My Newsfeed

The Nifty 50 rose 8.7% in July, the highest monthly rise since January 2022. Manysectors have reversed their downtrend and have shown positive signs over the last two months. The Nifty Auto index reached its all-time high of 12,500 in July and the Nifty FMCG index also crossed its all-time high of 42,000.

As the Nifty moved higher, mutual funds bought into sectors like automotive and pharma buying stocks that are likely to be outperformers over the next few quarters. Mutual fund managers bought shares of a leading steel maker, a life insurer, a pharmaceuticals maker, and a car and truck maker.

Tata Steel - Steady domestic demand and falling fuel costs bode well

Tata Steel is among the top global steel companies with an annual steel production capacity of nearly 34 MTPA (million tonnes per annum). It is also one of the oldest companies of the Tata Group.

Steel companies' stock prices dropped sharply in May after the government imposed an export tax on steel products. However, over the last few weeks, coking coal prices halved to $208/tonne in August 2022 from $415/tonne in June 2022. This will work in favour of the steel industry as it will result in lower production costs. Post the export tax imposition, domestic prices fell by 15% in the month of June to Rs 59,000/tonne. Another factor that is helping the steel industry is the price of domestic steel remaining steady in the Rs 57,000-59,000 range over the last one and a half months. Steel companies are also hopeful of a dialogue with the government regarding the relaxation of the export taxes.

Fund Managers who bought shares of Tata Steel

Fund managers who bought Tata Steel include Mehul Dama for Nippon India ETF Nifty 50 BeES, Mahesh Patil for Aditya Birla Sun Life Pure Value Fund Growth, Kinjal Desai and Ashutosh Bhargava for Nippon India Tax Saver (ELSS) Fund - Growth and R. Srinivasan and Mohit Jain for SBI Flexicap Fund Regular Growthschemes.

Tata Motors - Leadership in the EV segment could drive its fortunes

Tata Motors is a leading Indian car and truck maker, which also owns the iconic Jaguar and Land Rover brands since 2008. Tata Motors has taken the lead in passenger electric vehicles (EVs)  in India. Its Nexon EV is the highest selling EV in India. 

In Q1FY23, JLR’s performance was impacted by chip shortages, rising inflation, and weak product mix. JLR’s management guided dispatches to dealers of 90,000 units in Q2FY23 and production is expected to improve every quarter. Demand continues to be strong with an order book of 2 lakh units in Q1FY23 as against 1.68 lakh units in Q4FY22. 

Tata Motors is planning to launch a number of new EV models over the next few years and recently unveiled its EV concept Avinya, expected to begin production in three years.

Fund Managers who bought Tata Motors

Shares of Tata Motors were added by Hiten Shahto Kotak Equity Arbitrage Fund Growth, Rohit Singhania and Charanjit Singh to DSP Tax Saver Fund Regular Plan Growth, Mehul Dama to Nippon India ETF Nifty 50 BeES and Atul Penkar and Dhaval Gala to Aditya Birla Sun Life Tax Relief 96 Pyt of Inc Dis cum Cap Wdrl schemes.

HDFC Life Insurance - Consistent performance continues in Q1FY23

HDFC Life Insurance (HDFC Life) is among the top three private life insurance companies in India. Part of the HDFC Group, it has an extensive distribution network, and a broad-based product mix with a focus on non-participating, protection & annuity business.

Over the past three quarters, HDFC Life showed consistent improvement in industry-specific metrics and the same continued in Q1FY23. Its gross premium written grew 23% YoY to Rs 9,396 crore, while VNB (value of new business) margins were at 26.8% led by a balanced product mix. Persistency ratios improved for the 13th and 61st month to 88% and 54%, respectively. Its net profit in Q1Fy23 was up 20.8% YoY at Rs 365.3 crore, aided by growth in premium written.

Fund Managers who bought shares of HDFC Life Insurance

Buying interest from fund managers came from Anand Radhakrishnan and Ajay Argal for Franklin India Focused Equity Fund Growth, Hiten Shah for Kotak Equity Arbitrage Fund Growth, Sailesh Jain for Tata Arbitrage Fund Regular Growth, and Mehul Dama for Nippon India ETF Nifty 50 BeES.

UNO Minda - A standout player in the auto ancillary industry

Uno Minda, formerly known as Minda Industries, is India’s largest maker of automotive switches, horns, seats, and alloy wheels. It is also one of the largest automotive lighting players.

The company reported a stellar set of Q1FY23 results, with an all-time high quarterly revenue of Rs 2,564.9 crore. Its net profit was lower than Q4FY22 due to the change to the new tax regime, which has a different taxation structure with higher taxes for certain items.

The company is consistently growing its share in EV components, with the current order book comprising 50% of EV components. The company is likely to benefit from the government's decision to have six airbags in all passenger vehicles.

Fund Managers who bought shares of UNO Minda

Shares for their respective schemes were bought by R. Srinivasan and Mohit Jain for SBI Flexicap Fund Regular Growth, Satyabrata Mohanty for Aditya Birla Sun Life Equity Advantage Fund Growth, Shreyash Devalkar and Hitesh Das for Axis Midcap Fund Growth, and Hardick Bora and Vinay Paharia for Union Small Cap Fund Regular Growth.

UPL - Stellar Q1FY23 performance aided by tie-ups across the world.

UPL is engaged in the agrochemicals and industrial chemicals business with manufacturing facilities across the world. In Q1FY23, its revenues from the agrochemicals vertical were the highest in the last 10  quarters at Rs 4,548 crore. The company has an impressive track record with a five-year revenue CAGR of 18.6%, and a five-year net profit CAGR of 36.9%.

During Q1FY23, UPL and Bunge formed a joint venture ‘Orígeo’ to target large farms in Brazil to increase Brazilian farmers’ sustainability, productivity, and profitability. It also entered into a new supply agreement with Bayer for ‘Spirotetramat’, an insecticide to develop differentiated pest management solutions. UPL launched Zoatin, a bionutritional, to increase crop health and yield in partnership with Christian Hansen. As a part of its collaboration with MMAG (a subsidiary of Mitsui Chemicals Agro Inc.), UPL launched a new insecticides range in India containing the patented molecule ‘Flupyrimin’ to target the most damaging rice pests.

Fund Managers who bought shares of UPL

Fund managers who added UPL to their schemes in July include Hiten Shan of Kotak Equity Arbitrage Fund Growth, Sanjeev Sharma and Vasav Sahgal of Quant Active Fund Growth, Vasav Sahga and Ankit Pande of Quant Tax Plan Growth, and Mehul Dama of Nippon India ETF Nifty 50 BeES.

Laurus Labs delivers healthy Q1FY23 results with a positive growth outlook

Laurus Labs is a pharmaceutical company that specializes in generic APIs (active pharmaceutical ingredients) and FDFs (fixed dose formulations) in therapies of anti-retroviral (or ARV) RV and oncology.

