks Today - September 20, 2024

1. REC:

This public sector NBFC surged 3% on Wednesday after signing non-binding Memorandums of Understanding (MoUs) worth Rs 1.1 lakh crore over five years, with various renewable energy developers like Hygenco Green Energies. These agreements cover projects like solar and wind hybrid systems, floating solar plants, ultra mega renewable energy parks, hydroelectric power, and other innovative technologies.

REC aims to play a key role in boosting India’s non-fossil-based generation capacity from 200 GW to 500 GW by 2030. With its "Shapath Patra" commitment, REC plans to grow its renewables loan book from the current Rs 42,936 crore to over Rs 3 lakh crore by 2030, increasing the share of renewables from 8% to 30%. Its total loan book is expected to reach Rs 10 lakh crore by 2030.

In Q1FY25, REC reported a 16.6% increase in consolidated net profit, reaching Rs 3,460.2 crore, driven primarily by higher revenues. This revenue figure beat Trendlyne’s Forecaster estimate by 4.8%, although net profit fell short of expectations by 2.6%. The loan book continued its steady growth, rising 17% to Rs 5.3 lakh crore compared to Rs 4.5 lakh crore in the same period last year.

Vivek Dewangan, MD and Chairman, commented on guidance and projections, "Going forward, we aim to maintain a net interest margin above 3.6% for the next 4-5 years. We also anticipate significant growth in our renewable portfolio, which we expect to account for 30% of our total AUM by 2030, up from the current 8%. This year, we are targeting disbursements of around Rs 1.9 lakh crore."

UBS Global Research has initiated a 'Buy' call on REC, citing India's expanding renewable energy generation and infrastructure growth. The brokerage has set a target price of Rs 720 per share, indicating a 33% upside from Wednesday's closing price. Despite this positive outlook, the company is trading in the strong sell zone, indicating that it is currently trading above its historical PE.

2. Hero MotoCorp:

This two-wheeler manufacturer rose by 3.6% over the past week to touch its all-time high of Rs 6,146 on Wednesday as the company expects increased momentum in the upcoming quarter, driven by the festive season. CEO Niranjan Gupta highlights that the company aims to adjust inventory levels to support growth this festive season. They plan to keep stock within a 4-6 week range to manage increased demand effectively.

The company is in talks to invest Rs 900 crore in Altigreen Propulsion Labs, an electric three-wheeler startup. This move will put Hero MotoCorp directly in competition with industry leaders Mahindra & Mahindra and Bajaj Auto. The company also holds a 40% stake in electric 2-wheeler company Ather Energy, which recently filed papers for a Rs 312 crore IPO.

In Q1FY25, the company reported a net profit growth of 47.3% YoY to Rs 1,045.9 crore, but missed Trendlyne Forecaster estimates by 3.7%. Revenue grew 15.4% YoY to Rs 10,218 crore during the quarter, thanks to a recovery in the 125cc segment and the success of the new Xtreme 125 cc model. The company appears in a screener of stocks with improving book value per share over the past two years.

Gupta said, "The positive response to the Xtreme 125cc has prompted us to increase its manufacturing capacity from 25,000 to 40,000 units per month, which we will implement in the next couple of months. We also have new models in the pipeline, including the Destini scooter and Xoom models in 110 cc, 125 cc, and 160 cc capacities."

Geojit BNP Paribas has a ‘Buy’ rating on the stock as the brokerage anticipates an acceleration in the coming quarters, driven by positive customer sentiment, a favorable monsoon, and the festive season. Additionally, the company's planned product launches in both internal combustion engine (ICE) and EV categories support a positive outlook.

3. Thermax:

Thisheavy electrical equipment manufacturer has risen 15.6% over the past week as its wholly-owned subsidiary, Thermax Babcock & Wilcox Energy Solutions, received a repeat order worth Rs 516 crore from Jindal Energy Botswana. This order is for two 550 tonnes per hour (TPH) boilers for a 300 MW energy project in Botswana, Southern Africa.

InQ1FY25, the company reported operating revenue growth of 13% YoY to Rs 2,184.4 crore but missed Trendlyne’s Forecaster estimates by 3%. Net profit also nearly doubled on a YoY basis to Rs 116 crore but was 14% below consensus estimates. This estimate miss was mainly due to lower order inflow which led to subdued order book growth. With an order inflow of Rs 2,600 crore, Thermax’s order book grew 2% YoY to Rs 10,700 crore at the end of Q1.

Managing Director and CEO, Ashish Bhandari,said, “The company is likely to see higher order inflow in FY25 compared to FY24, led by the refining and petrochemicals sector.” He highlights that the company is also venturing into newer segments to boost order book growth, and also aims to grow its chemicals business which currently contributes 7% to the total revenue.

ICICI Securitiesmaintains a ‘Hold’ rating on Thermax as financials missed estimates in Q1. The brokerage believes that orders from the thermal segment will remain strong over the next few years and give a big boost to Thermax’s order inflow. They forecast the company’s revenue and net profit to grow at a CAGR of 15% and 21.7% respectively.

4. Delhivery:

This transportation & logistics company rose by over 3% in the past week as on September 16th, as it entered into a strategic partnership with Team Global Logistics to expand its cross-border services to 120 countries. This collaboration aims to combine Delhivery’s Part Truckload shipping network with Team Global Logistics’ expertise as the country’s largest Less-Than-Container Load (LCL) operator.

For Q1FY25, the company’s net profit rose by 160.8% YoY to Rs 54.4 crore, while its revenue rose by 12.4% YoY as its express parcel segment revenue grew 6.2% YoY. The firm beat Trendlyne’s Forecaster estimates for revenue by 2.1%, and the net profit estimate by 185.2% as the company recorded a net loss in the previous quarter and in Q1FY24. The stock appears in a screener for stocks where mutual funds have increased shareholding over the past month.

Analysts report that the company’s Express business’ service-level EBITDA was maintained at 18%, while service EBITDA for the Partial Truckload (PTL) business expanded 100 bps to 3.2%. The company has the largest coverage of 19,000 pin codes across the country. The company is also planning to enter quick commerce, where they plan to create a warehousing and delivery infrastructure for D2C brands and smaller Quality Control (QC) players.

In February, Meesho, an e-commerce player, launched a logistics aggregation platform called "Valmo," to consolidate various logistics providers and offer their services to sellers. Unlike other e-commerce firms like Flipkart and Amazon, Meesho does not plan to invest in assets such as trucks and warehouses. When asked by analysts on whether Delhivery will join Valmo, its CEO, Sahil Barua noted that “The incentive for us to unbundle is zero. It is also not in the interest of customers to disintermediate ourselves as the cost curve flattens quickly when you run a parcel-only network.”

