Markets flat, HDFC twins correct on MSCI changes; Q4 results & macro data to dictate trend
Indian markets remained highly volatile in the week gone by, as most of the gains witnessed during the week got surrendered in Friday’s session, as intense selling pressure was observed on the back of profit booking and ended on a flat note. Renewed buying by foreign institutional investors and some strong set of March quarter numbers reported by India Inc. helped the market. Caution prevailed ahead of the U.S. Federal Reserve’s rate decision. Global stock markets remained volatile amid renewed fears from another rout in U.S. bank shares.
For the week, the Nifty ended flat at 18,069 levels and the Nifty Midcap 100 and Nifty Smallcap 100 gained 1.1 pct and 0.6 pct. Sector-wise, the Nifty Auto index gained 1.2 pct and the Nifty FMCG index gained 0.8 pct. Nifty Bank fell 1.3 pct. FIIs were net buyers to the tune of Rs 55.26 bn and DIIs were net sellers to the tune of Rs 27.34 bn. For April, DIIs bought equities worth Rs 22.16 bn and FIIs bought equities worth Rs 57.11 bn.
Oil markets tumbled more than 10 pct to a low of USD 71 a bbl. Brent ended the week near USD 75.3 a bbl. A pause in future rate hikes and a potential U.S. recession presents a bullish case for gold. Gold gained about 1 pct to USD 2,025 an oz.
On the macro front, India’s services export shot up by a record 26.6 pct in FY23 to USD 322 bn. Services imports, on the other hand, grew 22.2 pct to USD 179.7 bn, leading to a services trade surplus of USD 142.5 bn. With a USD 267 bn merchandise trade deficit in the last financial year, the cumulative trade deficit (or net exports) of USD 124.5 bn. The GST collections stood at Rs 1.87 trillion in April which is an all-time high by a substantial margin. The Centre expects its GST collections to rise by 12 percent in 2023-24.
Stocks/Sector in Spotlight
- HDFC Ltd. and HDFC Bank saw a sharp decline on an expected outflow of USD 150-200 mn on the MSCI tweak. MSCI in an update to clients said it will use an adjustment factor of 0.50 to compute HDFC merged company weightage. This is against an earlier expectation of $3 billion in inflows. HDFC is part of a global index with a weight of 6.74 percent. HDFC Bank, on the other hand, is not a part of the index. That said, it was expected that the merged entity would be a part of this index.
- TCNS Clothing Limited a fashion retailer which had listed in August 2018 at an issue price of Rs 716 has sold a portion of its promoter’s shares to ABRFL for cash at Rs 501. TCNS shareholders to get 11 shares of ABFRL for 6 shares held in Co. The ratio is unfavorable for minority shareholders.
- Marico’s Q4FY23 revenue/EBITDA/PAT growth of 3.7 pct/13.6 pct/20.3 pct YoY was below consensus. Domestic business volumes grew by 5 pct YoY, however, value growth was 2 pct YoY due to price cuts in Parachute coconut oil and Saffola edible oil. The Saffola franchise slipped by 9 pct YoY during the quarter. Parachute volumes edged up 9 pct YoY, with a market share gain of 70bp. International business grew 16 pct YoY in CC terms.
- Dabur delivered Q4FY23 revenue/EBITDA/PAT below consensus. Foods & Beverages grew 22 pct/29 pct YoY for the quarter. The international business expanded 9.6 pct in CC terms over the quarter. Gross/EBITDA margins contracted by 163bp/271bp YoY. Dabur continues to gain market share across categories (especially in HPC) with a keen focus on portfolio expansion to drive growth.
- ABB India CY23 results were better than estimates. Top-line growth was majorly led by the motion segment drove operating leverage. Order inflows are robust at Rs 31.3 bn showing a strong revival after a slowdown in run-rate for the previous two quarters.
- ACC’s reported Rs 4.7 bn EBITDA (down 26 pct YoY). EBITDA/T sharply was below estimate. Volumes were a beat (up 10 pct YoY), but the beat could be driven by additional volumes due to inter-group sales to Ambuja. Lower EBITDA/T was largely on account of lower realization. PAT was higher than expected on higher other income. The company incurred Rs 21 bn capex in the 15 months ending Mar-23 vs. Rs 11.8 bn incurred in CY21.
