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

24 Jan 2024

5 stocks to buy from analysts this week with high upsides

1. Federal Bank:

HDFC Securities maintains its ‘Buy’ rating on this bank with a target price of Rs 190. This implies an upside of 32.6%. In Q3FY24, the bank’s net profit grew by 25.3% YoY to Rs 1,006.7 crore. Analysts Krishnan ASV, Deepak Shinde, and Akshay Badlani attribute its highest-ever quarterly earnings in Q3FY24 to healthy loan growth (18% YoY) and non-core earnings from a stake sale in its subsidiary.

The analysts note a decline in the Federal Bank’s CASA ratio due to intense competition for low-cost deposits. They believe that the bank’s differentiated fintech ecosystem partnerships will gain market share in relatively high-yield segments and drive business productivity. They think the bank is highly likely to achieve the targeted RoA of 1.4% over FY24-25.

The bank’s Gross Non-Performing Assets (GNPA) ratio has been stable at 2.3%, with a healthy Provision Coverage Ratio of 70% in Q3FY24. As a result, the analysts have lowered their credit cost forecasts. They note, however, that ongoing investments in technology and branch expansion will increase operating costs in the medium term.

2. IIFL Finance:

Motilal Oswal gives a ‘Buy’ rating to this financial services company with a target price of Rs 800, indicating an upside of 24.7%. In Q3FY24, the company’s net profit grew by 29.6% YoY to Rs 490.4 crore, while its revenue increased by 23% YoY to Rs 2,694.4 crore. Analysts Abhijit Tibrewal, Gautam Rawtani and Nitin Aggarwal believe that the company’s net interest income improved by 45% YoY due to lower assignment and fee income. They say, “IIFL has morphed into a franchise with a robust distribution network, strong co-lending presence, and superior digital loan origination and underwriting capabilities.”

The analysts note that urban affordable housing growth in metro and tier-1 cities has been slow, but the management expects demand improvement over the next few quarters. Currently, IIFL Finance’s AUM stands at Rs 77,400 crore, up 34% YoY. The analysts believe that the company can effectively leverage fintech partnerships to deliver a 25% AUM CAGR over FY24-FY26. It is also projected to deliver RoE of over 20% in the medium term.

3. HDFC Bank:

KR Choskey maintains its ‘Buy’ rating on this bank with a target price of Rs 1,950, implying an upside of 35.1%. Post announcement of Q3FY24 earnings, the stock fell 8.4% on Wednesday. The bank's slower deposit growth (1.9% QoQ) and contraction in net interest margins (which dropped by 70 bps YoY) were major reasons. Analyst Unnati Jadhav says, “HDFC reported mixed performance growth in Q3FY24, with healthy operating performance and stable margins but moderation in deposit growth.” She notes that credit growth has outpaced deposits, leading to increased borrowings. She attributes the 60.9% YoY loan book growth to Rs 24 lakh crore to the retail and commercial & rural banking (CRB) segments.

There is some silver lining in the results, according to the analyst. Jadhav states that the strong performance in the CRB segment has been led by its deep rural penetration, as the bank now has a presence in 2,10,000 villages, as against 60,000 last year. HDFC Bank’s operating income grew by 25.8% YoY in Q3FY24, led by a 31% YoY increase in non-interest income. This growth, according to the analyst, contributed to an improved cost-to-income ratio. She expects a CAGR of 22.5% in net interest income and 25.3% in profit over FY24-26.

4. Ethos:

Axis Securities initiates a ‘Buy’ coverage on this specialty retail company with a target price of Rs 3,050, indicating an upside of 30.6%. Analysts Preeyam Tolia and Suhanee Shome say, “Our confidence in Ethos' future is grounded in the company's robust and consistent performance over the past several quarters.”

The analysts are optimistic about Ethos as it is foraying into the fast-growing certified pre-owned (CPO) segment due to the shortage of new luxury watches, with the Indian CPO market expected to reach Rs 900 crore by CY25. They view the asset-light CPO model with lower capex as a step in the right direction. They also believe Ethos' expansion into other fast-growing luxury segments such as luggage and jewellery could be its next growth driver.

Tolia and Shome expect the company’s EBITDA margin to improve on the back of a better product mix, store expansions, and operating leverage. They predict a robust CAGR of 35% in revenue and 42% in profit over FY24-26. They also note that the recent fundraising of Rs 175 crore through qualified institutional placement and a cash balance of Rs 180 crore as of H1FY24 provide a financial foundation for Ethos' expansion.

5. Biocon:

Sharekhan upgrades its rating on this biotech company to 'Buy' with a target price of Rs 332, indicating an upside of 22.9%. Analysts at Sharekhan say, "Biocon Biologics is improving its performance, led by the acquisition of Viatris and its successful integration into Biocon Biologics for 120 countries." However, they expect this operational performance to be offset by higher finance costs due to the debt incurred during the $1 billion Viatris deal.

The analysts see Biocon as well-placed to commercialise and realise the entire gains of its multiple products in the launch pipeline and the transition of Viatris. They foresee new customer additions driving volume growth, boosting the company's performance in European markets and increasing its global market share. With Biocon's debt having risen post the Viatris acquisition, analysts anticipate the company to divest its non-core assets to reduce these liabilities.

The analysts also express optimism regarding the robust opportunities in the biosimilars segment as some key global brands are set to lose patent exclusivity soon.

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

(You can find all analyst picks here)

The Baseline

24 Jan 2024

Chart of the Week: Sectors outperform the index, with a little help from the government

By Akshat Singh

While markets have turned volatile in recent weeks, the Nifty 50 index has had a strong year, rising by 19.7%, and touching its all-time high of 22,124.2 on January 16. Of the 29 sectors on Trendlyne’s dashboard, 27 have outperformed the Nifty 50 index. Except for chemicals & petrochemicals and FMCG, all major sectors surpassed the index by a good margin. Sectors like general industrials, durables, shipping, construction & engineering and fertilizer are also set to benefit from government outlays in FY25.

In this edition of Chart of the Week, we look at the top-performing sectors over the past year on Trendlyne’s sector dashboard.

Telecom and realty sectors double money for investors

Let’s start with the telecommunications equipment sector, which rose by 150.4% over the past year. The sector got a boost from the government's initiatives to export homegrown 4G and 5G technologies to attract investments and strengthen foreign ties, especially with African and Pacific countries. The Cellular Operators Association of India (COAI) has also submitted recommendations for various regulatory levies for the telecom sector in the 2024-25 budget. Top performers include ITI, Avantel, and GTL Infrastructure, with respective annual gains of 357.1%, 238.8%, and 52.2%.

The realty sector is another star performer with a 106.2% rise in the past year. It is expected to continue its robust performance into 2024, driven by expected rate cuts and sustained demand. According to reports, the Prime Minister’s ‘housing for all’ scheme will continue to benefit buyers. Top performers in this sector include Signatureglobal (India), Prestige Estates, and D B Realty, which rose 192.8%, 190.6%, and 170.8% in the past year, respectively.

Centre’s capex and subsidies boost general industrial and fertilizer sectors

The general industrial sector has risen by 91% over the past year. This surge is linked to the government allocating 3% of India's GDP as capital expenditure for this sector in the previous Union Budget. While the upcoming general elections might lead to a moderation in capital expenditure, Motilal Oswal suggests it is likely to remain high. Top performers in the sector include GE T&D India, Jindal Saw, and Suzlon Energy with annual gains of 452.9%, 320.9%, and 318%, respectively.