The company posted its best quarterly revenue in the last 10 quarters in Q1FY23 at Rs 1,540.7 crore. It has multiple planned capacity expansions in its portfolio based on an increased focus on Non-ARV APIs and Formulations and high-growth CRAMS (contract research and manufacturing services) segments.

Fund Managers who bought shares of Laurus Labs

Buyers of shares in Laurus Labs include S. Bharathand Ratish Varier for Sundaram Mid Cap Growth, Aniruddha Naha and Vivek Sharma for PGIM India Midcap Opportunities Fund Regular Growth, Ankit Jain for Mirae Asset Midcap Fund Regular Growth and Aniruddha Naha and Ravi Adukia for PGIM India Small Cap Fund Regular Growth schemes respectively.

Torrent Pharmaceuticals - Strong Q1FY23 performance and expected entry into the diagnostics space pique fund managers interest

Torrent Pharmaceuticals is a maker of branded generic medicines that are sold in India as well as exported to Brazil, the US, and Germany. It has entered into an agreement with Dr. Reddy's Laboratories to acquire four of its brands Styptovit-E, Finast, Finast-T, and Dynapress. Styptovit-E, a gynaecology product with an estimated market size of about Rs 500 crores will further strengthen Torrent’s presence in the therapy. The acquisition of Finast; Finast-T, and Dynapress, which are used in the treatment of Benign Prostatic Hyperplasia (BPH), will aid in Urology therapy.

In Q1FY23, revenues grew 10% YoY to Rs 2,3777 crore and net profit by 7% YoY to Rs 354 crore. This is the highest quarterly revenue and profit in the last eight quarters. It has expanded its sales force of medical representatives by 300 in this quarter. The company is also considering an entry in the diagnostics space and details on this are expected in Q3FY23.

Fund Managers who bought shares of Torrent Pharmaceuticals

Torrent Pharmaceuticals saw buying interest from fund managers Hitesh Das and Ashish NaikforAxis Quant Fund Regular Growth, Anil Ghelani and Diipesh Shah for DSP Quant Fund Regular Growth, Anoop Bhaskar for IDFC Core Equity Fund - Growth and Kinjal Desai and Ashutosh Bhargava for Nippon India Multi Cap Fund - Growthschemes respectively.

PB Fintech - Partnership with LIC likely to make a significant difference

PB Fintech, also known as Policybazaar, is a recently listed fintech company that acts as an insurance and loans marketplace (through Paisabazaar.). The company continues to make losses every quarter and posted losses for a fifth consecutive quarter in Q1FY23. 

In July, the company announced a partnership with India’s largest life insurer Life Insurance Corporation of India,. This is expected to drive sales for PB Fintech as well as help LIC expand its online presence. The company is also expanding its reach with plans to establish 200 stores by FY24.

Fund Managers who bought shares of PB Fintech

Shares of PB Fintech were added to their respective schemes by Neelesh Surana and Ankit Jain to Mirae Asset Emerging Bluechip Fund Growth, Neelesh Surana to Mirae Asset Tax Saver Fund -Regular Plan-Growth, Ankit Jain and Siddhant Chhabria to Mirae Asset Great Consumer Regular Growth and Pranav Gokhale to Invesco India Mid Cap Fund Growth.

Berger Paints - Falling crude oil prices and the upcoming festive season paint a bright picture

Berger Paints is India’s second largest paint company with a strong presence in the decorative, industrial and automotive sectors. All paint companies were severely affected by rising crude prices (which form a major raw material for paints) through FY22 and into Q1FY23. A big relief came in at the end of Q1FY23 into Q2FY23 as crude oil prices started cooling to below $90 per barrel in August from peaks of $120 per barrel in early June.

In Q1FY23, revenue rose 52.7% YoY to Rs 2,772.4 crore. This was on a low base. The company raised prices by 3% in Q1FY23, thereby absorbing the raw material cost inflation. The next quarter, Q2FY23 will witness a rise in repainting of homes with the festive season kicking in and this will drive the demand for decorative paints in this quarter.

Fund Managers who bought shares of Berger Paints

Buying interest for respective schemes came from Hiten Shahfor Kotak Equity Arbitrage Fund Growth, Ajay Tyagi for UTI Flexi Cap Fund Regular Plan Growth, Sailesh Jain for Tata Arbitrage Fund Regular Growth and Bhavesh Jain and Dhaval Dalal for Edelweiss Arbitrage Fund Regular Growth schemes respectively.

Granules India - Rising quarterly revenues and approval for PLI scheme

Granules India is an active pharmaceutical ingredients or API, intermediates, and finished dosages pharmaceuticals firm. It has seven manufacturing facilities for marketing and distribution to B2B and B2C segments. It exports to a host of countries in Europe, Africa, the US, and Canada.

In Q1FY23, its revenue rose 19.5% YoY to Rs Rs 1,024.crore. Granules has also got approval from the Department of Pharmaceuticals (DOP) under the Centre’s production-linked incentive scheme to manufacture dicyandiamide (DCDA). It will incur a capex of Rs 100 towards the  DCDA plant and the project is likely to be operational in two years.

Fund Managers who bought shares of Granules India

Fund managers who bought Granules India’s shares in July include Deepak Guptafor Invesco India Arbitrage Fund Growth, Milind Bafna forAditya Birla Sun Life Pure Value Fund Growth, Sanjeev Sharma and Vasav Sahgal for Quant Small Cap Fund Growth, and Sailesh Jain for Tata Arbitrage Fund Regular Growth.

Investors take a keen interest in the stocks that superstar investors like Big Bull Rakesh Jhunjhunwala, Sunil Singhania, Ashish Kacholia, Dolly Khanna and others are buying. We take a look at which stocks some of these Superstars bought during Q1FY23.

As the market took a bearish turn in Q1FY23, Rakesh Jhunjhunwala, Sunil Singhania, Ashish Kacholia, and Porinju Veliyath’s net worth also fell as a result. They still made new bets and doubled down on some older ones. However, Radhakishan Damani did not make any new additions to his portfolio during the quarter. 

Rakesh Jhunjhunwala buys Escorts Kubota in Q1FY23, after cutting his stake in Q4FY22

Rakesh Jhunjhunwala’s net worth in Q1FY23 fell 24.7% QoQ to Rs 25,425.9 crore. He did a U-turn on Escorts Kubota – he  bought a 1.4% stake in the company in Q1FY23, after he had cut his stake to below 1% in Q4FY22.  Before that cut, he had a 5.2% stake in the auto company in Q3FY22. 

While the auto sector is in recovery, Escorts Kubota is still struggling with costs - the company’s net profit declined 26.3% QoQ in Q1FY23 due to a steep rise in commodity prices. During Q3FY22 the stock rose by 22.9% but fell 11.1% in Q4FY22. It looks like the big bull bought the stock when it was trading at lower levels in Q1FY23. From April 1 till August 8 the stock has fallen 3%.  

