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Growth in payments remains strong. This is led by (1) expected total CC spends of Rs1.4trn in May’23 (up 4% MoM), (2) increase in receivable per credit card, (3) increase in cards in force (CIF) to 86.5mn, up 1.42% MoM in Apr’23, (4) MoM increase in Paytm GMV of 9% in May’23 and (5) increase in UPI transactions in terms of value/volume by 43/58% YoY to 9.5bn/Rs14.9trn in May’23, respectively.
The Reserve Bank of India is expected to pause for a second straight month as inflation eases and market watchers are looking for cues of a shift in policy stance to support growth in the economy.
From a peak of ~7.6% in Jun’22, the 10-year bond yield (RF - risk free rate) has dipped to sub 7% currently as the aggressive interest rate tightening cycle peaked. ERP (equity risk premium) indicators for India have also dipped significantly over the past one year in the form of: (a) Sharp decline in CDS of India 10-year bond from 230bps to ~150bps currently.
Our analysis of defence sector for May’23 indicates: 1) RFI has been issued for procurement of 5,000 ATGMs and 8x8 HMVs; ii) second export order of Pinaka rocket launcher is likely to be finalised soon; 3) efforts afoot to export LCH- Prachand to Nigeria; 5) development trails of Pralay SRBM are complete while QRSAM is set to undergo its final trails next month.
Q4FY23 saw profitability improving across companies mainly led by higher realisation and lower cost. Key highlights: 1) Realisation for ferrous companies rose by Rs1,500- 2,000/te on average; 2) coking coal cost was down by US$8-10/te for all ferrous companies except SAIL.
The Insurance Regulatory and Development Authority of India (Irdai) has directed all life and non-life insurance companies to initiate steps for quick registration and disposal of claims of victims of the triple train accident in Odisha’s Balasore district.
The monthly data on lending and deposit rates of scheduled commercial banks (SCBs) (excl. regional rural banks and small finance banks) for Apr’23 suggests: 1) SCBs’ outstanding weighted average lending rate (WALR) continues to rise (up 4bps MoM). 2) However, WALR on fresh loans has seen MoM decline (down 23bps) in Apr’23, after 11 months of consecutive rise.
The total value of credit card transactions rose 25.9% YoY but declined 3.3% MoM to Rs 1,33,125 crore. The number of cards outstanding increased by 15.1% YoY. Private sector banks grew by 32.9% YoY in terms of value of transactions.
Post outperforming benchmark Nifty 50 by ~10% in the past six months, India auto index (Nifty Auto), we believe, has limited upside triggers left from a 6 month perspective. We expect volume growth moderation across PVs, CVs, 2Ws and tractors in FY24 along with benefits of reduction in raw material basket cost (RMB) being fully priced in.
Domestic 2W retails in May’23 (1.5mn units) were up ~9% YoY and up 21% MoM, post a dull April’23, with continuation of marriage season and improving rural sentiment. e-2W retails crossed 100k mark in May post a weak April at 66k units, we believe, driven by pre buying on account of pre-empted price hikes on partial subsidy removal.
Wood panel companies under our coverage reported a mixed bag of operating performance in Q4FY23 with Century Plyboards (CPBI) surprising positively. Plywood and allied segment revenue for CPBI and Greenply Industries (MTLM) grew 18.4% and 3.1% YoY, respectively (4-year CAGR of 14.5%/5.6%).
Domestic HRC price (in the week ended 31st May declined by an average of Rs500/te WoW in the traders’ market owing to weak domestic demand and competitive imports. Spot spreads contracted 1.5% WoW tracking the decline in HRC price as coking coal price remained stable at US$198/te.
As per HVS Anarock, Apr’23 was another strong month with hotel industry RevPAR of Rs4,536 being 23% above Apr’19 (pre-Covid) levels and 19% above Apr’22 levelsn (YoY basis). For Apr’23, industry ARR of Rs7,200 was up 20% YoY while occupancy remained flat YoY at 63%.
We expect divergence between volume and value growth to normalise in FY24 with volume growth back to its historical average of mid-single digit. Moreover, the easing commodity inflation will help sustain gross margin expansion. However, companies shall reinvest some of these gains in product innovation, distribution expansion and marketing spends, which shall limit operating margin expansion. The HSIE consumer index sales grew by 12% YoY in Q4FY23 (+11% in Q4FY22, +11% in Q3FY23). On a four-year CAGR basis, the universe clocked 9% growth in Q4FY23, a trend similar to that witnessed in the previous few quarters. On a four-year CAGR basis, Paints/QSR/F&B/Home Care have grown ahead of our index average (14/13/12/11%) in Q4FY23. On the other hand, Personal Care/Cigarette/Liquor/Oral Care/Hair care/Footwear underperformed, growing below the aggregate at 7/6/6/5/4/3% (Link). Although discretionary categories exhibited high YoY growth, they are witnessing deceleration in demand on weak consumer sentiment. A large part of the growth across categories was driven by price hike, while volume growth remained soft throughout FY23 (although improved in Q4). The FMCG sector witnessed positive volume growth after five consecutive quarters of decline, led by urban markets. Rural softness has likely bottomed out, given the reversal of the declining trend. Moderating input costs and retail inflation should help sustain demand recovery.
While we are constructive on the long-term growth prospects of the LI sector, we believe major tectonic shifts will create near-term challenges, albeit preparing the industry for a cleaner insurance penetration. Contrary to expectations of relief in the Union Budget, life insurers are expected to be adversely impacted by the first-order and second-order changes proposed in the Finance Act'23. Conversation with industry experts suggest that the top four private life insurers are likely to witness 20-27% adverse impact on FY24E APE predominantly on account of the impending transition to the new tax regime. We flag high ceding charges in guaranteed NPAR savings as the next potential target as policymakers look to protect policyholder interest and improve life insurance (LI) penetration. While the demand for retail term protection remains subdued and the Apr-23 growth print was soft, we await evidence of medium-term growth momentum.
While we are constructive on the long-term growth prospects of the LI sector, we believe major tectonic shifts will create near-term challenges, albeit preparing the industry for a cleaner insurance penetration. Contrary to expectations of relief in the Union Budget, life insurers are expected to be adversely impacted by the first-order and second-order changes proposed in the Finance Act'23. Conversation with industry experts suggest that the top four private life insurers are likely to witness 20-27% adverse impact on FY24E APE predominantly on account of the impending transition to the new tax regime. We flag high ceding charges in guaranteed NPAR savings as the next potential target as policymakers look to protect policyholder interest and improve life insurance (LI) penetration. While the demand for retail term protection remains subdued and the Apr-23 growth print was soft, we await evidence of medium-term growth momentum.
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