Despite a tough market, management expects PTL revenue to keep growing as the industry shifts toward integrated players. They note that in the US., the top five logistics companies hold a 65% market share in PTL, and they anticipate a similar trend in India. For FY25 the management expects the EBITDA margin of PTL business to improve and approach the express parcel business’ margin of 18% as volume increases.

ICICI Securities has maintained a “Buy” rating on Delhivery, with a target price of Rs 600. The brokerage values the company at 40x FY26E EV/EBITDA. It adds that the firm is strengthening its leadership position in the express parcel. In the PTL sector, it became profitable at the service EBITDA level starting Q4FY24.

5. Shyam Metalics and Energy:

Thisiron & steel/intermediaries products manufacturer rose 3.2% on Monday, hitting an all-time high of Rs 908.9 the next day. This surge followed the company's announcement of theexpansion of its production capabilities with a state-of-the-art Greenfield Cold Rolling Mill (CRM) in Jamuria, West Bengal with a total capital cost of Rs 603 crore.

The new facility has a capacity of 400,000 tons per year and will produce pre-painted galvalume coils and galvanized iron/steel coils. The mill is located in eastern India, which provides logistical advantages and helps address the region's shortage of color-coated sheet manufacturing units. This expansion will enhance Shyam Metalics' product offerings and manufacturing capabilities.

The CRM's output will cater to various sectors, including housing, warehousing, and industrial sheds, with a particular focus on affordable housing through initiatives like Pradhan Mantri Awas Yojana.

Brij Bhushan Aggarwal, Vice Chairman and MD of the company,said, “We aim to achieve optimal utilization of the new facility within the next two years, contributing 8% to 10% of the company’s revenue & EBITDA in the years to come.” The expansion will enhance production capabilities, reinforce the company's position as a key supplier of high-quality steel products, and leverage lower production costs and logistical advantages.

UBSinitiates a ‘Buy’ rating on Shyam Metalics and Energy with a target price of Rs 1,200. The brokerage highlights the company's successful foray into new businesses (aluminum and stainless steel products) as a confirmation of its execution capabilities. They believe the multiple new projects commencing operations in FY25/26 provide strong earnings visibility, while diversification mitigates profitability risk.

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

The Baseline

19 Sep 2024

Singapore has become a major Indian investor | Screener: Rising stocks with growing FII investments

By Swapnil Karkare

Singapore, a rich, tiny nation of just 5.8 million people, has long had many Indian connections. It is the only country outside Sri Lanka with Tamil as one of its official languages. The iconic Singaporean fish head curry was invented by a Kerala chef. Our trade links are old: traders on the Singapore island were buying spices, pearls and even elephants from Indian merchants in the 10th century.

In recent years, this chaddi-buddy relationship has intensified. One sign of this: Singapore Airlines now flies to more destinations in India than anywhere else in the world, with eight cities on its route. PM Modi’s visit to Singapore in early September pushed for a closer partnership around industries like semiconductors, healthcare and manufacturing.

Singapore now ranks second only to the US among India's foreign institutional investors (FIIs) - as of August 2024, total Indian assets of Singapore-based FIIs crossed Rs. 7.7 trillion, which includes debt, equity and hybrid instruments.

In this week's Analyticks:

Best friends?: India and Singapore are tying themselves closer together

Screener: Rising stocks with FIIs increasing their stakes in the past eight quarters

India and Singapore find more reasons to work together

In FY 2024, India exported goods worth $14 billion to Singapore, with petroleum and bituminous products accounting for half of it. Changing demand-supply dynamics in Europe, led India to divert its diesel and jet fuel to Singapore and Australia. This turn increased the share of fuel exports from 37% in FY10 to 49% in FY24.

On the imports side, India bought goods worth over $21 billion, with electrical machinery the biggest segment. From FY10-24, exports to Singapore grew 5% annually (CAGR) while imports rose by 9%, leaving India with a trade deficit of $7 billion in FY24. Singapore ranks sixth in India’s total trade (exports + imports) while India ranks twelfth in Singapore’s trade.

Foreign direct investments shift in Singapore's favour

The cumulative FDI into India from Mauritius, the top country, stands at $175 billion. Singapore is at $150 billion and surging fast. The declining attractiveness of Mauritius is clearing the way for Singapore to become the top foreign investor in India in a few years.

Mauritian investments tend to be 'foreign' in name only - many businesses register themselves in Mauritius and operate in India to dodge taxes. Mauritius’ tax haven status has made it a transit point rather than a true source of investment. The infamous 2007 share transfer case of Vodafone, which routed investments through Mauritius, cemented its reputation for tax avoidance. In response, India plugged loopholes in its treaty with Mauritius in April 2017.

In FY17 and FY18, Mauritius invested $15 billion in India each year. But from FY19 onwards, this has plummeted to an average of $8 billion. Singapore, on the other hand, invested $15 billion annually on average during the FY19-24 period, becoming the top investor based on annual inflows.

Singapore has become a major FII investor

Singapore isn’t just shining in FDI. It also ranks second only to the US among top foreign institutional investors (FII). Here as well, Mauritius used to dominate a decade ago, holding 27% of total FII assets in India as of March 2012. Today, its share is close to 5%.

Besides the Singapore Government, Nalanda Capital and Amansa Capital are the two major Singapore-based funds investing in India. Nalanda’s portfolio value as on June 2024 was $5 billion (Rs. 45k crore) and that of Amansa’s was $2.5 billion (Rs. 21k crore).

Which stocks are Singaporean investors buying?

Nalanda owns shares in 24 companies, and its top investments by holding value include Havells, AIA Engineering, Thermax, Page Industries, Supreme Industries, Info Edge, Berger Paints, MRF, Ratnamani Metals & Tubes, and Amara Raja Energy & Mobility.

Amansa has invested in 22 companies and top 10 constitutes Trent, SRF, Eicher Motors, Cyient, Bharat Forge, Sundram Fasteners, Intellect Design Arena, V-Mart, Poonawalla Fincorp, and Fortis Healthcare.

But Singapore’s role in India’s financial markets is beyond private wealth management firms or hedge funds. The government’s involvement is significant. It is the largest FII and the eighth-largest institutional investor in India.

The Government of Singapore’s portfolio value was close to $32 billion (Rs. 270k crore) as of June 2024. It has invested in 57 companies. Its top investments include Reliance Industries, HDFC Bank, ICICI Bank, Bajaj Finance, Bharti Airtel, L&T, Infosys, Shriram Finance, M&M and NTPC.

Apart from the government, which invests through GIC, a sovereign fund of Singapore, two other government agencies manage investments. They are the Monetary Authority of Singapore, the central bank, and Temasek Holdings.

The Monetary Authority of Singapore’s portfolio value was over $600 million (Rs. 5k crores). It has invested in 6 companies: Shriram Finance, Max Healthcare, Godrej Properties, Sona BLW Precision Forgings, Affle, and Sapphire Foods.