Sunil Singhania’s Abakkus Fund adds five new stocks in Q1FY23

Sunil Singhania’s Abakkus Fund saw its consolidated net worth fall 28.5% QoQ in Q1FY23 to Rs 1,613.3 crore. During the quarter, the Abakkus Fund purchased new stakes in multiple companies - a 2.7% stake in J Kumar Infraprojects, a 1.9% stake in Stylam Industries, a 1.3% stake in Paras Defence and Space Technologies, a 1.1% stake in CMS Info Systems, and a 1.3% stake in Ethos. 

The fund also added stakes in small-cap companies like HIL, Ion Exchange (India), Technocraft Industries (India), Sarda Energy & Minerals, Siyaram Silk Mills, IIFL Securities, and HG Infra Engineering during the quarter.

The Abakkus Fund also bought additional stakes in existing holdings, like a 1.2% stake in Hindware Home Innovation (now holds 4.8%) and a 0.9% stake in Rupa & Company (now holds 4.1%).  

Ashish Kacholia was the most active Superstar buying stocks in Q1FY23

Ashish Kacholia’s net worth fell 21.6% QoQ to Rs 1,536.3 crore in Q1FY23. Kacholia bought a fresh 4.2% stake in micro-cap company Inflame Appliances. The company makes kitchen appliances like gas stoves, cooker hoods, and cooking ranges. Kacholia also bought a new 3.6% stake in another micro-cap firm – Repro India. He added the restaurant chain Barbeque-Nation Hospitality to his portfolio with a 1.1% stake during Q1. He increased his stake in another houseware company La Opala RG by 0.4%, bringing his stake to 1.4%. 

The marquee investor also added a 0.5% stake in Gravita India and a 0.4% stake in Faze Three, and he now holds total stakes of 1.8% and 5% in these companies respectively. In Xpro India, Kacholia increased his stake for four consecutive quarters since Q2FY22 and now holds a 3.9% stake. The other companies where he increased stakes are United Drilling Tools, Fineotex Chemical, Yasho Industries and Genesys International Corporation.

A Vijay Kedia pick more than doubles since the start of Q1FY23

Vijay Kedia’s net worth rose 13.8% QoQ to Rs 493.9 crore. He added a 0.7% stake in industrial machinery producer Elecon Engineering Company. He now holds a 1.9% stake in the company. The stock rose by nearly 125.7% since April 1, 2022. Kedia also added a 0.1% stake in Vaibhav Global, an online retailer that manufactures fashion jewellery and lifestyle accessories. 

Dolly Khanna adds six small-cap companies to her portfolio in Q1

Dolly Khanna’s net worth rose 30% to Rs 511.8 crore in Q1FY23. She bought a fresh 3.3% stake in Chennai Petroleum Corp, which has gained 103% since the beginning of Q1FY23 till August 8. She purchased a 1.8% stake in Monte Carlo Fashions, a branded apparel company. Her stake in Monte Carlo fell below 1% in Q4FY22. 

Khanna also bought a 1.2% stake in Zuari Industries and Suryoday Small Finance Bank and a 1.1% stake in both National Oxygen and Manali Petrochemicals. She increased her stake in Pondy Oxides & Chemicals by 0.3% to 3.9% during Q1FY23. She also bought minor stakes in Tinna Rubber & Infrastructure, Ajanta Soya, and Prakash Pipes.

Porinju V Veliyath adds two micro-cap companies to his portfolio in Q1FY23

Porinju V Veliyath bought a 1.3% stake in the agrochemical maker TCM. The company’s stock rose 43.5% from the beginning of Q1FY23 till August 8. The other purchase he made in Q1 was a 0.6% stake in micro cap real estate technology company Aurum Proptech. He now holds a 1.7% stake in the company.

Mohnish Pabrai ups his stake in a petrochemical maker

Mohnish Pabrai’s net worth fell 7.4% QoQ to Rs 1,185.6 crore in Q1FY23. He raised his stake in Rain Industries by 0.5% to 8.4%. Otherwise, there were no major changes to his portfolio in Q1FY23. Rain Industries’ stock is down 4.7% since the beginning of Q1FY23 till August 8.

The month of June saw the Nifty 50 index declined by nearly 5% to 15780 levels, which is the highest fall in 2022. Many sectors continued the downtrend that commenced in January and then witnessed a steep fall in June. 

Even during the sharp fall in June, mutual funds bought into sectors and stocks that are likely to be outperformers over the next few quarters. Let’s look at some of the stocks which were bought by fund managers of mutual funds in June. These include names across the financial services industry including an AMC (asset management company), a general insurance company, some picks from the specialty chemicals sector as well as a leading carmaker.

Tech Mahindra - Domain expertise with 5G services is a competitive advantage

Tech Mahindra, among the top five IT services companies in India, provides IT services for telecommunication equipment manufacturers, telecom service providers, software vendors, and systems integrators.

Tech Mahindra was on the radar of mutual funds in the last month also and is one of the top buys by mutual funds for a second consecutive month. Trendlyne Forecaster’s average of consensus estimates shows revenue growth of 15.2% in FY23, despite the expected slowdown in revenues for the large IT sector.

Bharti Airtel and Tech Mahindra announced a strategic partnership to set up a joint 5G innovation lab to co-develop and market 5G use cases in India. With the government’s plan for the auction of the 5G spectrum in place, Tech Mahindra will be a direct beneficiary.

Fund Managers who bought shares of Tech Mahindra

Fund managers who added to their respective schemes include Hiten Shah forKotak Equity Arbitrage Fund Growth, Amit Sharma and Shrawan Kumar Goyal for UTI Arbitrage Fund Regular Plan Growth, Krishan Kumar Daga and Arun Agarwal forHDFC Arbitrage Fund Wholesale Plan Growth, and Sailesh Jain forTata Arbitrage Fund Regular Growth

ICICI Lombard General Insurance - International travel and revised regulations offer growth triggers

Private general insurance company ICICI Lombard offers various insurance products covering travel, home, health and motor segments.

With life returning to normalcy post the pandemic, the business has multiple growth triggers, with purchases of two-wheelers and cars expected to rise in FY23. With international travel resuming, travel insurance could also get a boost.

Another opportunity for general insurance companies is the recent change in regulations by the IRDAI (Insurance Regulatory and Development Authority of India), where the insurance cover of the vehicle would vary based on the driving style of the owner. This gives options for insurance companies to structure products with differentiated premiums. Another advantage is the introduction of floater policies for vehicles belonging to the same individual owner for two-wheelers and private cars. In case, a customer has more than one two-wheeler or four-wheeler vehicle, he can opt for this cover for all the vehicles from the same insurance company.

Fund Managers who bought shares of ICICI Lombard General Insurance

Shares of ICICI Lombard General Insurance were added by R.Srinivasan to SBI Focused Equity Fund Growth, Hiten Shah to Kotak Equity Arbitrage Fund Growth, R.Srinivasan and Mohit Jain to SBI Flexicap Fund Regular Growth and Milind Agrawal to SBI Banking & Financial Services Regular Growthschemes respectively.