The fertilizers sector also rose by 86.1% in the past year. Analysts project the fertilizer subsidy bill to hit Rs 2 trillion in 2024, having already consumed 63% of its total capacity by November 2023. The top performers in the sector were The Fertilizers and Chemicals Travancore, Gujarat State Fertilizer & Chemicals, and National Fertilizers. They have risen by 161.1%, 152.1%, and 71.3% in the past year, respectively.

The transportation sector surged 78.3% in the past year, driven by the shipping industry. Cochin Shipyard, Mazagon Dock Shipbuilders and Garden Reach Shipbuilders & Engineers rose by 244%, 208.2% and 85.5%, during the period. The growth can be attributed to strong order books from domestic and offshore clients, and the government’s push for defence funding.

Railway stocks set to benefit from Union Budget 2024-25, PLIs drive consumer durables sector

The cement & construction sector rose by 71.7% in the past year, helped by the government's focus on capital spending in railways, roads, and defence. This trend is expected to continue at a moderate pace. Top performers in this sector include Ircon International, Rail Vikas Nigam and Texmaco Rail & Engineering, with annual gains of 339%, 317.4% and 270.7%, respectively.

Next, we have the consumer durables sector with a 70.3% rise. According to HDFC Securities, 2024 will likely see a rise in demand for high-quality products made locally with advanced features and sustainable designs. CRISIL forecasts an 8-10% growth in the sector this year, driven by a preference for premium products in urban areas. The white goods PLI scheme, with an allocation of Rs 6,238 crore spanning from 2021 to 2029, also supports this growth. Top performers of the sector include HBL Power Systems, Kaynes Technology India and Apar Industries. They have risen by 391.8%, 239.9%, and 219.6%, respectively, in the past year.

Lastly, the metals & mining sector rose by 64.5% in the past year due to an uptick in real estate and infrastructure activities. India's finished steel consumption reached a five-year high in H1FY24 on the back of increased construction activities and high demand from the automobile sector. According to Fitch, India’s steel consumption for FY24 is expected to grow by 12%. However, higher Chinese imports have kept prices under pressure. In response, the government is developing a PLI 2.0 scheme to boost steel production. Top performers in this sector are Electrosteel Castings, Sandur Manganese & Iron Ores, and Gujarat Mineral Development Corp with annual gains of 279.8%, 241.4% and 205.8%, respectively, in the past year

The Baseline

20 Jan 2024

The Indian stock market in an election year | Screener: Stocks announcing result dates with high revenue estimates

By Shreesh Biradar

2024 looks to be a nail-biter of a year, with India's general election coming up. In fact, more than 50 nations are holding elections in 2024, with 4 billion people - half the world's population - voting. The results of elections in the US, India, the Eurozone and Russia will be closely watched.

Vladimir Putin is of course, likely to be re-elected in the Russian election. One would argue that Putin should be worried about the impact of 315,000 Russians dying in the Ukraine war, and a weak economy. But since people opposing Putin usually end up with jail terms or "fall" out of windows, he doesn't have much real competition.

In the US, opinion polls this early in the election cycle are usually inaccurate. But right now Donald Trump has the lead over Biden, despite the many legal cases he faces this year. In India, surveys suggest that PM Modi will be the voters’ choice.

Strategists at Goldman Sachs expect higher foreign inflows into India post elections:

The Modi-led government is using the Ayodhya temple inauguration to woo Hindu voters, and may also announce new benefits for rural votebanks in the upcoming budget. Rural voters could see a hike in minimum support prices (MSPs), or a boost in employment programs.

In India, the average return of the Nifty 50 one year before the elections is 29.1%, and one year after is 12% (averaged over the past five general elections).

Nifty50 has risen 20% on average in the six months before elections, over the past five general elections

But India’s runaway stock market needs to face up to slowing consumption. Lower capex by India Inc. compared to government spending, and slowing foreign direct investment have also increased uncertainty over market reaction in an election year.

In this week’s Analyticks:

The election impact: How will the Indian market perform in an election year?
Screener: Rising stocks that have announced result dates, with strong Forecaster estimates for revenue and EPS in Q3FY24

Let’s get into it.

Populist giveaways may not have a big impact on the stock market

Recent state elections have seen a range of populist moves, from free travel for women to interest waivers for agricultural loans. To lock in the rural vote, the Modi-led government may announce something additional this year, similar to the 2019 direct benefit transfer of Rs 6,000 per farmer per year.

Speculation is that the announcement could include free electricity for rural voters, or an increase in the size of subsidized agricultural loans (currently agricultural loans up to Rs 3 lakh have an interest subsidy of up to 4% per annum if promptly repaid).

The one thing common across pre-election budgets has been an increase in the minimum support price (MSP) of crops. The government typically increases MSPs for Rabi and Kharif crop just before the election. The National Rural Employment Guarantee Act (NREGA) has also increased its budgetary estimate pre-election in the past ten years.

One would expect these populist moves to push up the budgetary deficit for the economy, but this has not been true in the last decade. India has exceeded its budgetary estimates only four times in the past ten years (FY09, FY12, FY20 and FY21).

India’s actual revenue expenditure is less likely to shoot budgetary estimate in 2024

One reason is that any MSP increase puts more money in the hands of rural folks, boosting rural consumption. Food inflation might see a spike as a result. But if the inflation impact is not major, the overall benefits overshadow the downside.

Since government spending in rural areas has declined by 3% (April 23-November 23), the government may announce additional incentives for rural voters in the FY25 budget. The market could see a knee-jerk negative reaction to these populist moves. But in the long run, these announcements don't break the bank and usually deliver positive returns.

Cuts are coming: US Fed expected to cut rates in April, RBI in May

Interest rate cuts are expected across the globe this year. But the timing of interest rate cuts in India is still unclear.

According to Bloomberg and HSBC, the first round of interest rate cuts by the US Fed is expected to be around April-May, and big cuts are likely only after June. The interest rate cuts will be absorbed by the consumer just before the US presidential election in November. This will be followed by rate cuts by the European Central Bank as the European Parliament heads into elections in November.

The RBI usually cuts Indian interest rates after rate cuts by the US Fed. With India’s general election planned for May 2024, it will be interesting to see if RBI jumps the gun and cuts interest rates pre-election and before the Fed. But Morgan Stanley expects RBI to cut interest rates only in May or June.

Interest rate cuts just before elections are considered a populist move. Will this government risk pushing the RBI to do this, opening the door to higher inflation? Investors will be watching this closely.

India's market valuations don’t match reality

The revenue and profit growth of Nifty 50 companies have seen a mismatch in the past couple of quarters. Revenue growth has been moderate, while profits have been strong. A report by Sharekhan expects Nifty 50 firms' revenue to increase by 6% YoY in Q3FY24, while profits are expected to surge 11% YoY.

The tepid growth in revenues indicates slowing consumption and the impact of the global slowdown on India's economy. Companies have battled this with premiumization of products, along with a cut-down in capex spending, which has helped profits grow.

The growth in profits has pushed the Nifty 50 to new highs, with investors ignoring the underlying problem of weaker revenues. Indian indices are trading at expensive valuations compared to historical averages.

