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

22 Dec 2023

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

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

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

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

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

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

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

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

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

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

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

Let's dive in.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Shipping industry leads in Nifty 50 outperformance in year change %

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

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

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

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

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

You can find more popular screenershere.

The Baseline

21 Dec 2023

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

By Akshat Singh

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

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

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

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

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

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

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

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

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

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

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

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

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

Israel-Hamas conflict raises volatility in markets

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

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

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

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

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

The Baseline

19 Dec 2023

Five stocks to buy from analysts this week

By Satyam Kumar

1. Tata Consumer Products:

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

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

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

2. ITC:

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

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

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

3. United Spirits:

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

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

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

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

4. Star Cement:

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

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

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

5. Equitas Small Finance Bank:

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

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

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

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

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

(You can find all analyst picks here)

The Baseline

15 Dec 2023, 04:39PM

Five Interesting Stocks Today

1. InterGlobe Aviation (Indigo):

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

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

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

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

2. Coforge:

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

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

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

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

3. Syrma SGS Technology:

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

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

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

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

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

4. Prestige Estates Projects:

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

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

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

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

5. GMR Airports Infrastructure:

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

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

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

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

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

The Baseline

14 Dec 2023, 04:50PM

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

By Tejas MD

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

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

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

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

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

In this week’s Analyticks,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Pandemic and structural reforms drag average GDP growth during BJP tenure

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

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

History suggests markets are poised for a pre-election rally

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

Indian markets have mostly risen leading up to the general elections

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

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

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

Jindal Saw gains the most in the past year

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

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

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

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

You can find more popular screenershere.

The Baseline

13 Dec 2023

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

By Bhavani Eswar

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

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

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

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

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

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

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

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

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

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

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

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

The Baseline

12 Dec 2023

5 stocks to buy from analysts this week

By Abhiraj Panchal

1. Sansera Engineering:

ICICI Direct maintains its 'Buy' rating on this auto parts and equipment company with a target price of Rs 1,100, indicating an upside of 19.7%. Analyst Shashank Kanodia views the company's robust order book, standing at Rs 1,930 crore, as a key growth driver and foresees double-digit growth in FY23-25. He expects this growth to be driven by the China+1 strategy and the vehicle light-weighting trend.

Kanodia points to the company's strong order inflow of Rs 600 crore in incremental orders during H1FY24, with 58% earmarked for exports to global markets. He believes that the company aims to reduce its reliance on ICE (Internal Combustion Engine) sales to 60% from the current 78%, de-risking its portfolio.

Since the post-COVID lows, the company's sales have seen a 17% CAGR over FY20-23, consistently outperforming the domestic automobile sector. Kanodia emphasizes Sansera’s strong order book, driven by export wins and enduring client relationships. With precision engineering capabilities and a new manufacturing plant focusing on aerospace and defence, Kanodia believes the company is well-positioned to surpass industry growth.

2. Bajaj Auto:

KRChoksey upgrades its rating on this vehicle manufacturer to ‘Buy’ from ‘Accumulate’ with a target price of Rs 7,093, indicating an upside of 13.4%. Analyst Unnati Jadhav says, “Domestic sales were on a very strong footing during this year’s festive season.” During September-November 2023, two-wheeler volumes grew by 26.6% YoY, while domestic commercial vehicle (CV) volumes increased by 44.2% YoY. According to Jadhav, exports remained under pressure YoY but have seen gradual sequential improvement.

Jadhav adds that the unexpected uptick in demand for Triumph in the premium segment will contribute to volumes, and improve the mix as Bajaj Auto expands its capacity and distribution. She expects the strong growth trajectory in the CV segment to continue on the back of CNG and electric vehicle penetration. She projects the company’s revenue, EBITDA and profit to grow at a CAGR of 15.9%, 19.3% and 16.4%, respectively, over FY24-26.

3. One97 Communications:

Motilal Oswal maintains its ‘buy’ rating on this internet software and services company with a target price of Rs 1,025, implying an upside of 63.2%. Due to Paytm’s history of negative earnings, its durability score is low. But analysts Nitin Aggarwal, Disha Singhal and Dixit Sankharva believe that the increase in high-ticket personal and merchant loan disbursals and an expanding number of lending partners will support steady growth in the near term. The analysts have maintained their rating even as Paytm’s share price fell 19% on Monday.