Godrej Consumer Products - Declining raw material prices likely to aid margins

Godrej Consumer Products, one of India’s leading household and personal care companies, also has a global presence in other countries like Indonesia, Africa, the US, and the Middle East.

The company in its recent update on its Q1FY23 operational performance indicated that it is likely to deliver double-digit growth in key markets of India, Africa, the US, and the Middle East. The only country that is likely to underperform is Indonesia.

The entire FMCG industry was plagued with rising raw material costs for more than a year. But over the last two months, prices of raw materials like palm oil dropped almost 40% from their peak levels. In addition, a good monsoon in India is expected to bode well for all FMCG companies. This could have led fund managers to load up on the company’s shares.

Fund Managers who bought shares of Godrej Consumer Products

Fund managers that added Godrej Consumer Products to respective schemes include  Hiten Shah for Kotak Equity Arbitrage Fund Growth, Sumit Agrawal for IDFC Focused Equity Fund - Regular Plan - Growth, Anand Radhakrishnan and R. Janakiraman for Franklin India Bluechip Fund Growth and Priyanka Khandelwal and Anish Tawakley for ICICI Prudential MNC Fund Regular Growth.

Grasim Industries - Expansion plans across all segments

Grasim Industries, the flagship company of Aditya Birla Group, is a diversified business in cement, textiles, retail, and chemicals. The company delivered a standout FY22 result with its highest ever annual revenues at Rs 96,522 crore and the highest ever net profit at Rs 12,246.5 crore.

During Q4FY22, in the textiles segment, it commissioned its 600 TPD (tonnes per day) VSF (Viscose Staple Fibre) capacity. It plans to increase its VSF capacity by 48 TPD with minimal capex across its three plants. In the chemicals segment, the Company added a capacity of 142 KTPA (kilo tonnes per annum) in Rehal and Balabhadrapuram. 

The company has ambitious plans for its upcoming paint business and acquired five land parcels for plants for which they have spent about Rs 579 crore.

Fund Managers who bought shares of Grasim Industries

Shares of Grasim were added by Hiten Shah to Kotak Equity Arbitrage Fund Growth, Taher Badshah and Dhimant Kothari to Invesco India Contra Fund Growth, Neeraj Kumar to SBIArbitrage Opportunities Fund Regular Growth and Bhavesh Jain and Dhaval Dalal toEdelweiss Arbitrage Fund Regular Growthschemes respectively.

Maruti Suzuki - New models to help retain market share

Maruti Suzuki, among India’s leading car makers with over 50% market share of the domestic car market, is facing tough competition from players like Tata Motors and Hyundai and plans to introduce at least six new models over the next two years. These include new SUV models as well as upgraded versions of their existing models.

Another factor that is working in its favour is that the reopening of the economy is likely to lead to higher sales in FY23. This will be helped by the easing up of shortages of semiconductor chips in Q1FY23.

Fund Managers who bought shares of Maruti Suzuki

Maruti Suzuki saw buying interest from fund managers Shreyash Devalkar and Hitesh Das for Axis Bluechip Fund Growth, Hiten Shah Kotak Equity Arbitrage Fund Growth, Harsha Upadhyaya for two schemes, Kotak Equity Opportunities Fund Growth and Kotak Flexicap Fund Growth.

Bata India Ltd - FY23 revenue set to cross pre-pandemic levels

Bata India is the largest retailer and leading manufacturer of footwear in India with over 1,700 retail stores spread across India. The company has ambitious expansion plans and will continue to set up its own stores across the country. The focus would be to increase the share of the franchise network to over 500 in the next 2-to-3 years.

After a subdued two years due to the pandemic, the management expects FY23 revenues are expected to surpass the pre covid revenues of FY19. Also with a return to normalcy, with schools and offices reopening, the next few quarters are expected to deliver higher revenues.

Fund Managers who bought shares of Bata India

Shares of Bata were added by Jinesh Gopani and Hitesh Das to Axis Focused 25 Fund Growth, Anupam Tiwari and Sachin Jain to Axis Multicap Fund Regular Growth, Mahesh Patil to Aditya Birla Sun Life Focused Equity Fund Growth and Gopal Agrawal and Sankalp Baid toHDFC Large and Mid Cap Fund Growthschemes respectively.

Havells - Fall in commodity prices to aid margins in FY23

Havells India is a leading player in electrical consumer goods in India, with key verticals in switchgear, cables & wires, lighting fixtures, and consumer appliances. FY22 was a good year for the company with all segments’ revenues growing above 20%. It posted its highest ever annual revenue and profit in FY22 at Rs 14,098 crore and Rs 1,196.5 crore, respectively.

During Q1FY23, the drop in prices of commodities such as steel, aluminum, and copper should aid the margin growth of many companies in this space. Havells India is heavily dependent on copper as raw material and the drop in prices should see it improve margins from Q1FY23 onwards. In addition, the company is on an aggressive store expansion spree in the urban and rural markets with differentiated store formats.

Fund Managers who bought shares of Havells

Fund managers who added to respective schemes include Hiten Shah for Kotak Equity Arbitrage Fund Growth, Neelesh Surana and Ankit Jain for Mirae Asset Emerging Bluechip Fund Growth, Neelesh Surana for Mirae Asset Tax Saver Fund -Regular Plan-Growth and Venugopal Manghat and Praveen Ayathan forL&T Arbitrage Opportunities Fund Regular Growth.

Sudarshan Chemicals - Global demand for specialty chemicals bode well

Sudarshan Chemicals, a leading player in the Indian colour pigment industry with around 35% market share, is also among the top four players globally in this space. Its portfolio includes more than 4,000 varieties of products. 

The company delivered its highest-ever annual revenues in FY22 at Rs 2,205 crore, however, net profits declined YoY by 7.9% at Rs 130 crore. The company is in an expansion mode for its pigment business with a planned capex of Rs 750 crore from FY20 to FY22. Of this, projects worth Rs 520 crore were completed in FY22 and projects worth Rs 210 crore are expected to be completed by Q3FY23. The management expects additional revenues of around Rs 1,500 crore once these units achieve full utilisation over the next 2-3 years.

Fund Managers who bought shares of Sudarshan Chemicals

Additions to respective portfolios were made by Anupam Tiwari and Hitesh Das to Axis Small Cap Fund Regular Growth, Priyanka Khandelwal and Harish Bihani to ICICI Prudential Smallcap Fund Growth and Ankit Jain to Mirae Asset Midcap Fund Regular Growth.

HDFC AMC - Trying to regain lost market share

HDFC AMC, part of the HDFC Group, is among the largest and most profitable asset management companies in India. It had an AUM (assets under management) of around Rs 4.3 lakh crore as of March 31, 2022. Being one of the early movers in the industry, its strong distribution network, with 228 branches and over 75,000 empanelled distribution partners, are its strengths. The company, however, has been losing its market share in the past few years.

