The improvement in the performance of actively managed mutual fund (MF) schemes is acting as a key tailwind for the nearly Rs 50 trillion industry, Kotak Institutional Equities (KIE) said in a report. The report adds that the two largest listed asset management companies (AMCs) - HDFC and Nippon India - are likely to be the biggest beneficiaries. "The industry has a solid track record of delivering alpha on 10-year returns (70-80 per cent of assets under management (AUM) beat the benchmark), with shorter duration performance also on an upswing.
Most market analysts are expecting the momentum to shift towards 'quality' and 'growth' stocks in 2024 after the outperformance of 'value' stocks over the past three years. 'Value' stocks are generally well-established companies with steady profits that are trading at a discount to what they are intrinsically worth. Companies in sectors such as commodities, industrials, commercial vehicles and public sector units (PSUs) fall in this bracket.
The Indian equity markets have significantly increased in importance within the emerging market (EM) basket of stocks in recent years. Since 2018, India's weighting in the Morgan Stanley Capital International (MSCI) EM Index - tracked by passive funds with assets of nearly $500 billion - has doubled, while the number of domestic stocks has grown by almost 70 per cent.
SBI Q3FY24 result review: A higher-than-factored weakness in the October-to-December quarter (Q3) results of State Bank of India (SBI), for financial year 2023-24 (FY24), has prompted brokerages to cut earnings estimates for the ongoing financial year. They, however, have maintained 'Buy' ratings on the stock, revising target price upwards in some cases, owing to the stock's recent underperformance relative to its peers.
Street gave a thumbs down to Aditya Birla Fashion and Retail (ABFRL)-TCNS Clothing deal as analysts flagged near-term profitability risks for ABFRL with its latest acquisition. At the bourses, shares of the Aditya Birla group company tumbled 6.2 per cent in the intra-day trade, before settling 3.27 per cent lower at R 207.2. Those of TCNS, meanwhile, plunged 20 per cent to end at Rs 416.64.
The pharmaceuticals sector is expected to post a revenue growth of around 13.5 per cent and a net profit growth of 30.3 per cent for the third quarter of 2023-24 (FY24), riding on the approval for niche drugs in the US market, fall in raw material prices and correction in shipping rates. In the healthcare segment, hospitals are expected to post revenue growth of 13 per cent during the coverage, while net profit growth would be around 37 per cent, ICICI Securities said in a note. However, the performance may not be comparable on a sequential basis due to the offset of the festive season in Q3FY24, the analysts noted.
The sharp rally in the markets thus far in fiscal 2023-24 (FY24) has left analysts struggling to find investment-worthy themes. The S&P BSE Sensex has surged nearly 7 per cent thus far in FY24 and hit a fresh 52-week high of 63,601.71 levels on June 22, mostly led by foreign institutional (FII) flows. "The Indian market has seen a broad rally in the past few months but headline indices have seen more modest performance. "We are not very clear about the reasons for the rally and the divergent performance and struggle to find ideas in the consumption, investment and outsourcing sectors after the sharp run-up in several of our favored sectors and stocks in the past two months," wrote Sanjeev Prasad, co-head, Kotak Institutional Equities, in a recent co-authored note with Anindya Bhowmik and Sunita Baldawa.
Shares of Bajaj Finance sprinted 4.7 per cent to Rs 7,732 per share on the BSE in Thursday's (January 4) intra-day trade as the non-bank finance company's (NBFC's) December quarter business update reflected minimal impact of the Reserve Bank of India's ban on two of its lending products. The shares, eventually, ended 4.4 per cent higher at Rs 7,710 per share as against 0.69 per cent gain in the benchmark S&P BSE Sensex. The NBFC's asset under management (AUM) topped the Rs 3-trillion-mark at the end of December 2023, swelling by roughly Rs 20,700 crore (35 per cent year-on-year) to hit Rs 3.11 trillion-mark.
Shares of asset management companies (AMCs) have rallied in the last 3-4 sessions due to clarity on regulatory changes in total expense ratios (TER) and expectations that it won't upset profits much in the long run. HDFC AMC has gained over 12 per cent in the last four sessions, while Nippon AMC and UTI AMC are up around 5 per cent. Aditya Birla Sun Life (ABSL), the only other listed AMCs, has risen more than 2.3 per cent in the last four sessions.