India’s Sensex is trading at a 27% premium compared to its historical average

India’s stock market valuations are among the highest in the world right now. The Sensex is currently trading at 24 PE, a premium of 27% from its 10-year average. Most other emerging economies' benchmark indices are trading below their historical averages (except for Taiwan and Hong Kong).

The recent runup in Indian indices could limit the positive reaction from the stock market, if a single party gets a clear win. The optimism with a single party mandate could also be subdued with a Modi win, as the Modi led government has now been in power for the past 10 years. However, a hung assembly could definitely spook markets.

According to Chris Wood, the global head of equity strategy at Jefferies LLC, Nifty 50 is expected to see a 25% correction if the Modi-led government fails to get a clear mandate. Markets are mostly pricing in a Modi or Modi-coalition victory, so there is not much remaining upside for that outcome. A more confusing election result would be a different story.

Screener: Rising stocks have announced their result dates with strong Forecaster estimates for revenue and EPS in Q3FY24

Craftsman Auto leads in Forecaster estimates for revenue YoY growth in Q3

As the result season begins, we take a look at stocks that have risen the most over the past year and quarter, with high Forecaster estimates for growth in Q3FY24. This screener shows rising stocks over the past quarter and year which have announced their result dates. These stocks also have high Forecaster growth in revenue and EPS in Q3FY24, and 'Strong Buy' or 'Buy' broker consensus rating.

The screener is dominated by stocks from the automobiles & auto components, banking & finance and software & services sectors. Major stocks that appear in the screener are Craftsman Automation, CreditAccess Grameen, Nippon Life India Asset Management, Endurance Technologies, Tata Motors, Equitas Small Finance Bank, Intellect Design Arena and Motherson Sumi Wiring India.

Craftsman Automation has the highest Forecaster estimates for YoY revenue growth at 55.7% in Q3FY24. The stock has risen by 11.2% over the past quarter and 45.8% in the past year. According to Motilal Oswal Financial Services, growth in the aluminium products segment and in the passenger vehicles’ original equipment manufacturing segment will drive revenue growth for this auto equipment manufacturer.

For CreditAccess Grameen, Trendlyne’s Forecaster expects its revenue to grow 42.5% YoY in Q3FY24. The stock rose by 22.3% over the past quarter, while it gained 92.9% in the past year. HDFC Securities believes that the NBFC is delivering strong profitability and revenue growth in a volatile asset class which will help in improving its cost of funds in the medium term.

You can find more screeners here.

Signing off,

The Trendlyne Team

The Baseline

19 Jan 2024

Five Interesting Stocks Today

1. Rail Vikas Nigam (RVNL):

This construction & engineering stock has risen by 45.8% over the past week after it formed a joint venture (JV) and incorporated a South African subsidiary on Tuesday. The surge helped its stock price to touch its all-time high of Rs 251.4 per share on Thursday. According to Trendlyne’s technicals, the stock has also risen by 59.5% over the past month, helping it to feature in a screener of stocks with expensive valuations according to the Trendlyne valuation score.

RVNL has formed a JV with Jakson Green to strengthen its renewable energy portfolio. As per the agreement, RVNL will hold a 49% stake in the JV, while Jakson Green will hold the remaining 51% stake. Among the renewable energy projects, the JV will focus on exploring opportunities for solar power projects internationally and in India. The company also incorporated a subsidiary in South Africa named RVNL Infra South America. This will enable the company to establish its railway infrastructure business internationally.

The company’s director of operations, Rajesh Prasad said, “With the new JV and subsidiary, we are we–placed to receive orders in international markets. We expect the company to book orders worth Rs 80,000-85,000 crore in FY24.”

Speaking on the stocks’ recent rally, Vishal Perival, infrastructure sector analyst at IDBI Capital, noted, “Railway stocks have experienced significant upswings in anticipation of the upcoming budget. There is an expectation of substantial budgetary allocation for the sector." Trendlyne’s Forecaster sees the company’s revenue growing by 3.2% YoY to Rs 5,463.8 crore in Q3FY24. However, net profit is expected to fall by 4.8% YoY to Rs 364 crore.

2. PCBL:

This carbon black company hit its all-time high of Rs 317.9 on Thursday and has risen by 17% in the past week. The rise came after the company announced its Q3FY24 results. PCBL’s net profit grew by 52.4% YoY to Rs 147.9 crore, beating Trendlyne Forecaster’s estimate by 4.8% while its revenue increased by 21.3% YoY to Rs 1,663.9 crore, marginally below Forecaster’s estimate. The company also appears on a screener for stocks with improving ROCE in the past 2 years

The revenue increase was on account of increased carbon black demand from auto OEMs in the festive season. Increased demand from Europe has also helped boost international sales. Its Q3FY24 consolidated sales volume stood at 1.4 lakh MT and it achieved the highest-ever power generation volume.

The firm also achieved its highest-ever EBITDA of Rs 286 crore, up 66% YoY. Its EBITDA margin was driven by higher price realization for its specialty products. The firm has also patented two high grades of specialty chemicals and expects to reach a volume of 6,000 tonnes annually in the next two years, which will be sold at 4X of current margins. These products are expected to provide roughly 7-8% additional EBITDA to the company.

During the quarter, the company acquired a 100% stake in Aquapharm Chemicals for Rs 3,800 crore. Post-acquisition, Aquapharm is expected to add 40% more EBITDA to Philip Carbon. Aquapharm’s biodegradable chelating agents are rapidly replacing traditional agents and it has been ramping up its sales in Asia and looking forward to expanding in the European market.

JM Financials maintains its ‘Buy’ call on PCBL as it considers it a key player in the carbon black market for lithium-ion batteries. It also suggests that its joint venture with Kinaltek will help it achieve its goal of diversifying its business portfolio.

3. IRB Infrastructure:

This roads and highways company has risen by 11.3% in the past month and reached a new 52-week high of Rs 47.6 in the past week. The firm reported a 26% YoY increase in toll collections in December 2023 of Rs 488 crore. It also emerged as the preferred bidder for NHAI’s Kota bypass on NH-27 in Rajasthan and for the Gwalior-Jhansi bypass section under the Toll Operate Transfer (TOT) model. The two projects have an upfront cost of Rs 1,683 crores and will turn cash-flow positive in the first year of their operations.

Additionally, the firm’s Samakhiyali Santalpur Build Operate Transfer (BOT) project in Gujarat became operational on December 28, 2023. Historically, Q3 and Q4 are high-volume quarters for IRB Infrastructure, and owing to this, management expects the uptick in toll collections to continue in Q4FY24.

The Hybrid Annuity Model (HAM) for road projects is facing obstacles in execution and funding, so to reduce its debt levels, NHAI has shifted from HAM to BOT and TOT models while awarding road contracts. IRB currently has a 38% market share in India’s TOT roads and a 20% share in India’s Golden Quadrilateral project (including BOT and TOT).

Kotak Institutional Equitiesstates, “With a Rs 44,400 crore BOT in the pipeline for FY24 and two more TOT projects expected to be awarded, firms like IRB with strong balance sheets will benefit.” The firm’s private InvIT (IRB Infrastructure Trust) has successfully refinanced five BOT projects at a lower interest rate, which could save Rs 1,000 crore in interest expense over the next five years.