Despite its poor performance on the stock market, where it fell by 37% over the last year, HDFC AMC is seeing high buying interest from mutual funds for the second consecutive month. In the competitive world of the AMC business, with new players being added almost every month, fund managers seem to be betting on a profitable, established AMC.

Even with a lacklustre performance in FY22, the company’s revenue is growing consistently. It posted its highest-ever annual revenues in FY22 at Rs 2,433.2 crore. It is also a very high return business with a net profit margin of above 50% over the last three years closing. In FY22, its net margin was 65.8%.

Fund Managers who bought shares of HDFC AMC

Fund managers who added shares of HDFC AMC include R. Janakiraman and Venkatesh Sanjeevi forFranklin India Equity Advantage Fund Growth, Anand Radhakrishnan and R. Janakiraman for Franklin India Bluechip Fund Growth, Kayzad Eghlim and Priyanka Khandelwal for ICICI Prudential Equity Arbitrage Fund Regular Growth and Venugopal Manghat and Praveen Ayathan forL&T Arbitrage Opportunities Fund Regular Growth.

Anupam Rasayan - Top performer among specialty chemicals 

Anupam Rasayan is among the leaders in custom synthesis and manufacturing of specialty chemicals in India. The company commenced business as a partnership firm in 1984 and has, over the years, evolved into a player in custom synthesis and manufacturing life science-related specialty chemicals and other specialty chemicals. 

The company has an enviable profile in the specialty chemicals industry with numbers that are higher than the industry average. Its five-year revenue CAGR till the end of FY22 was 29.3% and net profit at 34.1%. The long-term contracts with customers are expected to aid the company to grow at a similar pace as in the last five years.

Fund Managers who bought shares of Anupam Rasayan

Shares of Anupam Rasayan were added by Sanjeev Sharma and Vasav Sahgal to Quant Active Fund Growth, S.Bharath and Ratish Varier to  Sundaram Mid Cap Growth and Sudhir Kedia and Rohit Seksaria to Sundaram Multi Cap Fund Growthschemes, respectively

It has been a busy week for global markets. Crude oil prices fell nearly 10% on Tuesday, touching $100 per barrel amid fears of a recession. But no one seems to agree on where oil prices are headed - while JP Morgan says oil could hit an incredible $350 per barrel if sanctions against Russia tighten, Citi is predicting $65 a barrel by the end of the year if economic growth slows.

Indian indices have inched up this week with the Nifty 50 hovering above the 16,000 level. With new quarter results coming in, we will finally see how Indian companies managed rising costs, interest rate hikes and geopolitical tensions over the past three months.

In this week’s Analyticks,

• Under its new CEO, HDFC Bank bets on technology and branch expansion to beat the competition

• New indices dashboard: Indices that gained and lost the most in Q1FY23

Let’s get into it.

A new phase for HDFC Bank under the new CEO?

The new HDFC Bank CEO Sashidhar Jagdishan has a lot to prove, having taken over the bank after the long, celebrated reign of former CEO Aditya Puri.

Under Puri, the bank's stock became an investor darling - a person putting Rs. 1 lakh into the IPO in 1995 would have over Rs. 15 crore today. But in the last one year, the stock has given negative returns and underperformed the index. To his friends and family, Jagdishan reportedly admitted that it’s been a difficult first year, and compared his entry into the CEO’s corner office to “walking into the Sabina Park cricket pitch in the 1980s and facing a battery of West Indian fast bowlers”.

For Jagdishan, the key to the bank’s future success lies in technology. The pandemic accelerated the movement of banking customers towards websites and apps. Branch visits are increasingly considered a great inconvenience. In its FY22 annual report and at the analyst day, Jagdishan said that tech is the main focus for HDFC Bank.

It's about time - the bank has lagged competitor ICICI Bank in adopting technology across its verticals and has been pulled up by RBI multiple times for server problems and website crashes. 

At the same time, Jagdishan is also planning to double the bank's branch network in the next 3-5 years, adding 1,500-2,000 branches every year. With the HDFC merger on the horizon, HDFC Bank is entering a phase of rapid expansion in FY23.

HDFC Bank wants to sell its products to HDFC’s customers

HDFC Bank’s stock has been on a roller coaster ride since the company announced the merger with Housing Development Finance Corporation (HDFC) on April 4. Both companies’ stocks rose about 10% after the announcement but investors’ enthusiasm quickly waned. Despite strong results in FY22, HDFC Bank’s stock is down close to 10%, while the Nifty 50 is flat and the Nifty Bank fell 3.2% in the same period.

HDFC Bank is eager to expand its home loan portfolio, a space in which HDFC rules. The bank’s management believes that the housing sector is a huge growth opportunity and one of the key drivers of India’s gross domestic product or GDP over the next decade. Currently, only 2% of the bank’s customers source home loans through the bank.

A home loan customer is very valuable, and typically keeps deposits that are five to seven times that of other retail customers in their bank account.  So HDFC Bank wants HDFC’s customers to bank with it, and this could give a boost to its retail deposits, which in turn would help improve the current account savings account ratio or CASA ratio. 

If this thesis works out, the bank can see an improvement in margins by bundling home loans with other offerings by cross-selling. With 70% of HDFC’s customers not banking with HDFC Bank, this presents a substantial opportunity to realize synergies from the merger.

Rise in wholesale loan mix leads to net interest margin (NIM) fall in FY22

In FY21, the management had identified focus segments that the bank. These included retail assets, commercial (micro, small, and medium enterprises or MSME) and rural banking, and corporate banking. The bank’s revenues from all these segments grew in FY22. The commercial and rural banking segment’s loan assets under management (AUM) rose by double digits - 30% YoY in FY22, while retail loan AUM grew by over 15%. 

The retail loan and wholesale loan mix for HDFC Bank was 50-50 when the pandemic hit in FY20. The share of retail used to be higher, and has been falling since FY18. In FY22, the share of the retail loan mix fell to 44%, while less profitable wholesale loans rose to a share of 56%, the highest level in four years.

As a result, the net interest margin (NIM) fell marginally by 10 basis points to 4% in FY22, as the asset mix shifted towards the high-rated, low-yielding wholesale segment. However, return on assets remained flat at 2% compared to FY21. Due to the improving asset quality mix, gross NPA ratio fell by 10 basis points to 1.2% in FY22.  

A report by Moody’s investor service expects the NIM of Indian Banks to grow in FY23, thanks to recent interest rate hikes by the RBI. Moody’s notes that while high inflation levels may hurt banks due to lower deposits, higher policy rates and favorable funding structures can contribute to margin expansion.

HDFC Bank's focus is on technology, but it will still open new branches

The management is hoping for a tech-driven transformation of the bank, and its  FY22 annual report theme is ‘reimagining the future with technology’. But imagination is easy and execution is hard, especially for a behemoth like HDFC Bank which has many intertwined, legacy tech systems, and employees who are used to doing things the old way.