Temasek Holdings’ net portfolio value as of March 2024 was $20 billion. Its website and news sources suggest that it holds HDFC Bank, ICICI Bank, Manipal Health (unlisted), NSE India (unlisted), Schneider ElectricandZomato, to name a few. Last year, it had announced that it would invest $10 billion over the next three years.

Analysing the Government of Singapore's investments

The Singapore government’s Indian portfolio has favoured the Banking & Finance sector, making up one-third of its total investments. Other prominent sectors include Oil & Gas, Cement & Construction, Software and Auto.

Reliance Industries and HDFC Bank have the lion’s share in its portfolio – accounting for 10% each. However, the actual stakes are 1% in Reliance Industries and 2% in HDFC Bank. The highest stakes were in Samhi Hotels and Sapphire Foods, it holds 8% in these companies.

The Singapore government has increased its shareholding in Sapphire Foods, Max Healthcare, Sona BLW Precision Forgings, Bharti Airtel and M&M in the past year while reducing it in Petronet LNG, Phoenix Mills, Syngene International, Prestige Estates Projects and L&T.

In the last couple of quarters, the government has also added a few new names to its portfolio, like Data Patterns, Entero Healthcare Solutions, Timken, Apollo Hospitals, Indigo, etc. These changes reveal a preference towards healthcare, technology, and capital and intermediary goods.

More investments in the pipeline

Given its historically strong relationship and the recent investment roadshow in Singapore, India is at a sweet spot in receiving investments. A moneycontrol report notes that Singaporean companies have already committed investments over Rs. 5 trillion (~ $60 billion) in the coming years. The Indian High Commission in Singapore has been working on getting more investments in India's infrastructure, renewable energy, and advanced technology sectors.

It will be interesting to see if the sum of all these parts becomes something significant. As Rajat Verma, Head of Institutional Banking at DBS Bank suggests, this partnership could create an international shift, as the industry relationships deepen.

Screener: Rising stocks over the past year with increasing FII holding in the past eight quarters

Banking and IT stocks see the highest rise in FII holdings

As we enter the last couple of weeks of Q2FY25, we take a look at stocks that saw an increase in their foreign institutional investor (FII) holdings during the past two years. This screener shows stocks rising over the past year, where FIIs increased their stake over the past eight quarters.

The screener is dominated by stocks from the software & services, banking & finance, automobiles & auto components and general industrials sectors. Major stocks that appear in the screener are Zomato, 360 One Wam, Max Healthcare, PB Fintech, ITC, Computer Age Management Services, Sona BLW Precision Forgings and Max Financial Services.

Zomato’s FII holding increased the most, by 44.1 percentage points in the past eight quarters, while its stock price also surged by 163.7% over the past year. The Government of Singapore was the largest buyer, acquiring a 2.02% stake in this internet & software services company followed by Camas Investments (bought a 1.9% stake) and Canada Pension Plan Investment Board (bought a 1.3% stake). Public holding dropped significantly to 28.6% in June 2024, down from 84.6% in June 2022, suggesting that public investors are likely the primary sellers due to their reduced stake.

Max Healthcare saw its FII holding rise by 33.7 percentage points in the last two years, the stock has also surged by 62.9% over the past year. The Government of Singapore is the largest buyer in this case as well, acquiring over 6% stake. New World Fund Inc and Monetary Authority of Singapore also bought a 6% and 1.5% stake in this healthcare facilities stock. These shares were sold by public shareholders and DIIs, whose stakes declined from 6.6% to 3.9% and from 19.4% to 15.4%, respectively, between June 2022 and June 2024.

You can find some popular screeners here.

The Baseline

18 Sep 2024

Five stocks to buy from analysts this week - September 18, 2024

By Divyansh Pokharna

1. Pricol:

Emkay reiterates its ‘Buy’ rating for this auto components manufacturer, setting a target price of Rs 600, a potential upside of 22.6%. Pricol currently allocates ~4% of its sales to R&D and has formed key partnerships, including with the Chinese firm TYW for developing e-cockpits and Sibros for telematics, to advance its product offerings.

The company anticipates growth in its disc brake segment, where it has won orders from major 2-wheeler OEMs and EV startups, with production set to begin soon. It aims to expand its revenue base to Rs 3,000 crore annually within three years, up from its current Rs 1,200 crore capacity.

Analysts Chirag Jain, Jaimin Desai, Nandan Pradhan and Omkar Rane highlight that the company will benefit from the growing use of advanced digital displays, such as touchscreens. The cost of these displays has tripled over the past five years and is expected to increase by another 50-60% in the next 2-3 years. Pricol is focused on adding new clients like Honda and Suzuki over the next 18-24 months, which will enhance its performance compared to the industry. The company appears in a screener of stocks outperforming their industry price change during the quarter.

2. Ashok Leyland:

Sharekhan maintains its ‘Buy’ rating on this commercial vehicles manufacturer with a target price of Rs 285. This indicates an upside of 20.8%. The analysts are positive about the medium and heavy commercial vehicles (MHCV) industry in H2FY25, expecting improvement over the first half of the year. The analysts say, “The outlook for the MHCV sector is improving as election-related uncertainties have eased, and government infrastructure spending is expected to gradually increase. Also, as the festive season approaches, high freight rates are expected due to rising demand.”

Ashok Leyland (ALL) also anticipates growth in the MHCV segment due to a rise in replacement demand. The average age of trucks has increased to 10-11 years, up from the typical 7-8 years, highlighting a need for new vehicles. The growing acceptance of BS-VI trucks is expected to accelerate the replacement of older BS-IV models. The company is also focusing on improving its brand presence and expects a recovery in some of its international markets.

ALL plans to enhance its product portfolio by introducing six new light commercial vehicles (LCVs) in FY25. The company has seen progress in the bus segment with new orders from state transportation units. The analysts are upbeat about the increase in replacement demand and expect revenue and PAT CAGR of 5.5% and 13% respectively, over FY25-26.

3. PVR Inox:

Anand Rathi initiates a ‘Buy’ call on this movies & entertainment company with a target price of Rs 2,065, implying a potential upside of 23.2%. Analysts Shobit Singhal and Pranay Shah highlight that franchise movies are increasingly popular with audiences because they are familiar with the stories. The company expects Q3FY25 to surpass the record revenue of its best quarter, Q2FY24, which saw hits like Gadar-2, OMG-2, and Oppenheimer. Upcoming releases such as Pushpa-2, Singham Returns, Joker, and Lord of the Rings are anticipated to drive revenue growth in Q3.

PVR Inox has a durability score of 45 owing to a net loss in the past few quarters, but may have turnaround potential, backed by its momentum score of 64.2. The company plans to add 110-120 new screens in FY25, including 10-25% using asset-light models, where it earns a management fee of 8-9% of revenue and developers cover 70-80% of costs. The firm also plans to sell properties in Mumbai, Pune, and Vadodara, potentially raising Rs 300-400 crore to help reduce its current debt of Rs 1,700 crore.