4. ICICI Lombard General Insurance:

This general insurance stock rose 5.8% on January 17 after announcing its Q3FY24 results, as its net profit grew by 22.4% YoY to Rs 431.5 crore and revenue rose by 14.7% YoY. The company appears in a screener of stocks with increasing quarterly net profit and margins. According to Trendlyne’s Technicals, the stock rose 6.7% in the past week.

In Q3FY24, gross direct premium income (GDPI) reached Rs. 6,400 crore, growing 15% and outperforming the industry. In the motor segment, the company saw 5.6% YoY growth, with strong contributions from the new private car segment at 30% YoY. The health segment grew at 29.1% YoY. The company’s provision increased to Rs 37 crore in Q3FY24 as compared to Rs 1 crore in Q3FY23.

The management says the company maintains its premium growth guidance in the 15-19% range till FY25. They tend to remain careful in the motor segment, noting that although claim ratios have decreased since Q3FY23, they are still quite high. Also, they expect the combined ratio to fall by another 160 bps in FY25 due to the lower claims ratio, which indicates that the company aims to reduce its losses.

Sharekhan highlights the firm’s competitive advantage in business reach through a multi-channel distribution network and conservative underwriting. As a result, the brokerage expects the RoE to come back to the 18% levels of Q3FY23 in the next one year from the current levels of 17.1% in Q3FY24. The brokerage maintains a 'Buy' rating on the stock.

5. Newgen Software Technologies:

This IT consulting & software company rose 5% on January 16 and reached its 52-week high of Rs 901.1, after announcing its Q3FY24 results. Its net profit jumped by 43% QoQ to Rs 68.3 crore in Q3FY24 on account of a deferred tax credit of 5.8 crore. Revenue was up 10.4% QoQ, due to gains in India, EMEA (Europe, Middle East, and Africa), APAC (Asia–Pacific, excluding India), and USA markets. The company’s net profit beat Trendlyne’s Forecaster estimates by 3.7%, while revenue missed estimates by 2.3%.

As a result of the share price rise, Newgen features in a screener of stocks with prices above short, medium, and long-term moving averages. During the quarter, the company’s India market (which constitutes 34% of the revenue pie) saw revenue increase by 19.8% QoQ, and that of the EMEA market (contributing 31% to total revenue) rose by 0.6% QoQ, driven by strong growth in banking and financial services.

The software firm is witnessing strong traction from its existing and new clients. Newgen has added 11 new clients during the quarter and 38 clients during 9MFY24 across various geographies. Its order book is also seeing healthy traction. Diwakar Nigam, the Chairman & Managing Director said, ”The company’s order book has grown around 20% in 9MFY24, of which there's a significant part to be executed over the next 2-3 quarters. This is expected to drive revenue growth for the company, by more than 25% over the coming quarters”.

Post Newgen Software’s Q3 performance, Nuvama Wealth maintains its ‘Buy’ rating with an upgraded target price of Rs 1,000, implying an upside potential of 20%. The brokerage believes the company’s growth momentum will continue, driven by strong deal bookings and pipeline, product launches, and its investments in sales and marketing.

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

The Baseline

17 Jan 2024

Chart of the Week: DVM screener outperforms the Nifty 500 over the last decade

By Bhavani Eswar

As the Indian equity markets hit record highs in December, over 42 lakh demat accounts were opened in that month alone, marking a 50% increase from November 2023. Markets also started the new year on a positive note, with the Nifty 50 hitting the 22,000 mark on January 15.

In any market, investors seek alpha, aiming to outperform benchmark indices.

One way to achieve this is by using screeners that filter stocks based on multiple performance metrics. TheDVM score, for example, looks at management quality, financial health, stock valuation, and several technical indicators to identify high-scoring stocks. Using these scores, investors can shortlist higher-quality stocks for investment.

In this edition of Chart of the Week, we analyse the ‘DVM - High Performing, Highly Durable Companies’ subscriberscreener. This screener selects Nifty 500 stocks with strong financial durability, reasonable valuation, and positive momentum scores. It is optimised to select the top five stocks with the highest durability scores, and cycles the stocks quarterly

The screener backtest ran from March 2013 to December 2023, and evaluates the screener’s quarterly performance against the Nifty 500 benchmark. It delivered a cumulative return of 2,300.1%. In comparison, the Nifty 500 was up by 327.8% over the same period, helping the screener outperform the benchmark by 1,972.3 percentage points.

Despite market volatility, the Nifty 500 has grown at a CAGR of 15.7% over the decade. However, Trendlyne’s DVM screener delivered returns at a CAGR of 34%, outperforming the benchmark by 18.3 percentage points during the same timeframe. The screener’s average quarterly return was just over 9.1%.

The heat map compares the performance of the DVM screener stocks with the Nifty 500 over the last decade. A closer look at the period analysis reveals that the screener has outperformed the benchmark in 30 out of 43 quarters.

This strategy saw its maximum drawdown of 30.5% in Q1FY23. Maximum drawdown indicates the biggest observed loss from a portfolio’s peak to its lowest point before reaching a new peak. This automated strategy does not have a stop loss set, so the drawdowns show the maximum loss potential of this approach. Introducing a stop loss could reduce periods of negative returns and lower maximum drawdowns.

Jyothi Labs and Godfrey Phillips achieve the highest returns over the past two years

Jyothy Labs emerges as the best performer in the DVM screener over the past two years

Personal products major Jyothy Labs entered the screener in June 2023 and delivered 67% returns in three months before its exit. Godfrey Phillips remained in the screener for six months, delivering 58.5% returns.

Jewellery maker Kalyan Jewellers and Apar Industries, despite being in the screener for just three months, achieved significant gains. Both stocks had high durability scores (above 75) during the period, with Kalyan gaining 54.7% and Apar Industries 40.1%. Zydus Lifesciences also gained 50.7% returns during its nine-month stay in the screener.

Apar Industries and EIH see the highest one-year rise among the active stocks in the screener

Apar Industries leads in one-year gain among active stocks

Let us now look at the individual performance of active stocks in the screener as of December 2023. Apar Industries entered the screener in March 2023 with a strong durability score of 95. This electrical equipment manufacturer has risen by 197.6% in the last year, making it the top-performer. EIH from the hotels sector follows with a 65.6% rise in the same period, as increased travel post-COVID raised occupancy rates to 74% in 2023 from 65.6% in 2020.

Other active stocks like Great Eastern Shipping and Amara Raja Energy and Mobility have gained 48.4% and 38% respectively in the past year. Paper and paper products company JK Paper has high durability and valuation scores but posted muted price performance over the past year and quarter.

Although the screener strategy has significantly outperformed the benchmark in the past decade, it underperformed in the latest quarter by 540 bps, partly because of the high rise of the Nifty 500 index in Q3FY24. However, the returns were still positive (+6.9%). It is important to note that this comes after the strategy outperformed the Nifty 500 by 27.4 percentage points in Q2FY24.

Investors should regularly review their portfolios and adjust them according to the screener’s stock entries and exits. It is also important to note that past returns don't guarantee future results.

The Baseline

16 Jan 2024

5 stocks to buy from analysts this week

By Satyam Kumar

1. Ashoka Buildcon:

IDBI Capital maintains a 'Buy' rating on this roads and highways company with a target price of Rs 206, indicating an upside of 30.8%. Analysts Vishal Periwal and Shubham Shelar made a visit to the MOPA Airport (Goa) and reported on the progress of the Rs 670 crore project. This initiative, which includes three flyovers, roadwork, and interchange segments, is expected to be completed ahead of its scheduled date in August 2024.