Due to asset quality concerns, the firm recently discontinued its postpaid product, Buy Now Pay Later (BNPL), which accounted for 56% of total disbursements. It has also shifted focus away from personal loans below Rs 50,000. As a result, the firm’s management expects a 25% reduction in its monthly total disbursement rate to Rs 4,500 crore, and a 50% decline in customer acquisition in Q3FY24 to 4,00,000.

However, the analysts believe the surge in high-ticket personal loan disbursals could offset the impact. Paytm’s management has insisted that the recent RBI decision to increase risk weight will not impact its growth, thanks to its robust network of partners.

4. Polycab India:

Bank of Baroda maintains its 'Buy' rating on this electrical equipment/products company, setting a target price of Rs 6,100. This indicates 8.2% upside. Analysts Vinod Chari, Arshia Khosla, and Swati Jhunjhunwala express optimism even as the company unveils a new brand logo, to emphasize its leadership in wires, cables, and fast-moving electrical goods.

Following a 33% YoY revenue growth in H1FY24, the analysts expect this momentum to continue into H2FY24, driven by favourable demand and market conditions. They foresee growth in the B2C business (currently at 33%), with improved margins. The planned capex of Rs 700 crore for an extra-high voltage cable facility aligns with its positive outlook.

Chari, Khosla, and Jhunjhunwala predict that Polycab will soon meet its 10% topline growth target, having already reached 9.3% in Q2FY24. They believe that the company’s efforts to improve its export potential and streamline operations will contribute to achieving its growth targets.

5. Cyient:

Axis Direct maintains its ‘Buy’ call on this IT consulting and software company with a target price of Rs 2,195. This indicates an upside of 10.7%. The company’s management has highlighted its focus on consistent growth, projecting strong double-digit growth in FY25. They expect operating margins to improve with volume growth, cost optimization efforts, and better pricing. Analyst Omkar Tanksale believes that it has developed robust capabilities and domain expertise to improve client engagement and service portfolio.

Tanksale remains confident due to Cyient’s improved outlook on the vertical business and better collaborations with customers. The analyst believes that Boeing’s interest in partnering with large engineering services players specialising in aerospace bodes well for Cyient. He remains optimistic overall, citing “strong growth potential backed by robust deal wins and superior execution capabilities.”

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

(You can find all analyst picks here)

The Baseline

08 Dec 2023

Five Interesting Stocks Today

1. Radico Khaitan:

This breweries & distilleries stock has risen by 9.4% since launching its Magic Moments Remix Pink Vodka on November 23. The new product caters to the growing demand for coloured vodka, and is set to strengthen the company’s 60% market share in the vodka segment. It appears in a screener of stocks that have risen by more than 20% over the past month, thanks to a 23.6% growth in share price during the same period.

The company’s Chief Operating Officer (COO) Amar Sinha said, “The launch of the first Magic Moments Vodka in 2006 was our response to the premiumization trend in the Indian liquor industry when Vodka was not really a household drink. We are pioneers in this category.”

In Q2FY24, the company’s net profit and revenue grew by 19% and 21.5% YoY, beating Trendlyne’s Forecaster estimates by 8.3% and 3.2%, respectively. The revenue rose due to better sales of its Royal Ranthambore whiskey, which has already surpassed its FY23 volumes in H1FY24. The EBITDA margin expanded by 130 bps YoY to 13.1% in Q2FY24, owing to price increases and ongoing premiumization in the Indian-made foreign liquor (IMFL) business.

Dolat Capital maintains its ‘Buy’ rating on the stock with an upgraded target price of Rs 1,850 per share. This indicates a potential upside of 17.9%. The brokerage believes that strong growth in the parts & accessories (bottle and distillery manufacturing) segment, volume recovery in the ‘Popular’ brand, and a reduction in raw material prices will help the brewery’s revenue. It expects the company’s revenue to grow at a CAGR of 12.4% over FY23-26.

2. Angel One:

This capital markets firm rose by 10% in intraday trade on Wednesday, helped by robust growth in its client base and average daily turnover (ADTO) in November. Its client base surged by 51.3% YoY, reaching 1.85 crore and its gross client acquisition jumped by 114% YoY to 6.8 lakh. The company's investments in technology and digital products have given its customer experience a boost. This, along with its expanding social media presence, has sped up its client acquisition over the past year.