Singhal and Shah expect improved occupancy and ticket rates for PVR Inox, driven by a strong content lineup and a growing number of screens. They believe high-quality content will succeed regardless of budget or star power. But the threat of streaming continues to loom over the stock.

4. Gulf Oil Lubricants India:

ICICI Securities retains its ‘Buy’ rating on Gulf Oil Lubricants India with a target price of Rs 1,659, suggesting an upside of 16.5%. Analysts Probal Sen and Hardik Solanki note that this oil marketing & distribution company may dip in volume growth in Q2FY25 due to distributor-level inventory build-up for Adblue (a diesel exhaust fluid) and slower demand in the lubricant business. Despite this, Gulf Oil is on track to achieve 2-2.5 times industry growth over the next two years supported by the company's expanding distribution, new product launches, and brand investments.

Analysts Sen and Solanki project an improvement in margins to 13.2%/13.5%/13.5% for FY 25-27, up from the previous estimate of approximately 13.1%, supported by stable crude prices, premium product launches, and new segments. EV investments will provide diversification opportunities, cushioning the company from the internal combustion engine decline and are projected to generate Rs 7-8 billion in future revenues. The company is projected to achieve a 6-7% YoY growth in volumes for core lubricants, with revenue and EBITDA CAGR of 10.1% and 11.1%, respectively, over FY 25-27.

5. Granules India:

Motilal Oswal reiterates its ‘Buy’ rating on this pharmaceuticals company with a target price of Rs 680, indicating a potential upside of 24.2%. Analysts Tushar Manudhane, Akash Manish Dobhada and Viraj Shah highlighted recent United States Food and Drug Administration (USFDA) observations, including issues with equipment cleaning, air filters and non-dedicated equipment. The inspection also found problems with investigating out-of-specification results and managing documentation.

Analysts say that despite these concerns, the company has a solid regulatory track record with 24 successful USFDA inspections since 2009, including six at the Gagillapur facility. The management is addressing the issues raised by the USFDA and is working to resolve them within the required timeline.

Manudhane, Dobhada and Shah notes that the company recorded a 10% earnings CAGR over FY19-24. Analysts expect a 36% earnings CAGR over FY25-26 as the company focuses on building a niche pipeline in the oncology space, large volume products, innovative tech-based products and backward integration.

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

(You can find all analyst picks here)

The Baseline

17 Sep 2024

Chart of the Week: Both domestic and foreign investors are sitting on hefty gains as Nifty touches new highs

By Satyam Kumar

Nifty50 hit an all-time high of 25,446 on Monday as India’s booming markets witnessed the fourth straight month of buying by foreign investors. The recent surge is driven by the likelihood that the US Fed will start the rate-cutting cycle tomorrow, September 18. Markets are rising due to expectations that the Fed will cut interest rates by 50 basis points (bps) rather than 25 bps as estimated earlier, which will lead to lower interest rates and boost flows into emerging markets.

Morgan Stanley Composite Index’s (MSCI) gauge of Indian shares is up 24% in 2024, in contrast to a 1.7% drop in a similar gauge for Chinese stocks. This has led to the rising influence of Indian stocks in the MSCI Global Standard Index, also known as the World Index. India currently holds a weightage of around 18%, second only to China, which has a weightage of approximately 25%. This marks a significant increase from levels below 10% at the start of 2021.

This chart of the week takes a look at FII & DII activity in the equity segment on a monthly basis over the past decade. We have compared the investing preferences of Indian and foreign investors and how they have fared over the past decade.

FIIs have almost quadrupled their investments in Indian equities over the past decade

Foreign institutional investors (FIIs) assets under management (AUM) in the equity segment stood at Rs 75.5 lakh crore, up from Rs 19.6 lakh crore at the start of 2015. Between January 2015 and September 2024, FIIs were net buyers in 68 out of 117 months and net sellers in the remaining months. This indicates that FIIs were net buyers in 58% of the total months over the past decade.

Over the past decade, FII's buy/sell decisions overlapped with positive and negative changes in the Nifty50 in 90 of the total 117 months. This implies that they bought whenever the markets rose and sold whenever the markets took a hit, and that too with an accuracy of 77%. This can be an interesting data point for traders and swing investors in their pursuit of timing the markets better. Another reason for this accuracy can be attributed to their higher stake of over 17% in the Indian equity markets. This results in their higher influence in the equity market, with prices moving in the direction they trade.

India following the SIP mantra, DIIs were net buyers in 84% of the total months over the past decade

Domestic institutional investors (DIIs) include entities like mutual funds, pension funds and insurance firms. Over the past decade, DIIs were net buyers in 98 of the total 117 months, while net sellers in the remaining months. On a monthly basis, they were net buyers in the market irrespective of where the market was headed.

Central Depository Services’ annual report highlights rising investor confidence in the Indian equity market. This depository company currently has a market share of 76% as of March ‘24 with 11.6 crore investor accounts. This implies that the company has added new investors at a CAGR of more than 25%. According to data released by the Association of Mutual Funds in India, retail investments via SIPs into mutual funds have increased at a CAGR of 24.1% over the past seven years.

Over the long term, both FIIs and DIIs have gained on their investments, thanks to the economic growth

According to Trendlyne’s Technicals, the broader equity market index, represented by the Nifty 500 index which consists of the top 500 listed Indian firms, has gained 273.8% over the past 10 years.

DIIs, even with their strategy of investing in markets consistently, rather than timing their investments like FIIs do, made outstanding returns. This is because India’s economic growth has consistently outperformed in comparison to its peers post-pandemic, highlighted by the GDP growth rate of 8.2% in FY24.

FIIs, on the other hand, have also gained on their investments significantly over the past years. The payoff has led them to consistently increase India’s weightage in their portfolio in comparison to other emerging market peers like Indonesia, South Korea, Thailand, etc. On top of that, foreign investors have witnessed a better risk-reward environment as the rupee has stabilized in comparison to the US dollar over the past few years.

Stable political environment boosts investor confidence in the Indian equity market

FIIs divested over Rs 30,000 crore in the months before the election in June. However, they have re-entered the markets since then with consistent buying in the following months, as the BJP-led NDA alliance formed a government with Narendra Modi re-elected as Prime Minister for a third term.

In recent years, India has made strides in improving the ease of doing business, with reforms in taxation, labour laws, and corporate governance. This stability has attracted increasing FII inflows, further strengthening the Indian equity market. Initiatives like Make in India, Digital India, and Atmanirbhar Bharat have fueled investments in manufacturing, technology, and innovation, promoting growth and attracting both domestic and foreign investors.