It’s no surprise then, that Jagdishan has had a difficult year. And HDFC Bank is up against very nimble competitors, including young, well-funded fintech companies that are looking to take a big bite out of the old guard. 

Investments in technology usually pay off in the long run. Over 93% of HDFC bank’s transactions are now processed digitally, and HDFC Bank plans to roll out new features every 3-4 weeks, in line with what fintech companies do. However, these investments will result in higher operating expenses for the bank.

Another factor that will push operating expenses higher is the management’s rapid branch expansion plan and its high attrition rate of 25%. In FY22, HDFC Bank added 734 branches.

But now with the merger in sight, the plan is to nearly double the network in the next three to five years by opening 1,500 to 2,000 branches every year. HDFC Bank had 6,342 branches at the end of FY22.

HDFC Bank’s revenue to grow, but it may see higher operating expenses

As it focuses on expansion, HDFC Bank has hired 57,300 employees in FY22, more than doubling its hiring from FY21 (21,500 hires in FY21). However, an increase in the branch count was not the only reason for this hiring jump. A high attrition rate of 25% in FY22 was a factor - attrition was pronounced in frontline staff/sales officers (43%) and in the <30 years’ age category (35%). These attrition levels can add to fast-rising employee costs in the coming quarters. 

While operating expenses are expected to rise with expansion plans, HDFC Bank’s revenue is set to grow on the back of a strong CASA ratio, gradual NIM expansion and a rise in non-interest income.

But with the HDFC merger expected to be completed by 2024, the bank has a lot on its plate - realizing the ambitions of its new CEO, and smoothly transitioning into a merged business.

Indices dashboards: Indices that gained and lost the most  in Q1FY23

With the new earnings season right around the corner, we look at indices that performed well over the past quarter, and at some that didn’t.

Among the top performing indices are Nifty Growth Sectors 15, BSE FMCG and BSE Auto. Each beat the Nifty50, which was down by 9.4% during the quarter.

Some of the stocks that helped the Nifty Growth Sector rise during the previous quarter were Maruti Suzuki India, Eicher Motors and Hindustan Unilever.The Nifty Growth Sectors 15 is up 3.4% in the last quarter and 12.2% in the past year. 

Even though 61 out of the 79 stocks in the BSE FMCG Sector were  in the red, stocks like Britannia Industries, VST Industries and Vadilal Industriesrallied higher, which kept  the BSE FMCG Sector index in the green in Q1FY23 (up 4.6%). 

Aided by the positive monthly growth in wholesale dispatches and retail sales in the auto sector, the BSE Auto index rose 2.2% last week. Overall, the index rose 8.27% in Q1FY23 as Maruti Suzuki India, Mahindra & Mahindra and Tata Motorsposted good monthly sales during Q1FY23.

On the other hand, the Nifty Metal, Nifty IT and S&P BSE Basic Materials were the indices that lost the most. Each of these indices underperformed Nifty 50, which is down by 9.4% in Q1FY23. The metal sector has been under selling pressure since the Centre imposed a 15% export duty on finished steel products. Stocks like Tata Steel, JSW Steel and Hindalco Industries were the biggest contributors to the Nifty Metal’s 30.7% fall in Q1FY23.

The  Nifty IT fell 23.7% in Q1FY23 with all 10 of its constituents trading in the red, as investors fret over what a looming recession in the US and Europe would mean for IT services companies. 

Out of the 187 constituents of the S&P BSE Basic Material index, 161 are trading in the red with Ultratech Cement, Pidilite Industries, Hindustan Zinc and Vedanta being the biggest contributors to the index’s 23.17% fall in Q1FY23.

You can check out the dashboards here.

1. Kotak Mahindra Bank: This bank stock outperformed its industry by 5.8% over the past 90 days, but underperformed the Nifty Bank index over the last two years, according to a report by Goldman Sachs (GS). Still, this doesn’t concern the brokerage as it upgraded its rating on the stock to ‘Buy’ from ‘Neutral’. GS believes that the bank is well-equipped to utilize its excess capital to drive a higher return on equity (ROE.) If the bank can successfully utilize its retail assets it can touch the market capitalization of $100 billion by FY27, the brokerage says. HDFC Bank is the only other stock in this sector to achieve that milestone.

Apart from focussing on operating profits, asset quality and ROE, Kotak Mahindra is also working on technological upgrades for its systems. However, it will take 3-5 years for the company to completely reap the benefits of these upgrades. The Reserve Bank of India also fined the bank Rs 1.05 crore for a lapse in crediting the amount to a depositor within a stipulated time. The company had to issue a clarification regarding this in its BSE filing saying that the fine does not have ‘any adverse impact on the bank’. With its aim to improve operational process and better digital adoption by its customers, it will have to be careful to avoid such lapses in the future.

2. Sobha: This realty stock soared nearly 7% on the bourses on Thursday after it announced its operational update for Q1FY23. It was trading with 3.5X of its weekly average trading volumes on the bourses. The stock is performing well over the past month and is up 23.5%, outperforming the Nifty 500 index by 25.5%. The Q1FY23 operational updates show that its sales bookings increased 67.6% YoY to Rs 1,145.5 crore. The company also achieved its highest ever sales volumes during the quarter. The management expects to sustain this growth going forward in FY23. The company also announced the launch of three new residential projects in Bengaluru, with over 2 million square feet of saleable area.

Currently, with rising inflation, there are worries about rising construction costs. Reports suggest that realty companies are facing a rise in construction costs by 12-15%. In its quarterly update filing, the company says it will hike prices across its projects to mitigate the impact of rising costs.

With the RBI trying to control inflation by hiking its benchmark lending rate, home loans are more expensive than in the last two years. Although this did not have a detrimental effect on housing demand in Q1FY23, the trickle-down effect will take some time to show up, if the central bank keeps raising rates. According to sector reports from Motilal Oswal, the effect of interest rate hikes on demand will reflect only when home loan rates go beyond 8.5%.

3. Titan: This jewellery maker’s stock rose 5.7% on Thursday after it released its Q1FY23 business update. Titan’s sales jumped 205% YoY in Q1FY23 helped by a low base last year due to lockdowns. Despite the low base, its three-year sales CAGR remains healthy at 20.5%. This positive Q1FY23 business update comes after weak Q4FY22 results due to Omicron-induced lockdowns in January. The sharp rise in sales was led by the jewellery segment, which constitutes about 88% of the company’s total revenues. Sales from this vertical jumped three times YoY in Q1FY23 on the back of strong demand during Akshaya Tritiya festival in May, after two years of lockdowns during the same period.

The company posted growth across all verticals. While watches and wearables’ revenue rose 158% YoY eyecare sales increased by 176%. According to its FY22 annual report, Titan will continue to focus on network expansion across channels and segments to drive revenue growth.

With a good start to FY23, Trendlyne’s Forecaster estimates show that the average of consensus estimates revenue growth for Titan in FY23 is 18.3%. Brokerages are optimistic about the company and as a result, it shows up in this screener which lists stocks with high analyst ratings that have an upside of at least 20% from their current price.