Ashoka Buildcon is close to finalizing the asset monetization for nine hybrid-annuity model (HAM) projects, with the share purchase agreement expected to be signed by FY24. The analysts believe this monetization, which includes HAM along with BOT (build-operate-transfer) assets, will help reduce the company's consolidated debt of Rs 7,200 crore. However, the monetization of BOT assets is delayed to FY25 as it awaits NOC approval.

Analysts Periwal and Shelar predict a rise in revenue from international projects. They also forecast EBITDA margins will improve from 8% in FY24 to 11% in FY25, with a stable order book of over Rs 14,800 crore.

2. Arvind Fashions:

Nuvama Wealth initiates coverage on this textile company with a ‘Buy’ rating and a target price of Rs 660, implying an upside of 36.1%. Analyst Palash Kawale notes that the firm has exited multiple loss-making brands in recent years, which has resulted in falling debt and a 500 bps increase in operating margins over the past five years. He expects a 12% CAGR growth in revenue over FY24-26, driven by product and store expansion plans.

The firm’s working capital cycle has improved over FY20-23, dropping from 72 days to 43 days. Along with that, a superior retail channel mix and better collections resulted in a fall in debtor days from 74 to 46. Palash Kawale believes that the firm has posted an ROCE of 13% in FY23, owing to the improved working capital cycle. Arvind is aiming for an ROCE of over 20% in the medium term by improving its margins and working capital cycle.

With a focus on its core brands, the firm is expected to benefit from the ongoing trend of premiumization in India. Kawale predicts significant revenue growth from the firm’s USPA, Arrow, Calvin Klein, and Tommy Hilfiger brands. It is projected to generate Rs 2,000 crore in revenue from USPA sales alone in FY24. Currently, sales from USPA form just over 40% of the firm’s total revenue. The analysts say, it aims to scale up these brands further, thanks to their healthy operating cash flows and double-digit margins.

3. Metro Brands:

Motilal Oswal maintains its ‘Buy’ rating on this footwear retailer with a target price of Rs 1,530, implying an upside of 22%. Despite the current muted demand for discretionary products in the country, analysts Aliasgar Shakir, Tanmay Gupta, and Harsh Gokalgandhi remain optimistic and say that “the company has continued to post industry-leading growth, led by steady footprint expansion.”

The analysts note Metro Brands’ robust store economics with 2x revenue productivity compared to its peer, Bata India. They believe that the company’s right store size, diverse product portfolio, and focus on premiumization will contribute to its healthy store economics. They add that with the addition of brands like Fila and Foot Locker, Metro Brands has an opportunity to generate Rs 1,500-2,000 crore in sales in India in the next three to five.

The analysts expect a 21% and 26% growth in the company’s revenue and EBITDA, respectively, for FY24-26 (except Fila and Foot Locker’s earnings). They also foresee Metro Brands generating operating cash flows of Rs 6,000 crore over the same period to fund its plan to open 250 new stores per year.

4. JTL Industries:

Axis Direct maintains its ‘Buy’ call on this iron and steel products manufacturer with a target price of Rs 300. This indicates an upside of 22.8%. In Q3FY24, the company’s net profit grew by 48.8% YoY to Rs 30.2 crore, slightly missing the brokerage’s estimates by 6%. However, its revenue increased by 101.9% YoY to Rs 568.3 crore, exceeding the brokerage’s estimate by 5%.

Analyst Aditya Welekar says JTL Industries’ capacity expansion plan is underway, following its announcement to raise Rs 1,310 crore. This funding will enhance its capacity to 2 million tonnes per annum (MTPA) by the end of FY27. He believes that the fundraising plan, involving Rs 540 crore from the promoters, Rs 270 crore from non-promoters, and Rs 500 crore through a QIP, will spur growth. The capacity is expected to reach 2 MTPA by the end of FY27, with high utilization (around 65%, the industry standard) expected in FY28. The analyst says, “With phase-wise volume expansion in progress, we model revenue and profit CAGR of 42% and 45%, respectively over FY24-26.”

5. Tata Consultancy Services (TCS):

Sharekhan maintains its ‘Buy’ call on this IT consulting and software company with a target price of Rs 4,200, indicating an upside of 8.8%. In Q3FY24, the company’s net profit rose marginally by 2% YoY to Rs 11,058 crore, while revenue grew by 4.6% YoY to Rs 61,445 crore. Sharekhan's analysts say, “Q3 earnings were better than our estimates in a seasonally soft quarter, driven by growth in the energy resources and utilities, manufacturing, and life sciences & healthcare verticals.”

The analysts believe that despite a QoQ decline in order wins, the order pipeline remains robust. The management is hopeful of a recovery in FY25, owing to the easing of sector headwinds and expected growth in the BFSI sector in the next quarter. The analysts expect 9% sales and 11.7% profit CAGR over FY24-26. They conclude, “We believe TCS is well-positioned to capitalize on cost optimization and transformational opportunities as sector headwinds recede and witness a strong pick-up in growth momentum given its strong domain capabilities, contextual knowledge and strong execution.” However, revenues from the US have declined for top Indian IT players this quarter including TCS, causing analysts to worry that this could be a longer term trend.

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

(You can find all analyst picks here)

The Baseline

13 Jan 2024

9 trends of 2023 that will persist in 2024 | Screener: High and consistent dividend stocks

2023 was a complicated, surprising year - one that saw big shifts both for India, and globally. Some of these changes are likely to continue in 2024, in what promises to be a roller-coaster ride. We take a look at nine major trends that took off last year, and which are likely to define this year as well.

In this week's Analyticks:

The nine trends of 2023 that will persist in 2024
Screener: Top dividend stocks - and a high performing dividend basket

Let's take a look at the big nine:

1) India caught the world's attention in 2023, and will continue to be in the spotlight: Every country believes, secretly or not, that their nation should be at the center of things, dictating terms to the world. US Presidents frequently refer to the United States as the "greatest country on earth". On the other hand, Chinese Premier Xi Jinping says that it is China that "should be center stage in the world".

But in 2023, it was India that got more than its usual share of attention. Prime Minister Modi used the G20 to elevate India's economic profile. And as investing in China became both risky and unfashionable, India became an alternative. About 90% of the money that came into China in 2023 has already left. In contrast, foreign portfolio investments to India are at a nine-year high.

India's lucky streak is likely to continue in 2024. "A lot of the money supposed to go to China will now come to India," is how investor Mark Mobius puts it. Brokerage Jeffries also predicts higher foreign inflows into India in 2024.

2) Nifty Smallcap stocks keep climbing: Analysts complain that the Nifty Smallcap is overvalued and set for a comedown. And yet it keeps going up, and substantially outperformed the Nifty50 in 2023.

The Nifty Smallcap has already jumped 1.9% in January this year. While foreign investors are preferring larger stocks in the face of the overvaluation in smallcaps, domestic inflows are still going strong. Young retail investors are likely to keep taking bets on high-momentum smallcaps in 2024.

3) Indian regulators will regulate harder in 2024: A fast-growing economy comes with many temptations. The lending sector in particular is susceptible to taking big risks in boom times, and has been growing at breakneck speed in India.