Even as banks and finance companies are reporting record-high earnings, their weighting in the benchmark National Stock Exchange Nifty50 Index has seen a downward trajectory. Investors expect a stronger performance from other sectors in the new year. Currently, banking, financial services and insurance (BFSI) companies collectively hold a weighting of 34.5 per cent, down from 36.7 per cent at the end of December 2022 and a record high of 40.6 per cent at the end of December 2019. This represents the sector's lowest weighting in the index since December 2021 when it stood at 33.7 per cent.
Stocks of public sector undertakings (PSUs) have been on fire in the past year as investors cheered an improvement in key operating metrics and embraced counters of these state-owned enterprises, analysts suggest. The S&P BSE PSU Index has gained over 90 per cent in the past year, rising much higher than the S&P BSE Sensex, which has rose nearly 19 per cent during this period, according to ACE Equity data. The BSE PSU Index, reports show, has delivered a compound annual growth rate (CAGR) of 28 per cent (including dividends reinvestments) over five years and risen by almost 60 per cent in the past year.
Shares of real estate firms have been outperforming over the past year. The rally, analysts say, may hit roadblocks in the near term amid stretched valuations, even as the long-term prospects for the sector remain ebullient. "Most of the positive news flow is already in the price. Hence, investors sitting on hefty profits may partially cash out at current levels," suggests V K Vijayakumar, chief investment strategist at Geojit Financial Services.
Foreign Portfolio Investors (FPIs) have pulled out over Rs 10,000 crore from Indian equities in the first three weeks of September, primarily due to rising US interest rates, recessionary fears, and overvalued domestic stocks. Before the outflow, FPIs were incessantly buying Indian equities in the last six months from March to August and brought in Rs 1.74 lakh crore during the period. Mayank Mehra, smallcase, manager and principal partner at Craving Alpha,believes that strong economic growth prospects, attractive valuations, and government reforms could support foreign investment flows in the next month.
Airline stocks have been soaring following a steep decline in crude oil prices and sustained passenger traffic. Analysts have particularly turned bullish on the stocks of InterGlobe Aviation and SpiceJet. On December 20, shares of InterGlobe Aviation (IndiGo) hit a record high of Rs 3,009 on the BSE, having surged 43.24 per cent year-to-date (YTD).
Brokerages expect India Inc to report an upturn in earnings for the March quarter of 2022-23, after a relatively muted showing in the previous two quarters. This growth is expected to be led by banking, financial services and insurance (BFSI) companies, FMCG firms, and automobile makers. The combined net profit of the Nifty50 companies (excluding Adani Enterprises) is expected to have grown 15.6 per cent to Rs 1.77 trillion in Q4FY23, from Rs 1.53 trillion a year ago.
The stock of Dixon Technologies (India), the country's largest listed electronic manufacturing services (EMS) player, was up 6 per cent in 10 trading sessions, boosting the gains over the last three months to 21 per cent. The gains came following reports that Dixon will produce laptops in India in partnership with US and Chinese firms under the production-linked investment (PLI) scheme. It recently signed an agreement to make smartphones for Xiaomi India.
Market participants attribute the stability to the Reserve Bank of India's timely intervention in the foreign exchange market, both in terms of selling and buying dollars.
As many as 31 mainboard IPOs raised a cumulative Rs 26,272 crore in this period, according to Prime Database. During the April-September 2007 bull run, 48 IPOs totalling Rs 21,243 crore were launched. The number of deals in H1FY24 was 2.2 times that of the same period of the last fiscal year, but the amount raised was 26 per cent lower.
The combined net profit of "early bird" companies, those that have declared their quarterly results, rose for the third consecutive quarter in July-September 2023 (Q2FY24). But the figures suggest a continued slowdown in revenue growth and stagnation in earnings over recent quarters. This slowdown is severe for companies in the manufacturing and non-financial service sectors.
Analysts assert that Vedanta Group's plan to demerge India-listed Vedanta Limited into six listed entities will not resolve the debt problem of its promoter entity, Vedanta Resources (VRL). They suggest that additional asset sales or stake sales by promoters will be necessary to repay the debt. Vedanta is already considering the divestment of its iron-steel division and its copper plant.