The firm has also tied up with fintech platforms like Sensibull, Smallcase, and Streak to expand its digital presence. Its ADTO increased by 165% YoY to reach Rs 34.4 lakh crore in November. The futures and options segment, which accounts for 98.8% of the total turnover, has played a key role. The impressive performance has also helped its market share, which climbed by 530 bps YoY to 14.6% as of September.

The platform’s total number of orders has grown by 51.4% YoY to 10.7 crore. This surge is due to its rising client acquisitions and daily turnovers on the back of its simplified pricing structure. Angel One is a discount broker and charges a nominal Rs 20 for options, currency, and commodity trades. The firm’s rapid growth in core operations over the past year places it in a screener of companies with strong cash-generating abilities from core businesses.

Apart from launching mutual fund distribution on its platform, the firm has also entered the consumer credit segment in FY24. Analysts at Keynote Capitals note a steep increase in cross-selling as customers are increasingly willing to purchase multiple services. Trendlyne’s Forecaster estimates the company’s annual net profit to grow by 23.4% YoY in FY24.

3. Sonata Software:

This IT consulting & software firm rose by 7% on November 30 after announcing December 12 as the record date for a 1:1 bonus issue. According to Trendlyne’s Technicals, the stock has risen by 4.4% in the past week. It appears in a screener of stocks with strong momentum.

In Q2FY24, Sonata Software’s TTM operating revenue grew by 22.8% YoY, helped by an increase in the international IT and domestic services segments. The company’s TTM operating profit margins also improved by 33 bps YoY, thanks to better utilization and operational efficiency overall. The management plans to expand International IT Services, aiming for a revenue target of $1,500 million by FY26E, an increase of 118% from FY23. It is also focused on maintaining EBITDA margins around 20%, a notable increase from the 11.5% in Q2FY24.

Post the integration of Quant Systems, the company has unlocked partnership opportunities worth $150 million in healthcare, life sciences, and BFSI verticals. The firm also grew its major deal pipeline by 38%. It expects a 25% revenue contribution from AI through Harmony.AI by H1FY25. Additionally, as Microsoft's systems integrator partner, Sonata is at the forefront of the “Fabric Platform” launch. Fabric offers data-related services, including integration, warehousing and real-time analytics.

KR Choksey notes that Sonata has achieved robust growth, especially in its international IT services segment (46.0% YoY). With a strong client base, including partnerships with major players like Google, SAP, AWS, and Microsoft, the firm maintains an ‘Add’ rating on the stock.

4. Kalpataru Projects International (KPIL):

This electric utilities company has risen by 3.1% in the past week, following the announcement of new orders worth Rs 2,263 crore on Monday. The company’s transmission and distribution (T&D) business has obtained orders totaling Rs 1,564 crore across India and overseas markets. Its water and buildings & factories (B&F) businesses bagged orders worth Rs 458 crore and Rs 241 crore, respectively.

KPIL’s order inflows stand at Rs 14,441 crore post these order wins. Manish Mohnot, the Managing Director & CEO, said “These T&D orders have strengthened our order book in India, Latin America, Africa and Sweden. We expect the T&D business to be a significant growth driver for KPIL in the coming years.” He also highlighted its plans to achieve an order inflow of Rs 25,000 crore in FY24. The T&D segment contributes around 36% of the company’s total revenue as of Q2FY24.

In Q2FY24, its net profit improved by 3.5% YoY to Rs 89 crore. Its revenue also increased by around 19% YoY to Rs 4,518 crore, driven by the engineering, procurement and construction segments.

Prabhudas Lilladher has a ‘Buy’ rating on Kalpataru Projects with a target price of Rs 740, implying an upside of around 8.2%. The brokerage has a positive outlook on the company due to its focus on geographically expanding across the water, railways, and civil segments, and its increasing pre-qualification for large contracts.

5. GAIL (India):

This natural gas company has risen by 6.4% in the past week, reaching an all-time high of Rs 145.1 on Monday. This surge follows a decline in average liquefied natural gas (LNG) prices, thanks to an easing of global supply conditions. Natural gas prices also fell by 25.3% in November.

In the past week, GAIL filed an arbitration case against SEFE Marketing & Trading Singapore, a former unit of Russia's Gazprom, seeking $1.8 billion in damages for not receiving the supply of LNG. GAIL had signed a 20-year contract in 2012 to buy 2.9 million tonnes of LNG from Gazprom, with deliveries starting in 2018 and expected to reach full volume by 2023. However, supplies stopped in June 2022 following Western sanctions against Russia for invading Ukraine. The supplies were later resumed in April 2023.