But Indian regulators stepped in, like parents reaching home early to spoil the party, in 2023. Fast-growing lending startups and well-established players got a jolt when the RBI increased the risk weightage for unsecured loans, increasing lending costs. This is impacting companies such as PayTM and CRED - 24% of PayTM's loan value is from personal loans.

On the stock market side of things, SEBI has been busy cracking down on finfluencers, who have over the past few years, grown their followers on platforms like Youtube and Whatsapp through charisma, catchy taglines, and often suspect advice. SEBI went after the finfluencer Baap of Chart who was known for clickbait-y offers ("Bas 5 Minutes Mein Sureshot Profit"), and promises of guaranteed monthly returns. SEBI asked that the Rs 17.2 crores he got from users via 'misleading ads' be refunded. SEBI's latest consultation paper is an aggressive effort to crack down on such 'unregistered entities'. And there is no doubt that more regulation is coming.

4) Post-Jhunjunwala, Vijay Kedia has become the investor to watch: After Jhunjhunwala's passing away, the investing crowd had to find a new superstar. Increasingly, it looks like this is Kedia's title to lose. Kedia's investing style is very different from Jhunjhunwala's - he prefers midcap and smallcap companies to established players. His profile has risen in 2023 thanks to the stellar performance of his public portfolio. Bets like Neuland Labs, Elecon and Patel Engineering have been multibagger winners for Kedia.

5) AI arrived with a bang in 2023, and will surprise us in 2024: A recent test of AI images showed us how difficult it has become to tell real from fake:

The image survey by Bloomberg found that users were increasingly unable to tell the real photograph from the fake. In the above, the fake one made by AI, is B.

AI has shown an ability to do a variety of tasks, and it will reach us in unexpected ways in 2024. New AI products range from robot cleaners to AI-powered shoes that help you walk faster. AI will be there in 2024 in good ways (helpful robots) and bad (AI powered scams).

6) Real-estate and manufacturing-linked sectors are making a comeback: After a long, quiet period in 2021 and 2022, the realty sector came roaring back in 2023. Manufacturing linked sectors like construction, metals and mining and general industrials are also booming, thanks to the government's aggressive capex. 2024 is likely to continue as a boom year for these segments, although construction may soften post-elections.

On the downside, the rural sector is one to watch. The El Nino made the weather hotter and more unpredictable in 2023, and this is set to persist till May 2024. El Nino has already caused bad coffee harvests in Vietnam and a weak soybean crop in Brazil. In India, El Nino especially affects North India, weakening the monsoon in this region and causing droughts.

7) OPEC's dominance in the oil market is under threat (which is good news for India): OPEC’s one-time nemesis — US shale exports — is making a comeback, threatening the cartel’s control over the oil price.

Shale oil drillers in Texas and North Dakota have pumped much more oil than anyone expected in 2023, hurting OPEC+'s efforts to keep prices high by controlling supply. Oil prices have continued to fall as US shale production is expected to go even higher in 2024. Citigroup predicts that the oil market will remain in surplus in 2024, making it difficult for oil producers to maintain prices at current levels.

Falling oil prices are great for importers like India, since it will mean a lower import bill, and less inflationary pressure. Cheaper oil imports may also be a boost to our petrochemical exports.

8) War is back in the headlines (which is bad news for everyone): “It’ll all be over by Christmas” was the prediction that analysts made when the First World War exploded in August 1914. The war eventually lasted four years and killed 20 million people.

War is unpredictable, and bad for everyone (including those fighting). The Armed Conflict Survey says that the world saw 183 conflicts in 2023, the highest in 30 years. We started January 2o24 with more fighting in Israel, and rising attacks on ships in the Red Sea.

9) Pandemic-era startups are now fully out of fashion: Remember when Zoom predicted that the office meeting would move permanently online? Or when Byju's saw education going digital? Zoom Video Communications, whose share price had jumped 400% in 2020, was removed from the Nasdaq100 index in December 2023 after disappointing performance and falling market cap.

Byju has cut so many costs that employees are complaining that the company's toilets "look worse than government bus stops". Investment giant Prosus has written down the valuation of Byju’s to below $3 billion, a steep drop from the $22 billion valuation the Indian startup hit in 2022.

Instead, good-old fashioned public sector companies are making a comeback, Stocks like REC Limited, Indian Railway Finance, Power Finance Corporation, and Rail Vikas Nigam have been among the top gainers in the Nifty500, helped by the government's aggressive spending in infrastructure and construction.

Screener: Starfolio - High and consistent dividend yield stocks

Coal India leads in 1-yr dividend yield %

This screener shows stocks with high and consistent dividend yields over one, two and five years. It features the top 10 stocks with the highest dividend yield in the last year. These companies have also outperformed the Nifty 50 in the past year.

The screener is optimised to show 10 stocks with high 1-year dividend%. Out of the 10 stocks currently available in the screener, nine are from the public sector. Major stocks that appear in the screener are Coal India, Indian Oil Corp, Bharat Petroleum Corp, Oil India, Oil & Natural Gas Corp and Power Grid Corp of India.

FY24 has seen an increase in government budgets, contributing to growth in stock prices for these public sector companies. These public companies have to give out a certain percentage of dividends every year, which helps them dominate the screener. According to government guidelines, all public sector companies must give out at least 30% of their net profit or 5% of net worth (whichever is higher) for annual dividends.

This screener also appears in Starfolio’s featured baskets. This basket is great for long-term investors looking for high dividend-paying companies to generate passive income. This particular basket was created on March 10, 2023, with an annual rebalancing frequency. It was first rebalanced on May 2, 2023, with the next scheduled for May 1, 2024. Each stock in the basket holds an equal weight of 10%, with seven being large-cap and three mid-cap.

Since its creation, the basket has given pretty impressive returns of 118.2% in its portfolio price (not including dividends) over the past 10 months. The basket outperformed the Nifty 50 index by 93.5% in the same period. The basket also has an average net profit of 671.6% for its companies, and an average revenue growth of 20.2%.

You can find more screenershere.

The Baseline

12 Jan 2024

Five Interesting Stocks Today

1. Titan Company:

This gems and jewellery manufacturer rose by 13.6% in the past quarter and 3% on Monday to touch its new 52-week high of Rs 3,776.8. In its Q3 business update, the firm reported a 23% YoY increase in revenue from the domestic jewellery segment, driven by increased volumes and a marginal increase in average selling prices. The jewellery segment accounts for over 85% of the firm’s revenue. Caratlane, a subsidiary of Titan, saw a 31% YoY revenue increase due to high demand in the wedding segment.

The watches and wearables division also reported a 23% YoY increase in revenue, led by the wearables segment, which achieved a 64% YoY growth. However, revenue from its eye care and fragrances and fashion accessories segments declines by 3% and 9% YoY, respectively. Margins are expected to remain flat in Q4FY24 due to lower studded jewellery sales and higher discounts.

Titan opened 90 new stores in Q3, including stores in the US and Singapore by its subsidiary, Tanishq, bringing its total store count to 2,949 in 2023. Despite a 15% increase in gold prices in 2023, demand for gold remained stable, supported by the wedding season and its status as an inflation hedge.

According to Sharekhan, market share gains, high traction on e-commerce platforms, and sustained expansion in its retail space will help the firm post consistent growth in the medium to long term.