4. Godrej Consumer Products (GCPL): This fast-moving consumer goods company’s stock rose by 5.7% on Wednesday after it announced its Q1FY23 quarterly update. This helped the company outperform the Nifty 50 index by 9.5% over the week and also outperform the personal products industry by 5.3% over the past month. The company expects to deliver double-digit sales growth in Q1FY23 on a high base in its India business. It derives 56.1% of its revenue from its India operations. The personal care segment led growth in the Indian business was driven by the personal wash and hair wash categories, the company said. GCPL’s revenue growth was also aided by price hikes, as the rural market recovery was weaker than the urban market, impacting volumes.

GCPL expects its Indonesian business’ sales volume to drop to high single-digits due to a high base last year in the hygiene segment. The Indonesian market contributed 13.8% of its revenue in Q4FY22. The other international regions like Africa, the USA, Latin America, and West Asia saw robust sales growth momentum and it expects double-digit sales growth in these regions. These markets contributed 32% to the company’s total revenue in Q4FY22.

The company expects a fall in its EBITDA margins and profit on a YoY basis in Q1FY23. It cites high input costs, elevated advertising expenses and a fall in sales volume in Indonesia. However, GCPL expects margins to improve going ahead as inflationary pressures are likely to reduce due to a correction in palm oil prices and crude oil. Prices of palm oil fell by 43% as of July 7 from its record highs in March. It also expects a recovery in demand and consumption in the coming quarters. 

5. Star Health & Allied Insurance Co: This health insurer’s stock rose 11.4% in trade on Thursday after the General Insurance Council released a monthly update for the general insurance industry. The stock was also the top gainer among Nifty 500 companies on Thursday. Star Health’s Q1FY23 gross direct premium written rose 13% YoY to 2,466.2 crore. Its June gross direct premium written rose 10.3% YoY to Rs 949.7 crore. However, the rise in stock price came despite the company’s market share in Q1FY23 falling by 40 bps YoY to 4.5% in the general insurance market. The rise in its stock price was also aided by Credit Suisse initiating coverage of the company with an ‘Outperform’ rating, according to reports. The brokerage said its view on the company’s prospects is because of its large agency network (5.5 lakh agents), continued expansion, and an attractive risk-reward ratio. The company’s retail health insurance is a high-growth industry and Star Health is well-placed to capture this growth as it is the largest player in the segment, the brokerage said.

The investor presentation shows the company’s market share in the retail health insurance industry at currently more than 30% in terms of gross premium. The health insurer has nearly three times more agents than its next largest competitor. Looking ahead, the company expects its retail health segment to grow at a 20-25% CAGR over the next FY22-25, led by an increased focus on tier-2 and tier-3 cities, doubling of bancassurance channel to 8% in FY23, and increasing the share of digital issuance. But with the insurance regulator planning to allow life insurers to sell health insurance products, the positive outlook for this health insurer needs to be cautious.

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

1. Bharat Electronics: This defense public sector firm has 21 consensus recommendations from analysts of a ‘Strong Buy’, which is better than the industry consensus (which analysts rate as ‘Buy’). Out of 21 analysts, 17 have ‘Strong Buy’ recommendations on Bharat Electronics, as well as one ‘Buy’, ‘Hold’ and ‘Sell’. The company has a Trendlyne Durability score of 70, indicating strong financials. In FY22, the company’s revenue grew 9.6% YoY to Rs 15,599.7 crore and profit by 14.3% to Rs 2,398.9 crore. 

According to Nilesh Soni from Prabhudas Lilladher, Bharat Electronics has a substantial order backlog and tender pipeline, and it is also diversifying into business verticals like EV batteries, medical equipment, etc. He further states, “order pipeline stands strong from the Akash weapon system, QRSAM, LRSAM, Naval equipment like a surveillance system, radars, and navigation systems”. Chirag Shah and Vijay Goel from ICICI Direct are also optimistic about the company’s prospects as it is diversifying into non-defense businesses and focuses on increasing exports. 

2. Birlasoft: The consensus recommendation from 11 analysts on this IT consultancy services company is a ‘Strong Buy’. 10 analysts have a ‘Strong Buy’ ratings, while one analyst has a ‘Hold’ rating. The consensus recommendation on this company is better than the overall industry rating of ‘Hold’. The company has a Trendlyne Durability score of 75. In FY22, its revenue grew 16.2% YoY to Rs 4,130.3 crore ($523.4 million) and profit grew 44.5% YoY to Rs 463.6 crore.

The company guided for $1 billion revenue in FY25, out of which it expects $800-$850 million to be contributed by organic growth. The remaining $150-$200 million will be contributed by inorganic opportunities. The company expects to meet its FY25 revenue target by winning more large contracts. Sameer Pardikar of ICICI Direct says “revenue growth is expected to be achieved via client mining, cross-selling, multi-year deals, expansion in Europe & APAC and focus on niche verticals”. He also estimates dollar revenue to grow at a 13.7% CAGR and margin to expand by 50 bps to 16% over FY22-24. 

3. DLF: The consensus recommendation from 19 analysts on this real estate company is a ‘Buy’. Out of these 19, 14 analysts recommended a ‘Strong Buy’, two recommended a ‘Buy’, two a ‘Hold’ rating, and one had a ‘Strong Sell’ rating on this Gurgaon-based real estate developer. The consensus recommendation on this company is better than its industry’s rating (of ‘Buy’) and has a Trendlyne Durability score of 85. In FY22, the company’s revenue rose by 5.6% YoY to Rs 5,717.4 crore and its profit rose by 37.2% YoY to Rs 1,500.9 crore.

The company’s pre-sales in FY22 grew 2.4X YoY to Rs 7,270 crore and beat its presales guidance of Rs 6,000-6,500 crore. The company’s overall sales margin grew by 15 percentage points to 51% in FY22. Brokerages like HDFC Securities and Edelweiss expect the occupancy rates in its office, retail, and residential portfolios to improve in the coming quarters and they both have a positive outlook on the company’s prospects. Amit Agarwal and Manan Shah of Edelweiss say the company “has aggressive launch pipelines to scale up the current portfolio and will be a key beneficiary when the commercial cycle recovers”. The management has guided robust exit rentals of Rs 4,400 - 4,500 crore for FY23, driven by new launches, higher retail yields and an increase in occupancy levels.

4. Apollo Hospitals Enterprise: This healthcare company, with 21 analyst recommendations, has a consensus call of ‘Strong Buy’, better than the overall industry’s ‘Buy’ rating. 15 analysts have a ‘Stong Buy’ on the business, five have a ‘Buy’ rating, and one ‘Hold’. The company has a Trendlyne Durability score of 85. In FY22, the company reported revenue growth of 39% YoY to Rs 14,740.8 crore and profit growth of 601.9% YoY to Rs 1,055.6 crore. 