In Q2FY24, GAIL’s net profit increased by 85.8% YoY to Rs 2,444.1 crore (beating Trendlyne Forecaster’s estimate by 35.2%), despite a 14.7% decline in revenue. This resulted in a 639 basis points YoY increase in EBITDA margin due to lower inventory costs. The management expects to cross an EBITDA of Rs 4,000 crore in FY24 in the trading segment, a 25% increase.

GAIL incurred a capex of Rs 2,460 crore in Q2, mainly in pipelines, petrochemicals, and city gas distribution projects.

ICICI Securities reiterates its ‘Buy’ call on GAIL on the back of its strong Q2 performance. The brokerage remains optimistic, expecting stronger tariffs, higher transmission volumes, and falling costs for petrochemicals and LPG.

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

The Baseline

07 Dec 2023

India’s electronics Industry set for eye-popping growth | Screener: Manufacturers benefiting from PLI schemes

By Shreesh Biradar

As electronics manufacturers like Foxconn move their factories to India, they are running into some cultural differences. 'We are taught not to mention religion or politics, and to say please,' one Chinese engineer training Indian workers says, 'Chinese people talk in a blunt way. But with Indians, we should be more polite.'

The Foxconn engineers also complain that Indians take too many holidays and are late to meetings. But that's not stopping companies from investing.

The winds of manufacturing, which have long blown east towards China, are changing direction. As China grows more assertive - some would say argumentative - under Xi Jinping, US and Europe are scrambling to curb its growth through sanctions. These sanctions have already had the effect of slowing down China’s annual exports of electrical and electronic equipment, valued at $955 billion.

Enter India. With China losing favour, countries like India, South Korea and Vietnam are receiving new investments in semiconductors, electronics and technology.

Recent data shows China’s FDI turning negative in Q3 2023 for the first time since 1998, with more money flowing out than coming in. This shift is evident in the latest iPhones coming with a “Made in India” tag rather than “Made in China”.

While other manufacturing centers like South Korea are more advanced in electronic and electrical manufacturing, India lags due to technological and infrastructural hurdles. The Indian government has implemented the National Electronic Policy (NEP) and production-linked incentive schemes to fix this.

India’s electronic system design and manufacturing (ESDM) industry is expected to grow at a remarkable 32% CAGR over the next five years, driven by increased per capita spending, higher rural penetration of electronics, shift to electric vehicles and increased use of electronics in the medical field.

In this week’s Analyticks:

India’s Electronics Industry: Preparing for a major growth leap
Screener: Electric and Electronic companies that are benefiting from PLI schemes

Let’s get into it.

India’s electronics industry is on the cusp of dramatic growth

As India’s rural population adopts technology, growth in the electronic industry is expected to be exponential. 37.2% of India's new smartphone purchases in Q1 2023 were by rural families. As electronics buying rises across consumer groups, India’s electronics industry is expected to far outpace its global peers.

And let's not forget the talking fridge. Modern versions of refrigerators and washing machines are changing from mechanical devices to ‘smart’ machines, equipped with sensors and user memory. India’s huge population is a rising consumer base for these.

India’s electronics industry is set to grow at 18% CAGR for the next five years. However, if we look at the overall ESDM sector (including outsourcing and exports), the expected growth rate is at an even higher 32.5%.

India’s ESDM industry poised for a CAGR of 32.5% by FY27

Valued at $34 billion in 2023, India’s ESDM industry is expected to reach $80 billion by 2026, with most of the growth coming from auto (29.4% CAGR), aerospace and defense (38.3%), and the medical field (40.3%). Auto industry growth will be driven by new sensor and technology-based features. For example, an electric two-wheeler has 9X more electrical components than a regular internal combustion engine (ICE) two-wheeler.

But compared to its global peers, India’s electronic consumption is still low. India’s per capita electronic consumption is $78 per annum, while the global average stands at $324 per annum.

India has the lowest per capita consumption of electronics

India has never been a manufacturing powerhouse. Can that finally change?

India is being celebrated as the 'next big hub' for electronic manufacturing. But if we look at India’s GDP, only 17.7% comes from the manufacturing sector, while China’s is nearly 27.7% as of 2022.