2. Angel One:

This capital markets stock has risen by 6.5% over three sessions, hitting its all-time high of Rs 3,896 per share following its Q3FY24 business update on January 4. The update showed a 55.5% YoY increase in the company’s overall client base to 1.5 lakh. The stock has risen by 27.4% over the month, appearing in a screener of stocks with improving return on equity (RoE) over the past two years.

The overall client base increased on the back of a 149.1% YoY improvement in gross client acquisition. The company’s average daily turnover (ADTO) in the overall equity and futures & options (FnO) segments grew by 148.5% YoY and 151.3% YoY, respectively. Owing to this, its market shares in these two segments expanded by 529 bps YoY each to 26.8% and 26.9%, during the quarter. Trendlyne’s Forecaster expects a 10.9% YoY increase in the company’s revenue and a 38.5% YoY growth in net profit in Q3FY24.

Motilal Oswal Financial Services maintains its ‘Buy’ rating on the stock post-update with an upgraded target price of Rs 4,100 per share. This implies a potential upside of 8%. The brokerage remains confident in the stock due to the improvement in the number of orders per day and FnO volumes during the quarter. It also expects the recovery in cash volumes to improve the company’s mutual fund book.

3. FSN E-Commerce Ventures (Nykaa):

This internet and catalogue retail company has risen 10.3% in the past week till Friday following its Q3FY24 business update. It highlighted a 20% YoY growth in net sales value in its beauty and personal care segment during the quarter. As a result, the company features in a screener of companies with prices above their short, medium, and long-term moving averages.

As per the quarterly update, Nykaa’s beauty and personal care (BPC) vertical is expected to report GMV (gross merchandise value) growth of around 24-26% YoY in Q3. In Q2FY24, the beauty segment’s GMV growth was 23% YoY. The company's footprint in the BPC industry is expanding, driven by the growth of its own brands and early success in newer ventures like Superstore By Nykaa.

Meanwhile, the fashion vertical continues the momentum from the previous quarter with around 40% GMV growth. In contrast, according to Nykaa’s management, the broader industry’s growth was muted in Q3 due to lower-than-expected demand during the festive season. Trendlyne’s Forecaster expects the company’s revenue to grow by 21.3% YoY in Q3FY24.

Post Nykaa’s business update, HSBC Global Research has raised the target price to Rs 250 and maintains its ‘Buy’ rating on the stock. The brokerage says Nykaa is well-positioned to capture long-term value in the beauty and personal care sector, citing its pan-India network, growing portfolio of skin and beauty products, and loyal customer base.

The stock ranks medium in Trendlyne’s checklist with a score of 39.1%. According to Trendlyne’s Forecaster, Nykaa has a consensus recommendation of ‘Hold’ from 22 analysts, with an average target price of Rs 178 per share.

4. Lemon Tree Hotels:

This hotel firm rose by 2% on January 9 after signing a franchisee agreement for the Lemon Tree Hotel in Meerut, which is expected to be opened in FY25. According to Trendlyne’s Technicals, the company has risen by 13% in the past month, outperforming the hotels, restaurants, and tourism sector by 7.7%. This rise can be attributed to the management's optimistic outlook, citing growing occupancy and average room rates (ARR) due to the demand-supply gap in the premium segment in major metro cities.

The company is set to benefit from changing market dynamics in key areas like NCR and Mumbai due to the opening of mega convention centres like the Jio Convention Centre and Bharat Mandapam. Due to this increased demand and a limited supply growth of 2-6% CAGR for FY24 - 28, these cities are expected to contribute around 24% and 17%, respectively, to the company’s consolidated revenue by FY24. Aurika Mumbai Skycity, an upper upscale hotel by Lemon Tree, will benefit from the rising demand in the luxury segment and could contribute 21% to the company’s revenue by FY26.

Lemon Tree is shifting towards an asset-light model by increasing its share of managed rooms (franchise model) from the current 39% to 55% by the end of FY27. The firm plans to add 3,354 managed rooms and double its operational rooms to 20,000 by FY27. This expansion in management contracts will likely boost margins and drive growth in the company’s management fees. By FY26, management fees are expected to reach Rs 94.3 crore, showcasing a 38% CAGR.

Motilal Oswal expects the addition of Aurika, room renovations, and expansion through management contracts to further contribute to the company’s growth. The brokerage maintains a ‘Buy’ rating on the stock.

5. Brigade Enterprises:

This realty company has risen by 5.3% in the past week, reaching its all-time high of Rs 1,000 on Tuesday. The surge followed the signing of two memorandums of understanding (MoU) worth over Rs 3,400 crore with the Government of Tamil Nadu to set up two high-rise residential buildings and high-rise commercial and residential developments. The company also signed a lease agreement with Sidvin Core-Tech India to provide 54,300 square feet of office space in Bengaluru.

Trendlyne Forecaster estimates the company to report a net profit of Rs 91.6 crore in Q3FY24, as against the actual profit of Rs 56.9 crore in Q3FY23. It also estimates revenue at Rs 1,039.7 crore.

Brigade Enterprises has 3.1 million square feet (mnsft) of ongoing projects available for sale and a launch pipeline of 11.1 mnsft in residential properties. Of that, 6.5 mnsft is expected to be launched in H2FY24, which will drive sales momentum. The company has a total land bank of 479 acres, with a development potential of 54.5 mnsft. By FY27, the management aims for an annual pre-sales of 10 mnsft. The company is also looking at expansion into other cities.

Despite the positive growth, Geojit BNP Paribas assigns a ‘Sell’ rating on the stock, citing moderate growth outlook and premium valuation. The brokerage notes the company’s expensive valuation compared to its peers and Nifty Realty. Brigade Enterprises appears in a screener for stocks with broker downgrades in price or recommendation in the past month.

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

The Baseline

10 Jan 2024

Chart of The Week: Most emerging markets fairly valued, India and Taiwan are exceptions

By Bhavani Eswar

In 2023, major global equity indices delivered double-digit returns as inflation cooled and central banks signalled likely interest rate cuts in 2024. Developed markets like the US, UK, and Japan, which faced difficult economic conditions in 2022, saw a turnaround.

The US market had fallen by 19% in 2022, underperforming India’s Nifty 50, which rose by 4.3%. However, 2023 saw a reversal, where developed markets outperformed the broader indices of major emerging markets. However JP Morgan believes that in 2024, “Demand for diversification away from developed countries and GDP growth divergence will make emerging markets attractive.”

We explore the valuation perspective of major emerging market indices after their positive run in 2023.

Even after a rally in 2023, major emerging markets are still trading near or below their historical P/E levels. China is the largest economy in Asia accounting for one-fourth of the MSCI EM index, a benchmark for global fund flows into emerging markets. The market was rattled by public property busts in 2023 that led to the defaults of many prominent developers like Country Garden. Stimulus measures by the Chinese central bank have not had a significant effect on economic recovery, leaving the growth outlook grim. As a result, the Chinese benchmark index, Shanghai Composite (SCI), fell 3% in 2023 and is currently valued at 8.4 times its earnings.

Countries like China, South Korea, and Brazil are trading below their historical P/E, making their valuations justifiable. Trading at less than 10 times their earnings, China and Brazil could be undervalued by global fund managers.