The Baseline

13 Sep 2024, 05:48PM

Five Interesting Stocks Today - September 13, 2024

1. Suzlon Energy:

This heavy electrical equipment company has surged 9.4% over the past week and touched a new 52-week high of Rs 86 on Thursday. The rise comes after it secured a significant 1,166 MW order from NTPC's arm, NTPC Green Energy, making it the largest wind energy order in India. In addition, Morgan Stanley reiterated its ‘Overweight’ stance on the company after the order win. The brokerage noted this PSU contract as a major milestone for the company, as it was previously not allowed to bid because of its negative net worth.

The order requires Suzlon to install 370 S144 WTGs (wind turbine generators) with a rated capacity of around 3.2 MW each, which will generate electricity to power 30 lakh households. The project will be executed across three sites in Gujarat and also includes erection and commissioning, as well as operations & maintenance services post?commissioning. With this, the company’s order book nears 5 GW. As of June 2024, the company’s order book stood at 3.8 GW, 5x the FY24 WTG volume of 710MW.

In Q1FY25, Suzlon’s net profit had jumped almost 3X to Rs 302.3 crore, helped by lower finance costs and foreign exchange shifts. Revenue increased by 50.1% YoY to Rs 2,044.4 crore. The wind turbine generator segment (which contributes over 70% to the revenue) grew by 86.3% YoY during the quarter.

India's wind energy sector has been witnessing a recovery, due to rising power needs, wind-focused tenders, and growing industrial demand, offering opportunities for domestic players like Suzlon Energy. JP Chalasani, the Group CEO, said, “We anticipate an increase in wind installations in India between 5 to 5.5 GW in FY25, potentially reaching up to 9 GW in future years”.

Morgan Stanley believes the large contract from NTPC will enhance Suzlon's earnings visibility for FY26-27. It has a target price of Rs 73, which the stock has already surpassed. The company is trading in the Strong Sell Zone, indicating that it is currently trading above its historical PE.

2. Divi’s Laboratories:

This pharmaceutical manufacturer surged 7.4% over the past week after the US House of Representatives approved the Biosecure Act. The bill is yet to be cleared by the US Senate. The legislation bans American firms from partnering with certain Chinese biotech and drug manufacturers over the next eight years, in a bid to prevent the potential misuse of US genomic data. This will prompt a major shift in the pharmaceutical supply chain.

Analysts expect the introduction of the Act by the US to accelerate the growth of CDMOs (contract development and manufacturing organisations) and CROs (contract research organisations) in India. According to Mordor Intelligence, the contract manufacturing segment is estimated to be worth $22.5 billion in 2024 and is projected to reach $44.6 billion by 2029, growing at a CAGR of 14.7%.

In Q1FY25, the company reported an 18% YoY revenue growth to Rs 2,197 crore, with net profit rising 20.8% YoY to Rs 430 crore. Exports accounted for about 86% of the revenue, with 70% coming from Europe and the US. The product mix between generics and custom synthesis (contract manufacturing) stood at 51% and 49%, respectively.

CEO Kiran Divi said, “With the Biosecure Act, we are now seeing more orders for Phase-II and Phase-III molecules than before, along with significant interest on the generic side.” She also highlighted that the company is planning a capacity expansion, with an investment of Rs 650 crore to Rs 700 crore.

KR Choksey maintains a ‘Hold’ rating on Divi's Laboratories as its Q1 results came in slightly below estimates due to weakness in generic pricing. They expect growth in custom synthesis and new generics to drive margins, and forecast revenue and net profit CAGR of 11% and 23.1%, respectively, over FY25-26.

3. Tata Steel:

This iron and steel company jumped 2.4% to Rs 152.4 per share on Thursday after it secured a £500 million (approx. Rs 5,475.1 crore) grant from the UK government to support a £1.25 billion green steel project in Port Talbot, South Wales. The project involves installing an Electric Arc Furnace (EAF) at the Port Talbot steelworks. The EAF will significantly reduce carbon emissions, both for the UK as a whole and for the Port Talbot plant. The project is expected to preserve 5,000 jobs in the UK steel industry that were impacted when operations were halted in July 2024 due to the company’s initiative to transition to green steel production. Tata Steel is offering voluntary redundancy, support packages, and paid retraining programs for affected employees.

In Q1FY25, the company had reported a 51.4% YoY increase in consolidated net profit, reaching Rs 959.6 crore, as operations in the Netherlands returned to normal levels. The profit growth was also supported by lower expenses and reduced raw material costs. Consolidated total revenue stood at Rs 54,771.4 crore, a 7.9% decline YoY due to subdued steel demand across many regions. Both revenue and net profit fell short of Trendlyne’s Forecaster estimates by 2.7% and 32.2%, respectively.

The management reported a buildup in working capital during the quarter, mainly driven by stock accumulation in the UK ahead of the closure of heavy-end facilities, as well as seasonal factors in India. Koushik Chatterjee, Executive Director and CFO of Tata Steel said, “We are focused on optimizing working capital. The net debt stands at about Rs. 82,162 crores and our group liquidity remains strong at about Rs. 36,460 crores, which includes about Rs. 10,799 crores of cash and cash equivalents.”

BOB Capital Markets maintains a 'Hold' rating on Tata Steel but has raised the target price from Rs 170 to Rs 175, indicating an expected upside of 7%. They believe the stock to be overvalued now, however, they are confident in the company's ability to grow its earnings.

4. Global Health:

This healthcare facilities company rose by 3.8% over the past month. However the company had announced last month that they are set to construct a 500-bed super specialty hospital in Mumbai with a Rs 1,200 crore investment. The project, financed equally by debt and internal funds, is expected to be completed in 3-4 years. In July 2024, the land for the hospital was acquired in Oshiwara through a public auction. Once finished, it will become the second largest private hospital, following the 750-bed Kokilaben Dhirubhai Ambani Hospital & Medical Research Institute (KDAH).

For Q1FY25, the company’s net profit rose by 4.2% YoY to 106.3 crore, while its revenue rose by 11.1% YoY due to improved traction in matured hospitals. The firm beat Trendlyne’s Forecaster estimates for revenue by 2.1% but missed the net profit estimate by 11.7% due to a flat Average Revenue per Occupied Bed (ARPOB) and a slight increase in occupancies. ARPOB increased to Rs 64,035, up 1.4% YoY, while occupancies improved by 70bps YoY. The low occupancies were primarily due to under-development hospitals. The stock appears in a screener for stocks with broker upgrades.

Analysts report that the company’s established hospitals are experiencing healthy annual volume growth of 7-8%, with a particularly strong performance over the past 2-3 months. While volume growth might slow after FY26 due to limited bed expansion, opportunities for bed optimization could still boost overall sales and EBITDA for these mature hospitals. The company, with a robust presence in northern and central India, currently has approximately 3,440 beds as of Q1FY25. by the end of FY25. The company’s management aims to grow their capacity to ~5,173 beds over the longer term. Area wise they plan to add 50 beds in Gurugram and Lucknow each, 150 beds in Patna, and 300 beds in Noida by the end of FY25.