India’s low manufacturing growth has always been a problem. The lack of skilled labour, high product costs (raw materials, land costs, taxes), bureaucratic hurdles, local politics, and labour unions make it difficult for foreign firms to invest in India.

The government is battling these problems with PLI schemes, special economic zones, and relaxation of FDI criteria. Nearly 98% of mobile phones shipped locally are now being manufactured in India.

The government has also provided incentives to high-end mobile phone manufacturers to boost local production. For instance, it provided tax breaks to Foxconn to set up Apple’s manufacturing unit in India, and Karnataka revised the permitted number of working hours from eight to twelve.

Mobile phone production drives Indian electronics industry

India is also looking at custom policies to attract specific investors. Elon Musk's Tesla is in talks with the government to invest $2 billion in India, provided the government drops the import tax on Tesla vehicles from 70% (for cars priced below $40,000) to 15% for the first few years.

No startups here: Opportunity is mainly for Indian players with deep pockets

The electronic industry in India has so far, been limited to manufacturing low-end devices. Some Indian manufacturers are collaborating with foreign companies to implement high-tech manufacturing As Indian companies build tech expertise and foreign market access, the Indian electronic industry, is expected to turn export-positive in FY25.

The Indian electronics industry is set to become a net exporter by FY25

Indian companies have been buying foreign-owned manufacturing units or developing partnerships to boost their production capabilities. For instance, Tata Electronics has taken over Wistron’s (Taiwan-based Apple iPhone manufacturer in India) manufacturing facilities to gain access to Apple’s technology.

Dixon Technologies has partnered with China’s Xiaomi and Reliance Jio to manufacture smartphones, while Kaynes Technologies has partnered with Intel to produce laptops. The trend suggests that global electronics majors are partnering with established Indian manufacturers.

Large manufacturers who have the ability to quickly upscale are the winners in India's current electronics manufacturing boom. This route takes many risks out of the equation for global manufacturers. But the real success for India will come with better infrastructure and easier rules for everyone, so that new entrants and smaller players are able to ride the wave and compete.

Screener: Electric and electronic companies benefiting from government PLI schemes

Blue Star leads in quarter change among stocks benefitting from PLI schemes

Keeping with the manufacturing theme, this week we have a screenerthat shows Indian-listed companies from the IT hardware, consumer electronics, heavy electrical equipment, other electrical equipment and electric utilities industries that are benefiting from the Indian government’s PLI schemes. Production Linked Incentive schemes provide incentives to companies as a percentage of their net incremental sales from the base year.

Major stocks from these industries that appear in the screener are Blue Star, Bharat Heavy Electricals, Kaynes Technologies, JSW Energy, Dixon Technologies, PG Electroplast.

Blue Star has risen by 37.9% over the past quarter and 42.2% over six months since the announcement of the government's PLI Scheme 2.0 for the IT hardware and electronics industries. Under this scheme, the government has given an incentive of Rs 16,939 crore for the next six years.

Dixon Technologies is another consumer electronics company that has risen by 17.7% over the past quarter post the announcement of the scheme. The company was declared eligible under the PLI scheme after it promisedon November 19 a total production value of Rs 45,000 crore over the next six years.

You can find more popular screeners here.

The Baseline

06 Dec 2023

Chart of the week: Industrials, IT and consumer durables stocks lead with aggressive capex growth estimates

By Akshat Singh

Capital expenditures (capex) are vital for a company's growth and competitiveness as this spending is an investment into the future of the business, and a bet on upcoming growth. The capex growth forecasts tell us which companies are making the biggest bets on expansion and growth. Higher forecasts suggest aggressive growth strategies and financial health, and indicate the company's commitment to long-term development and market leadership.

In this edition of Chart of the Week, we look at a screener of companies with high forecasted capex growth. The bubble chart circles represent the size of capex growth estimates. We look at the individual sectors poised for high capex growth in the coming year, and identify the biggest contributors.

General industrial stocks lead in capex growth estimates, thanks to expansion plans

Hitachi Energy, Timken India, and Jindal Saw have the highest capex growth estimates in the general industrials sector in FY24

Seven of the 25 stocks in our chart belong to the general industrial sector. Hitachi Energy India leads with an estimated capex growth of 735.4% for FY24, thanks to plans to add 45 new data centres in three years to meet India’s booming market. These data centres are outsourced by companies to store, manage, and process extensive amounts of data and computing systems. Hitachi Energy’s solutions align perfectly with data centre needs. Projections indicate a sixfold increase in sector capacity over the next six years, driven by substantial investments (capex) of Rs 1.05 to 1.20 lakh crore.