Param Desai and Sanketa Kohale from Prabhudas Lialladher say, “Apollo Hospitals pursued aggressive expansion in the past few years, which has created a strong growth platform”. According to the company’s Q4FY22 earnings call,  it expects a total of $3 billion of gross merchandise value from its offline pharmacies ($2 billion), Apollo 24*7 ($500-700 million), and companies partnership with amazon ($500 million) in the next 3-4 years. The company also expects its offline pharmacy to continue to grow at 20% in FY23 due to store expansion for its diagnostic business. It expects the business to grow to Rs 1,000 crore within three years. Apollo 24*7 has earmarked Rs 400 crore marketing expenditure for FY23. 

5. Tech Mahindra: This IT consulting and software company has a consensus recommendation of ‘Buy’ from 41 analysts, better than the industry consensus rating. Out of the 41 analysts, 25 have a ‘Stong Buy’ call, seven have a ‘Buy’, five a ‘Hold’, and two are at ‘Stong Sell’. The company has a Trendlyne Durability score of 75. In FY22, the company’s revenue grew by 18.4% YoY to Rs 45,758.3 crore and profit grew by 25.7% to Rs 5,566.1 crore. 

According to the Q4FY22 earnings call transcript, the company’s new deal wins have amounted to $1 billion, constituting $366 million from the Enterprise segment, and the rest from communications, media, and entertainment (CME). The company has announced partnerships with Bharti Airtel to set up a joint 5G innovation lab to co-develop and market 5G in India. Tech Mahindra’s other recent collaborations include conversational-AI solutions with Yellow.ai, and collaboration with Cisco, and Celonis, among others, for the advancement in technology. 

Analysts from ICIC Direct, IDBI Capital and Geojit BNP Paribas, among others, believe that Tech Mahindra’s new deal wins and its capabilities in new technology, like 5G, automation and AI could drive its future revenue growth.

When it comes to the stock market, we love mental shortcuts. Take for example, the link investors make between the price of copper and economic growth. Because copper is so widely used across industries, the up or down movement in the copper price tells us whether the global economy is going to boom or crash.

In recent months, copper has fallen sharply, along with other metal prices like aluminium, zinc, and steel. And expectations are that economic growth is slowing. This global slowdown is expected to impact future demand for all metals.

In this week's Analyticks,

• Investors in metal stocks sweat over growth concerns
• Foreign investors continue selling, but are buying in the F&O market

Let’s get into it.

Metal stocks struggle as investors see economic slowdown

Tariffs are notoriously bad at managing a rapidly changing economy. A little over a month ago India, worried about rising costs for infrastructure projects, imposedexport duties on steel.

The Centre couldn’t have predicted the crash in global metal prices that arrived soon after, which hit metal stocks badly and made these export duties an overreaction.

While its arguable that these duties on exports have reduced inflation in India, the demand for steel, aluminium, copper, and other metals is now falling due to concerns of a global recession.

Copperfell to its 16-month low last week. The fear of a fast-moving US Federal Reserve pushing the US into a recession is upending prices across assets and commodities. But despite thepessimism among traders, there is more than one way to look at this churn in metals.

Carmakers have faced acute cost pressures due to steel prices that were rising till recently. Cable makers were also hit by a rise in input costs, especially in metal. Wholesale price inflation reached 15.88% in May, a 30-year high for the WPI. But since its peak, this is how the Nifty Metal index has corrected—

This will certainly impact listedmetals and mining companies, which were expecting the surge in demand in 2021 to last longer. What’s causing the pain?

Valuations are shrinking everywhere

ICICI Securitiessays asset valuations globally are in reset mode. This will not leave metals unscathed, and the fear of a demand slowdown has led the brokerage to downgrade its ratings onTata Steel,Hindalco, andJSW Steel.

This is more bad news after the Centre imposed export duties on steel and iron ore prices, which led to asell-off in metal stocks. Most of these companies’ shares are down 15%-50% down from their year highs.

Kotak Institutional Equities alsodowngraded Tata Steel and JSW Steel to ‘Reduce’. It expects demand slowdown to impact margins at these steel makers.

If these export duties are just a temporary measure to curb rising prices (like in 2008), an eventual rollback could improve the margin outlook for metal stocks.

Metals companies fortunately also have cash in the bank to get through this crisis. In the months before, a commodities boom delivered high profits that helped them reduce their debt, and this keeps them on strong footing to weather the storm.

JSW Steel, Tata Steel, Hindalco andVedanta posted huge profits, with their FY22 net profit seeing at least a 4X rise from FY20. Vedanta swung to a huge Rs 15,000 crore profit in FY21 from a Rs 4,700 crore odd loss in FY20 and rose nearly 58% YoY to Rs 23,709 crore in FY22.

As all metals saw a surge in demand, evenHindustan Zinc posted higher profits, but its growth was not as rapid as other metal miners and product makers.

However, Trendlyne’s Forecaster shows that there might be some slowdown in demand growth going forward. The average revenue estimate in Forecaster’s consensus estimates indicate only JSW Steel seeing steady revenue growth over the next two financial years.

Analysts expect Hindustan Zinc to see a growth in revenue and profit in FY23, according toTrendlyne’s Forecaster estimates. But in FY24, this could taper off.

There are concerns over future demand for metals this year, and this is expected to impact most companies in the listed space. LME aluminium prices are down 36% from its peak seen in April as there is a surplus of aluminium in the market.

Analysts are taking cues from falling copper prices - a price correction in this metal is usually followed by an economic recession, and that’s what the market is pricing in. But a recession in Europe and the US might not be the calamity that it is expected to be, with many predicting a mild recession rather than a serious one.

China’s economy reopening is also a silver lining. China consumes nearly a third of the world’s steel and imports a lot of iron ore. Over the past couple of years, the country has been trying to cut carbon emissions from steel mills at home, and import steel instead. Investors in metal stocks will be hoping that there is a surge in demand for metals, as the Chinese economy comes back to life.

FII/DII flows: FII investors switch from equities to options

This week saw the rupee fall to a new all-time lowagainst the dollar, ending below Rs 79 on Wednesday. This is because foreign investors have been selling Indian shares and other assets. Over the past six months, we have seen a trend of FIIs pulling out cash from equities and putting them mainly in index and stock options. By contrast, domestic mutual funds are pumping cash into equities, as MFs see record SIP flows every month. 

In the last month,  FIIs pulled out a total of Rs 16,329.9 from the Indian stock market as a whole. They invested Rs 34,106.4 crore into index futures, but sold Rs 46,954.9 crore worth of shares during the same period. Indian mutual funds bought some of these shares foreign investors sold, with a Rs 20.712.9 crore investment.

In the past two weeks, FIIs sold shares worth Rs 21,587.2 crore. Mutual funds bought shares worth Rs 9,119 crore over the same period.

With SIP flows remaining steady, mutual funds may continue their buying despite foreign investors withdrawing in droves. MFs are not making up the shortfall completely, and there is volatility expected ahead for Indian markets.