Motilal Oswal has maintained a “Buy” rating on Global Health, with a target price of Rs 1,380. The brokerage anticipates an 18% earnings CAGR from FY25-26. It notes that, while MEDANTA's ongoing efforts like expanding its operations in Lucknow and Patna, increasing bed capacity, and hiring additional clinical talent may lead to moderate earnings in FY25, robust earnings growth will follow from FY26 onwards.

5. JSW Infrastructure:

This port operator rose 7.4% over the past week after it approved a capital expenditure of Rs 2,359 crore for expanding capacity at its Jaigarh and Dharamtar ports. The expansion will boost the company's total cargo-handling capacity from 170 million tonnes per annum (MTPA) to 400 MTPA by 2030, with Jaigarh's capacity increasing to 70 MTPA and Dharamtar's to 55 MTPA. The Dharamtar port expansion focuses on handling increased cargo volumes from an anchor customer associated with a new 5 MTPA steel plant in Dolvi, Maharashtra.

JSW Infrastructure acquired a 70.4% stake in Navkar Corp for Rs 1,012 crore during Q1FY25. The company plans to become a complete logistics solutions provider by leveraging Navkar's existing resources, without requiring additional capital expenditure. CFO Lalit Singhvi said, "While the return on capital employed (ROCE) may see a temporary decline due to these investments, we expect it to recover to 18-19% in the long term as asset utilization improves and synergies with other group businesses come into play over the next 2-3 years.”

The company has outperformed the marine port services industry by 9.5% over the previous quarter. JSW Infra’s volumes grew 9% YoY to 27.8 million tonnes, despite its Dolvi plant shutdown. Singhvi explained that the 9% YoY growth was largely due to new acquisitions that were not part of the business last year. He also expects overall growth to be around 10-12% as the impact of these new assets fully reflects and existing operations continue to grow.

Jefferies initiates a ‘Buy’ on the firm with a target price of Rs 375, implying a potential upside of 13%. The brokerage believes the company’s recent entry into logistics through Navkar’s acquisition will drive significant growth. It expects JSW Infra's growth over 20% from current levels, with existing volumes showing strong capacity use.

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

The Baseline

12 Sep 2024

Between Nifty Smallcap, Midcap and Nifty50, one index comes on top | Screener: Stocks with PE lower than longer-term averages

By Tejas MD

On September 3, the Nifty 50 recorded its longest winning streak (14 days) since its inception in 1996. There have been other, shorter rallies like this before, and an analysis of the past six such events reveals a pattern: the index usually fell by 3% on average in the 30 days after a rally, according to Trendlyne's share price history and Samco. Whether this pattern will repeat this time around, is still an open question.

Nifty 50 has delivered negative returns historically after a long gaining streak

Indian indices have surged over the past year, driven by robust economic growth and lower inflation. While India’s growth story looks strong, current market valuations are beginning to worry both investors and analysts.

The Nifty 50 soared 26.3% over the past year. But the star performer has been the Nifty Smallcap 100, which posted a remarkable 50.8% gain in the same period.

Nifty Smallcap 100 remains the top gainer in the past year with a 50.8% rise

With such a rise across all three indices, is the stock market valuation a balloon about to burst?

In this week’s Analyticks,

Valuation check: We look into the Nifty Smallcap, Midcap and Nifty50
Screener: Stocks which have risen over the past quarter, with PE TTM lower than 3-year, 5-year, and 10-year averages

The winner in the middle: Nifty Midcap beats Smallcap and Nifty 50 indices

While the smallcap index has outperformed its peers over the past year, the longer-term view tells us a different story. When looking at 3, 5, and 10-year time frames, the Nifty Midcap 100 is the stronger performer by far, outshining both the Nifty Smallcap 100 and Nifty 50.

Nifty Midcap 100 outperforms peers in 10, 5 and 3 year gains

The Nifty Midcap 100 has historically commanded a higher price-to-earnings (PE) ratio due to its stronger growth potential. Currently, it has the highest PE among the three major indices, at 44.2. This elevated PE is also a result of a sharp drop in its earnings per share (EPS) following the Q4FY24 results.

Nifty Midcap 100's EPS falls in the past year, Nifty 50 on top in EPS growth

Q1FY25 results did not help the Nifty Midcap’s EPS to recover to March 2024 levels. This was due to companies like HPCL (Oil & Gas), Bharat Dynamics (Defence), Tata Chemicals(Commodity Chemicals) and BSE (Exchange) reporting a significant fall in their EPS. As a result, the Nifty Midcap continues to trade at a high PE.

Bhaskar Laxminarayan, chief investment officer for Asia at Julius Baer says, “Every investor understands India's growth story, but valuation is a worry. Valuation of largecaps is not as much of a worry as with small and midcaps.”

Nifty 50 is analysts’ top pick, backed by historical data

When examining the valuations of the three indices, the Nifty Smallcap 100 stands out with a current PE of 30.3, well above its historical average. But this elevated valuation is somewhat supported by its strong performance in Q1FY25, where it posted the highest year-on-year (YoY) net profit growth among the three indices.

1 Yr Forward PE of indices below current PE

According to Trendlyne’s results dashboard, the revenue and net profit of the Nifty Smallcap 100 rose 11.9% and 50.9% YoY in Q1FY25 respectively.

The big jump in net profit was mainly due to Raymond’s net profit rising 591% YoY due to income from discontinued operations. After excluding this, net profit growth for Nifty Smallcap comes to 15%. Nifty 50 and Nifty Midcap’s net profit increased by 6.8% and 9.2% respectively.

The strong growth in smallcaps is expected to continue, boosted by India's GDP growth. This is reflected in the smallcap index's much lower forward PE of 21, compared to its current PE of 30.3. The lower forward PE suggests that high profit growth is expected to continue for these smallcap companies, potentially justifying the current valuation. But a major earnings miss could trigger a sharp correction in the index.

In comparison, the Nifty 50 appears more reasonably valued. Its current PE is below its 5 and 10-year historical averages. It has a forward PE of a very modest 20.5, which makes it even more appealing valuation wise. Goldman Sachs’ Asia-Pacific strategist Sunil Koul said, “One of the key views we have is that you should see a rotation in the Indian market. It was the year of mid and small-caps, but that seems to be changing already over the past month.”

PSUs, auto and banking & finance sectors dominate the top gainer lists

Public sector units (PSUs) have had a great year, and it is not surprising to see some of these becoming star stocks in the Nifty 50, Nifty Midcap 100 and Nifty Smallcap 100 indices. Sectors that stand out are Banking and Finance and Auto.