Moving on, Timken India has an estimated capex growth of 527.3% for FY24. Its diverse presence across capex-sensitive sectors like consumer durables, automobiles and chemicals sets a strong foundation for its future. The company plans to spend Rs 600 crore on a new roller bearings plant. Monarch Networth Capital anticipates Timken's significant capex to challenge competitors, leading to robust growth in railways, heavy mobility, and exports.

Another major player, Jindal Saw, is estimated to grow its capex by 462.8% in FY24. Close behind are RHI Magnesita and Praj Industries with capex growth of 284% and 283%, respectively. Praj Industries plans a total capex of Rs 120 crore in FY24, with Rs 100 crore set aside for Praj GenX in the Energy Transition & Climate Action (ETCA) sector. This funding aims to support advanced solutions for low-carbon fuel projects like Blue and Green Hydrogen/ammonia. Commercial production is expected to start from Q4FY24. Finally, we have CG Power and Industrial Solutions with an estimated capex growth of 222.5% in the coming year.

Four IT sector firms projected to have high capex growth in FY24

In the software & services sector, Mphasis leads with an estimated capex growth of 567% in FY24. The acquisition of Silverline for Rs 1,100.7 crore will enhance its salesforce capabilities. Zensar Technologies follows with an 182.6% growth, and Cyient and Firstsource Solutions are estimated at 167% and 165.4% in FY24, respectively.

Consumer durables and automotive stocks have greenfield projects scheduled

Three consumer durable firms have high capex spends planned in FY24

In the consumer durables sector, Finolex Cables stands out with the highest estimated capex growth of 736.2% in FY24. This is also the highest forecast in the Nifty 500. The company plans to invest Rs 400 crore over the next 12-18 months to expand capacities in communication, solar, automotive, and construction cables. It aims to increase optic fibre capacity from 8 to 10 million fibre km and double fibre draw capacity to 8 million km.

Kaynes Technology India comes next with an estimated capex growth of 304.3%, while KEI Industries is projected to grow its capex by 298.7% in FY24.

In the automobiles & auto components sector, Asahi India Glass is estimated to see a capex growth of 389.9% during FY24. Its Rs 1,400 crore capex will be mainly for maintenance and funding of a major greenfield project. An additional Rs 1,000 crore is planned for FY25, covering remaining expenses for the greenfield factory and expanding the automotive segment's capacity. Samvardhana Motherson International also has an estimated capex growth of 213.2% in FY24.

Chemical and pharma stocks set high capex growth estimates

PI Industries from the chemicals sector has the highest estimated capex growth of 324% for FY24. In H1FY24, the company spent Rs 763 crore on capex, including a Rs 497 crore investment in Pharma assets. It aims for an overall capex of Rs 800 crore, including a Rs 300 crore spillover from FY23. This is to enhance capacity utilization and improve throughput. The company has also planned Rs 80-100 crore annually to upgrade its pharma facilities and improve technological capabilities. Deepak Nitrite follows with an estimated capex growth of 176.5% during the same period.

In the pharmaceutical sector, Gland Pharma tops with an estimate of 350.6% in capex growth, followed by Ipca Laboratories, which is expected to spend 165.6% more. Next, diversified consumer services have Cera Sanitaryware leading with 218.1%. The company increased its brownfield faucetware capacity from 3 to 4 lakh pieces per month, starting in September 2023. It has also finalized land acquisition in Gujarat for a new sanitaryware plant. A maintenance capex of Rs 35 crore is planned for FY24, with Rs 7 crore already spent. Max Healthcare Institute is projected to see a 207.3% capex growth in the current financial year.

Other notable stocks in our list are AMCNippon Life India Asset Management (347%), fertilizers major Chambal Fertilisers and Chemicals (278.4%) and FMCG player Emami (239.8%).

Lastly, Century Plyboards is estimated to achieve a capex growth of 260.6% for FY24, with a planned capex of Rs 450 crore in FY25 for expansions. This includes a particle board expansion in Chennai to 2,40,000 cubic metres by the end of FY25 (capex Rs 550 crore). These strategic investments aim to strengthen Century's production capacities across particle board, plywood, laminates and fibre board segments.