Mexico’s MEXBOL, on the other hand, delivered strong returns of 18% with a P/E of 12.1 but still trades below its historical average P/E of 15. Similarly, Brazil’s IBOV has delivered high returns in 2023. South Korea’s KOSPI index recorded a 14% rise. The contagious effect of the showdown in China is visible on Hong Kong’s HSI, which dropped by more than 13% in 2023 but is still valued fairly at a P/E of 15, its 10-year average.

Indian indices valued at a premium, while other major emerging markets fairly valued

India (Sensex) and Taiwan (TWSE) rose 18% and 26%, respectively, in 2023. As a result, India and Taiwan’s benchmark indices are trading above their historical averages. The global chip manufacturing boom has benefitted TWSE, as the index is dominated by tech stocks. It is trading at a premium of over 15%.

The Indian benchmark has a price-to-earnings ratio of 24, which indicates that it is overvalued compared to the 10-year average P/E of 18.9, implying a 26% premium. High tax collections and huge government spending have helped Indian markets grow, especially the small and mid-caps. The BSEMidcap and BSE Smallcap indices shot up by 44% and 47%, respectively in 2023, taking Indian indices’ valuation above the average. However, India’s Nifty 50 is trading at a 12-month forward P/E of 19, which is slightly lower than its 10-year average of 20. In contrast, the MSCI EM index, a benchmark index for emerging markets, is trading at 11.2 P/E.

Emerging markets well positioned to attract global fund flows

Emerging markets come with unique political and economic challenges. As 2024 is expected to bring interest rate cuts around the world, emerging markets are likely to attract huge inflows from developed markets. This year, asset allocators must pay attention not only to economic indicators of countries but also to political stability, especially with many emerging markets like India and Taiwan facing elections in 2024. The result of the US presidential elections in November will also have an impact on global markets. In India, a strong win for the BJP government at the center could be seen positively. The Reserve Bank of India has also kept a steady hand on inflation, another positive sign for global fund managers.

Indian markets are bracing for volatility in this election year, and its premium valuation hinges on strong corporate earnings in Q3FY24. Chris Wood, the global head of equity strategy at Jefferies LLC, says, “If the ruling BJP faces a surprise defeat in the parliament elections, as happened in 2004, then I would expect a 25% correction if not more.”

Currently trading at 24x its earnings, India is one of the highly valued major equity markets. Despite this overvaluation, expansionary monetary policies in developed countries will reap the benefits of falling interest rates, lower borrowing costs, and higher economic growth.

The Baseline

09 Jan 2024

5 stocks to buy from analysts this week

By Bhavani Eswar

1. Bajaj Finance:

HDFC Securities upgrades its rating on this non-banking financial company to a ‘Buy’ with a target price of Rs 8,650, indicating an upside of 11.3%. Analysts Krishnan ASV, Deepak Sinde, and Akshay Badlani note that Bajaj Finance has maintained a robust 26% annual AUM growth from FY22-24E, despite its growing scale and complexity.

Although the RBI's directive on higher risk weights for consumer credit might impact the near-term capital adequacy ratio, the analysts believe that the recent equity raise of Rs 8,800 crore will cushion the impact and support growth. They express confidence in the company’s new products, such as auto loans and tractor financing, and their potential to boost the top line.

A highlight for the analysts is the rapid growth of Bajaj Housing Finance. In a surprisingly short time - since its inception in 2018 - it has become the second-largest housing finance company, reaching an AUM of approximately Rs 81,200 crore as of September 2023. This represents a 28% CAGR over the past three years, from a mix of B2B channels, their captive customer base, and B2C channels involving builders and open market sourcing.

2. Global Health:

Motilal Oswal maintains its 'Buy' rating on this healthcare facilities company, with a target price of Rs 1,170, indicating a 17.2% upside. Analysts Tushar Manudhane, Sumit Gupta and Akash Dobhada are optimistic about the company's financial transformation, where it turned net cash positive in FY23 from a debt of Rs 300 crore in FY19. Anticipating continued growth, they foresee the company expanding its bed capacity to over 3,500 in the next two to three years.

The analysts project capacity increases in North and Central India. They highlight the significance of the upcoming Noida facility, expected to commence operations by the end of FY25, which is predicted to boost the company's footprint in the Delhi NCR region.

Manudhane, Gupta, and Dobhada forecast robust growth driven by the addition of 552 beds to existing facilities and 1,000 beds to upcoming facilities. They expect a 28% CAGR over FY23-26 due to a faster scale-up of existing hospitals, additional business from new hospitals, and better operating leverage.

3. NTPC:

Axis Direct initiates coverage on this electric utilities company with a ‘buy’ call and a target price of Rs 345, implying a potential upside of 8.4%. Analyst Aditya Welekar says, “The firm benefits from thermal capex revival to meet power demands during non-solar hours, and its thermal capacity is entirely backed by long-term PPAs, providing stable long-term cash flows.”

Welekar notes the key role of thermal power in providing grid stability due to the seasonality of renewable energy (RE). NTPC has set a target of producing 34 million tonnes of coal in FY24 and scaling up this capacity to 70 million tonnes over the next five years. With domestic renewable energy capacity expected to increase from 172 GW in FY23 to 596 GW by FY36, the firm is set to raise its RE capacity from 3.3 GW in FY23 to 60 GW by FY32. The company’s lower cost of debt compared to its peers, due to its sovereign debt rating, provides a competitive advantage in fundraising for RE projects.

Welekar believes that the firm can use a mix of conventional and renewable energy sources to meet the round-the-clock power needs of corporates, who usually have better credit profiles compared to state distribution companies. Additionally, NTPC’s 10 GW under-construction thermal capacity is expected to be commissioned by FY26, along with its entry into various green energy initiatives like green hydrogen and nuclear power.

4. Affle (India):

Sharekhan maintains a ‘Buy’ call on this internet software and services company with a target price of Rs 1,535, indicating an upside of 18.2%. Analysts from Sharekhan say, “Affle has registered healthy revenue growth despite a high base and industry headwinds, driven by consistent growth across key global emerging markets, including India.”

The analysts believe that the company is well-positioned to capture a larger market share, benefitting from improving advertising spends in its key markets and also international markets. This growth is aided by the acquisition of Youappi and the firm’s growing investments in AI. They expect sales and profit CAGR of 23% and 22%, respectively, over FY24-26. Affle is also actively expanding its patent portfolio to stay ahead in the data-driven industry. Currently holding 21 patents, the company is pursuing 15 more in advanced AI areas.

The analysts remain optimistic on the back of Affle’s growth in key global emerging markets and improvements in developed markets, aided by turnaround plans and investments.

5. Jio Financial Services:

KRChoksey initiates a ‘Buy’ coverage on this finance company with a target price of Rs 290. This indicates an upside of 19.4%. Analyst Unnati Jadhav says, “Jio Financial Services hopes to democratize financial services across the country by offering innovative products that will be delivered digitally.” She believes that the consumer lending segment in particular will dominate the company’s business profile, driven by robust credit offtake in this segment. Jadhav notes the company’s plans to build an ecosystem to cater to various financial services. It is exploring partnerships to offer co-branded credit cards to its customers.

Jio Financial is still in its infancy with many plans still on paper, but Jadhav believes that Jio Financial Services is well-positioned to gain higher traction across all business segments, given its strong parentage and the existing customer base it can tap into. She adds that the company’s diversified business model is well-suited to meet the financial requirements of its customers. She also expects capital adequacy to remain strong, supporting its growth aspirations.

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

(You can find all analyst picks here)