Banking and finance stocks are in focus with interest rate cuts on the horizon. The US Federal Reserve is expected to lower rates this month, and India’s RBI Monetary Policy Committee (MPC) will meet on October 9 to decide on its rate action.

Lower interest rates drive loan demand, benefiting banks. However, the top banks will face the challenge of keeping margins up as rates decline. Despite this, the banking and finance sector is attractively valued, with a relatively low PE ratio of 20.1, and the sector is up 10.1% over the past quarter.

Of the top five highest gainers in the Nifty 50, two are from the auto sector – Bajaj Auto and Hero Motocorp. The auto sector has been on the rise with strong demand in the rural segment driving sales in the past quarter. The sector is also up 59.4% in the past year, according to Trendlyne’s sector dashboard, and has a PE ratio of 36.4 as opposed to Nifty 50’s 23.5.

Banking and auto stocks outperform in the past year

The other three top gainers in the list include Bharat Petroleum Corp, Coal India and Adani Ports & Special Economic Zone.

Among the Nifty Smallcap 100, Banking and Finance sector stocks appear twice. Housing and Urban Development Corp (HUDCO) and Multi Commodity Exchange of India (MCX) are from this sector.

Other top-performing stocks include Rail Vikas Nigam (RVNL), Oil India, Suzlon Energy, Cochin Shipyard, NBCC, Prestige Estates Projects, Oracle Financial Services and Tata Investment Corp.

Screener: Low PE stocks which have risen over the past quarter with PE TTM lower than 3-year, 5-year, and 10-year averages

Auto stocks’ TTM PE is lower than their 3yr average PE

PE ratio shows the stock price of the company relative to its earnings per share (EPS). It is widely used by investors and analysts reviewing a stock's relative valuation. This screener shows stocks with trailing twelve months (TTM) PE values less than average three-year, five-year and ten-year PE values.

The screener is dominated by stocks from the automobiles & auto components, and pharmaceuticals & biotechnology sectors. Major stocks that feature in the screener are Great Eastern Shipping, JK Paper, Bharat Petroleum Corp, Tata Motors, Welspun Corp, Natco Pharma, Bombay Burmah Trading and Ceat.

Great Eastern Shipping’s TTM PE stands at 6.4 compared to its 3-year and 5-year PE at 7.3 and 8.4, respectively. The TTM PE ratio reflects the most recent earnings. The shipping company’s revenue and net profit increased by 18.1% YoY and 18% YoY, respectively in Q1FY25. This rise in earnings has led to a lower TTM PE ratio compared to the 3-year and 5-year average P/E ratios.

JK Paper also features in the screener with its TTM PE falling to 8 from its 3-year average of 10.3 and 5-year average of 8.2. This paper & paper products company’s TTM PE declined on the back of its stock price falling by 7.4% over the past month due to a disappointing Q1FY25 due to margin pressures. Despite a 16% rise in sales volume, net sales growth was offset by higher raw material costs, which rose 23% YoY. Other expenses increased 40% YoY due to an acquisition. Consequently, EBITDA margin fell by 1376 bps YoY to 16.4%, and net profit dropped 55% YoY to Rs 1.4 billion.

However, IDBI Capital expects the company’s margins to improve in Q2FY25 on account of price hikes across its product portfolio.

You can find some popular screeners here.

The Baseline

12 Sep 2024

Five stocks to buy from analysts this week - September 12, 2024

By Ruchir Sankhla

1. Bajaj Auto:

Sharekhan reiterates its ‘Buy’ rating for this 2/3 wheeler manufacturer, setting a target price of Rs 12,584, a potential upside of 7.8%. The analyst highlights that the company has seen a 9.8% increase in sales in FY25, with domestic volumes rising 12.6% and export volumes up 5.4%. While exports remain modest, recovery in the Nigerian market could drive further growth. Its CNG motorcycle, Freedom 125, is gaining popularity, and production capacity is set to expand to 50,000 units per month by January 2025.

The company is also strengthening its position in the electric vehicle (EV) market, holding a 14% share in the domestic electric 2-wheeler segment and a 36% share in the electric 3-wheeler segment. Upcoming EV product launches are expected to support future growth.

The brokerage expects the company’s volume growth to improve, supported by rural market recovery, strong 125cc sales, and festive season demand, while export recovery and CNG expansion should boost growth. The analysts anticipate a EBITDA CAGR of 19% over FY25-26 and EV/EBITDA to be 22.3 times in FY26.

2. Godrej Consumer Products:

Motilal Oswal maintains a ‘Buy’ rating on this personal products maker with a target price of Rs 1,700. This indicates an upside of 12.7%. Analysts Naveen Trivedi, Pratik Prajapati and Tanu Jindal highlight Godrej Consumer Products’ (GPCL) strategic moves in FY24 across various geographies. In India, the company launched ‘Project Vistaar’ to improve its rural reach and expand sales channels. In Indonesia, it has adopted a distributor-led model in general trade, which it said lowered its operational costs. Additionally, GCPL’s focus on e-commerce in the US drove 15%+ growth, and now accounts for 8% of its total business.

GCPL aims to drive growth in rural markets by introducing affordable products for price-sensitive consumers. It has set up a transportation management system to streamline its delivery routes, improve demand forecasting, and reduce excess inventory.

Trivedi, Prajapati and Jindal are upbeat about GCPL’s acquisition of Raymond Consumer Care, which has added brands like Park Avenue to its portfolio. The company reduced RCCL’s inventory from 90 to 15-20 days, improving operational efficiency despite a 25% revenue drop in FY24 as it cuts excess stock. The management anticipates that the segment will generate Rs 600 crore in revenue in FY25.

3. AIA Engineering:

Asit C Mehta initiates a ‘Buy’ rating on this other industrial goods company with a target price of Rs 5,106, suggesting a upside potential of 18.2%. Analyst Abhinav Kapadia says that the company sees growth in supplying more advanced materials for mining. These materials are used to grind down gold, copper, and iron ore more efficiently than traditional ones. Currently, less than 15% of the market uses these advanced materials, suggesting a large opportunity to increase usage.

Analysts say AIA Engineering's new mill liner plant improves its products with less wear, better output, and lower costs. AIA is expected to gain a strong position in the global mining industry, similar to its leadership in the cement sector. Its partnerships with EE Milling Solutions and the purchase of MPS Australia have helped improve equipment design and cut costs for customers.

Kapadia highlighted that the company achieved a revenue, EBITDA, and PAT CAGR of 19%, 20%, and 27%, respectively, from FY21 to FY24. He expects EBITDA and PAT margins to remain stable at 29% and 24% in FY25 and FY26, despite export challenges arising from the ongoing Red Sea crisis.