The stock of the country's largest passenger vehicle maker, Maruti Suzuki India (MSIL) was down 1.06 per cent in trade on margin pressures in Q1FY24, mixed market share outlook, and earnings impact due to the buyout of Suzuki Motor Gujarat. While MSIL has decided to terminate the contract manufacturing agreement and acquire Suzuki Motor Gujarat, the quantum of payment and mode (cash/equity swap) has not been decided. If the cash option is opted for, there would be a 3.5-4 per cent hit to MSIL's FY25 earnings per share as the deal is expected to be completed by the end of the current financial year.
Indian lenders are unlikely to clear the vertical split of BSE-listed Vedanta Ltd in a hurry, considering that the demerger would reduce the fungibility of cash flows across businesses and increase their volatility, according to analysts. The demerger plan, which would result in six separate listed entities, would require approval from shareholders, lenders and other statutory bodies. "We believe that a separate listing of different businesses would reduce the fungibility of cash flows across businesses and increase the volatility of cash flows.
After pulling out $17 billion in calendar year 2022, foreign portfolio investors (FPIs) have pumped $7.3 billion back into equity markets so far this year. The turnaround in foreign flows has helped domestic markets exceed the all-time highs chalked up in December 2022 and bounced back more than 10 per cent from this year's lows. However, a big nugget of FPI inflows seen this year could be off the back of two factors: exchange-traded funds (ETFs) and block deals.
However, the second quarter of FY24 is expected to be muted, and, with that, the hope of double-digit growth is now being pushed to FY25. However, analysts are expecting the momentum in the closure of record total contract values (TCVs) will continue, as has been the case over the last two quarters.
Weakness in HDFC Bank's net interest margin (NIM) might have bottomed out in the July-September quarter (Q2-FY24), analysts said on Tuesday, as most of the merger-related one-time adjustments have been done. The bank, they believe, should be able to grow from here on, allowing the stock to reverse its underperformance. "The weak NIM print was not unexpected given the merger and regulatory impact caused by the incremental cash reserve ratio (ICRR; 5-10 bps for the quarter).
Investors are increasingly turning optimistic about shares of new-age companies. From broad-based 'sell' calls, analysts are giving thumbs up to Zomato, Paytm, and FSN e-Commerce Ventures-owned Nykaa as these companies have shifted focus to sustainable profits. The shares of Zomato hit a fresh 52-week high of Rs 126 apiece on the BSE on November 7, having rallied 15.4 per cent in one week.
Bolstered by an impressive performance in the global specialty business and outstanding results in the Indian market, Sun Pharmaceutical Industries, the largest pharmaceutical (pharma) company in the country, showcased a strong performance in the July-September quarter (second quarter, or Q2) of 2023-24 (FY24).
The stock of Divis Laboratories is up 10 per cent over the last couple of trading sessions on expectations that the worst is behind and the company could see a sequential growth in the March quarter of the 2022-23 financial year (Q4FY23). The stock witnessed the highest downgrades among Nifty50 index stocks with earnings cuts over a third after the Q3FY23 results. The company had posted a 32 per cent drop in revenues over the year ago quarter in Q3FY23 and 8 per cent sequentially, which was sharply lower than Street expectations.
Mutual funds are loading up on information technology (IT) stocks on improved valuations and low downside risk after a double-digit correction in top companies like Infosys and Wipro. IT stocks were MFs' top sectoral buys in April when they invested a net of Rs 2,100 crore. In the first four months of 2023, the net investments in IT amounted to Rs 9,500 crore, shows an analysis by ICICI Securities.
Even as the slowdown in the information technology (IT) services sector deepens, banking, financial services and insurance (BFSI), as well as oil and gas companies, emerge as the primary drivers of corporate earnings in the country. The IT services sector's share in corporate earnings declined to a five-year low of 17.4 per cent in the second quarter (Q2) of 2023-24 (FY24), whereas banks and finance companies accounted for 46.5 per cent, and oil and gas firms contributed 16.8 per cent. At their peak, IT services firms like Tata Consultancy Services (TCS), Infosys, HCLTech, and Wipro represented just over a third of the combined net profit of all listed companies in the Business Standard sample.