4. Awfis Space Solutions:

Edelweiss maintains ‘Buy’ rating on this consumer services company with a target price of Rs 1,013, indicating a potential upside of 40%. Analysts Amit Agarwal and Rishith Shah point out that the company is set to benefit from favorable market dynamics, including a 25-27% CAGR in demand for flexible office space due to hybrid working models, increased global capability centres (GCCs), and decentralization of office space by larger firms. The company expects the average seat rental to rise by 5-6% annually.

The analysts note that the company plans to add 40,000 seats in FY25, expanding from its current inventory of 95,030 seats, and has a capex budget of around Rs 140 crore for fitouts. Their expansion strategy focuses on Tier I and Tier II cities, targeting smaller 100-200 seat centers for better pricing. The firm uses a capital-light managed aggregation model, sharing fitout costs with landlords to boost returns while maintaining an asset-light approach, without owning properties

Agarwal and Shah forecast a revenue, EBITDA, and PAT CAGR of 40.1%, 68.6%, and 92.3% respectively for FY25-27, excluding Ind AS 116 adjustments.

5. Va Tech Wabag:

ICICI Securities maintains its ‘Buy’ rating on Va Tech Wabag with a target price of Rs 1,541, suggesting an upside of 8.2%. Analysts Mohit Kumar, Abhijeet Singh and Nidhi Shah highlight that this non-electrical utilities company recently secured a contract from the Middle East for a 300 million litre per day (MLD) desalination plant.

This greenfield project, located on the west coast of Saudi Arabia near Yanbu al-Bahr, is set to be completed in 30 months and is valued at Rs 2700 crore, exceeding FY24 engineering, procurement, and construction (EPC) revenues of Rs 2300 crore.

Analysts say that with this order, Wabag’s EPC order book is expected to rise to Rs 7800 crore, improving the book-to-bill ratio to 3.4 times. The operation and maintenance order book stands at Rs 4500 crore. Revenue growth estimates for FY26 have been increased to 20% from earlier projection of 15%. Wabag also has a strong pipeline in the Middle East, having bid for projects worth $100 crore and pre-qualified for a 1000 MLD desalination project.

Kumar, Singh, and Shah expect revenue and earnings CAGR of 15% and 20%, respectively, along with a 300 basis point expansion in return on equity from FY25 to FY26, driven by order book expansion, improved execution, and enhanced margins.

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

(You can find all analyst picks here)

The Baseline

11 Sep 2024

Chart of the Week: Crude oil prices at 52-week low boosts prospects for India

By Satyam Kumar

Crude oil prices fell below $70, marking a new 52-week low on September 10 due to oversupply concerns and a weak demand outlook. A week ago, OPEC+ announced it would postpone its planned oil supply increase until the start of 2025.

OPEC, or the Organization of the Petroleum Exporting Countries, was established in 1960 by Iraq, Iran, Kuwait, Saudi Arabia, and Venezuela. The organization has since grown to include 13 member nations. OPEC operates like a cartel, regularly meeting to set oil production targets and coordinate output to manage global oil prices.

In 2016, in response to falling oil prices driven by a surge in United States crude production—also known as shale oil—OPEC signed an agreement with 10 other oil-producing countries, forming OPEC+. Among these countries was Russia, the world’s third-largest oil producer accounting for more than 10% of global production.

This week’s Chart of the Week looks at the reasons behind falling crude oil prices and how these trends may affect India and its equity markets.

Weak demand in the US & China and an increasing supply of US crude led to decline in crude prices

US increases crude production to all-time high levels, while OPEC+ cuts

Oil posted its biggest weekly drop in 11 months as a weak US jobs report added to concerns about tepid demand in the world’s largest consumer of crude. Oil prices have trended lower since early July, with weakness in the economies of China and the US — the top two oil consumers — creating fears about demand.

According to U.S. Energy, the production of crude oil in the United States, also known as shale oil has steadily risen in recent years to all-time high levels, adding supply pressure and messing up OPEC’s calculations as oil demand weakens.

Falling crude oil prices a boost for the Indian economy

India imports more than 80% of its crude oil needs, so falling oil prices will significantly reduce the country's import bill. This will help narrow the trade deficit and boost foreign exchange reserves.

High oil prices typically lead to a stronger US dollar against other currencies, which puts downward pressure on the Indian rupee. This is because high oil prices drive up demand for dollars as it is the preferred currency used in oil trade across the globe–so much so that it is referred to as the petrodollar trade. So falling crude oil prices can alleviate the pressure on the rupee.

According to India Today, the government is considering lowering oil prices to reduce inflation by bringing down energy costs. High retail prices for petrol and diesel tend to drive up domestic commodity prices, as increased oil costs raise production and transportation expenses across various sectors, squeezing profit margins. As the world's fourth-largest energy consumer, behind China, the US, and the European Union, India is especially sensitive to shifts in global oil prices.

Indian oil marketing companies & airlines would directly benefit from lower crude oil prices

Oil marketing and distribution companies such as Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation stand to benefit from falling crude oil prices, as it is a key input material. Despite crude price fluctuations, retail fuel prices have remained near Rs 100 for the past few years. As a result, declining crude prices, coupled with stable retail prices, will significantly enhance their profit margins.

These companies saw their net profit surge nearly tenfold during the Russia-Ukraine war. This was due to US sanctions on Russian crude, which left Russia with limited buyers and forced it to sell at discounted rates. Consequently, India's crude imports from Russia skyrocketed, increasing from $2.3 billion in 2021 to $25.5 billion in 2022, and nearly doubling again to $48.6 billion in 2023.

Although Russia still supplies 40% of India’s crude oil, the price advantage has lessened due to higher insurance and freight costs.

Similarly, for airlines like InterGlobe Aviation (IndiGo), fuel expenses make up more than 30% of its total expenses. Lower crude oil prices can help reduce operating costs and boost profit margins.

Paint, tyre and lubricant manufacturers that use crude oil derivatives as raw materials would witness higher gross profit

Paint manufacturers such as Asian Paints, Berger Paints (India), and Kansai Nerolac Paints will benefit from lower crude oil prices, as more than 40% of their revenue is spent on raw materials, many of which are crude oil derivatives. Gulf Oil Lubricants India will also see a reduction in operating costs in the coming quarters if crude oil prices remain low.

On the other hand, rubber prices have risen by 24% over the past year, squeezing profit margins for tyre manufacturers. Companies like Balkrishna Industries, MRF, Apollo Tyres, and Ceat have taken price hikes over the past year to offset rising costs. However, as the prices of crude oil derivatives decline with falling oil prices, rubber costs are expected to decrease, which will, in turn, benefit these tyre manufacturers.

The recent decline in crude oil prices offers significant advantages to various sectors in India. Overall, crude oil prices at or below $70, is good for the Indian economy. However, global economic dynamics, particularly demand trends in the US and China, will be critical in shaping the long-term outlook for crude prices and their impact on India.