'A cutback in hiring and compensation growth by IT companies will have a significant impact on consumer demand, especially in the urban sector of the economy.'
An aggressive rate hike by the US Fed and the possibility of a recession can trigger a slide in these stocks, which will be a good opportunity to buy from a long-term perspective.
Bank of Baroda Q4 results: Key brokerages have raised their target prices on Bank of Baroda after the state-owned lender posted better-than-expected March quarter (Q4FY23) results. Analysts now see up to 29 per cent upside in the stock from a one-year perspective as they believe BoB is well-placed among the large public banks with nearly all key business metrics moving closer to the top-tier banks. Valuations, too, remain attractive despite steady strong quarterly performances.
Equity valuations are once again on the rise, after they cooled down in the second half of 2021 and the first half of 2022. The BSE Sensex trailing price-to-earnings (P/E) multiple has risen to a 17-month high of nearly 25x, from 23.7x at the end of December 2022 and 21.6x at the end of June 2022. Similarly, the index closed on Friday with a trailing price-to-book (P/B) value ratio of 3.6x, up from 3.4x at the end of December 2022; it is the highest since December 2021.
The July-September quarter results of software companies in the engineering research and development (ER&D) segment were broadly in line with expectations, though there have been cuts in revenue growth guidance. While results were a mixed bag, and there are cautionary views on the near-term outlook, brokerages and global consulting firms highlight the strong growth trajectory for the sector. They expect this segment of the software sector to grow by 8-12 per cent going forward.
Tyre stocks have been on a tear over the past six months, with average returns exceeding 45 per cent. Except for Apollo Tyres, which has seen a slight correction in the last month and a half, limiting its gains to 16 per cent, listed peers such as MRF, CEAT Tyres (formerly Cavi Elettrici e Affini Torino), and JK Tyre & Industries have delivered returns exceeding 30 per cent during this period. Production-related constraints and sluggish demand in Europe, where sales are expected to remain flat, coupled with high valuations, have contributed to Apollo Tyres' underperformance. The tyre sector's gains can be attributed to robust growth trends driven by the replacement market, which constitutes more than two-thirds of sales.
India's corporate sector is likely to report a slowdown in revenue growth and earnings for the July-September 2023 period (Q2FY24), according to earnings estimates by brokerages, after the country's top listed companies posted higher than expected profits for the first quarter. The combined net profit of Nifty50 companies, based on brokerage estimates, is expected to have grown by 19.6 per cent year-on-year (Y-o-Y) to Rs 1.75 trillion in Q2FY24 - a sharp deceleration from 37.6 per cent Y-o-Y growth in the combined earnings of index companies in the April-June 2023 period. According to estimates, the combined earnings in the second quarter would be down 8.8 per cent on a quarter-on-quarter (Q-o-Q) basis and the lowest in the past three quarters.
JP Morgan's decision last week to include Indian government bonds in its Government Bond Index-Emerging Markets (GBI-EM) index and the index suite from June 2024 may be a sort of blessing for India, as the move is estimated to result in an inflow of $25 billion of foreign portfolio investments into the country. The development comes at a time when the spread between the benchmark 10-year government of India bond and the 10-year US government bond has declined to its lowest level in more than 17 years. Low yield spreads make Indian bonds less attractive to foreign portfolio investors (FPIs).
Infosys was the only large-cap IT player to report sequential constant currency (cc) revenue growth for the June quarter (1 per cent ), which was ahead of analyst expectations, but the company's sharp downward revision in its growth guidance took most brokerages by surprise. In line with the cut in its FY24 revenue guidance (cc) to 1-3.5 per cent, brokerages have unanimously reduced FY24 EPS estimates for the company in the range of 2-4 per cent, though the Street is likely fearing even further downside, they say. Global brokerages Macquarie and Nomura downgraded Infosys to underperform and reduce ratings, respectively, with the latter cutting the target price to Rs 1210 from Rs 1260.
Consumption-related stocks, such as hotels, and quick service restaurants (QSRs), have been hitting the ball out of the park ahead. On the other hand, the Miss World Pageant scheduled for later this year in New Delhi, too, could provide some tailwind to these stocks, especially hotels and aviation. However, analysts suggest investors put their best foot forward and buy these counters only on a decline given the recent rally and economic headwinds.
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