- Domestic PV industry volumes continued to grow in the month of April, rising 22 pct YoY and 3 pct MoM. Market leader Maruti Suzuki grew 7 pct YoY (-6 pct MoM) with domestic growth of 9 pct YoY (+3 pct MoM), partly offset by an 8 pct YoY (-44 pct MoM) drop in export volumes. Tata Motors grew 13 pct YoY (+7 pct MoM), whereas M&M grew 54 pct YoY (-4 pct MoM). Bajaj Auto’s 2W sales grew 2 pct YoY (+17 pct MoM) as demand in the domestic market surged 95 pct YoY (+19 pct MoM), offsetting a drop in exports by 44 pct YoY (+12 pct MoM). TVS and Eicher Motors grew by 5 pct and 18 pct YoY (-4 pct/+1 pct MoM), contributed by domestic volume growth of 29 pct/28 pct YoY (-3 pct/+15 pct MoM). Hero Moto reported the weakest performance in the 2W space with total sales down 5 pct YoY (-24 pct MoM) led by declines in both domestic (-3 pct YoY, -23 pct MoM) and export volumes. The CV segment has been a mixed bag where Ashok Leyland and Eicher Motors reported growth but Tata Motors posted its weakest performance in both the medium & heavy (M&HCV) and light CV (LCV) segments. Tata Motors saw total volumes decline 27 pct YoY (-52 pct MoM) in April, led by a fall in domestic volumes by 28 pct YoY (-76 pct MoM). However, Ashok Leyland and Eicher Motor’s sales grew by 10 pct/19 pct YoY (-46 pct/-45 pct MoM) as their domestic volumes rose 10 pct/29 pct YoY (-46 pct/-46 pct MoM), offsetting a decline in exports.
- Voltas Q4FY23 EBITDA was lower than estimates given the MEP (Engg.) loss. Cooling, primarily AC (air-conditioner), saw double-digit margins surprisingly return at 10 pct vs 7.7 pct in the peak 1QFY23 summer. The management mentioned that demand picked up in April 2023, after March saw an unseasonal rain impact. MEP order book is up 52 pct YoY and points to a strong revenue trajectory for the next 18-24 months.
- Titan’s Q4FY23 performance was broadly in line with expectations with consolidated revenues (excluding bullion sales) growing by 27 pct YoY and PAT growing by 30 pct YoY. EBITDA margins at 10.5 pct were lower than expectations. The management expects double-digit growth to sustain in FY2024.
- HDFC’s PAT was in-line. Reported NIM expanded 10bp QoQ due to higher bad loan recoveries, lending rates, investment yield, and full-year adjustments to assignment income that happened in Q4. Higher NII was offset by higher opex and discretionary provisions. Core performance was strong with core PPOP growing 25 pct QoQ. AUM grew 11 pct YoY/3 pct QoQ.
International News
- The U.S. first quarter GDP data signaled a slowing of the US economy and increased risk of recession. After declining from January to February, real (inflation-adjusted) consumer spending was unchanged in March. This was despite an increase in real disposable personal income.
- US initial jobless claims climbed to 242,000, an increase of 13,000 from the previous week’s revised level of 229,000. Economists had expected jobless claims to rise to 240,000 from the 230,000 originally reported for the previous week.
- The US trade deficit shrank to $64.2 billion in March from a revised $70.6 billion in February. Economists had expected the trade deficit to narrow to $63.3 billion from the $70.5 billion originally reported for the previous month.
- The European Central Bank raised interest rates by 25 basis points to 3.25% as expected and it would stop reinvesting cash from maturing debt in its 3.2 trillion-euro Asset Purchase Programme from July.
- In a widely anticipated move, the Federal Reserve raised interest rates by another quarter point to 5 to 5.25 pct, making the tenth straight rate hike. But the Fed also signaled that it may now pause the streak of 10 rate hikes that have made borrowing for consumers and businesses steadily more expensive.
Mutual Funds Industry Update
- UTI Mutual Fund launches UTI Nifty 500 Value 50 Index Fund
UTI Mutual Fund has launched UTI Nifty 500 Value 50 Index Fund, an open-ended scheme replicating/tracking the Nifty 500 Value 50 Total Return Index [TRI]. The New Fund Offer is open and will close for subscription on May 8. The investment objective of the scheme is to provide returns that, before expenses, correspond to the total return of the securities as represented by the underlying index, subject to tracking error. The performance of the UTI Nifty 500 Value 50 Index Fund will be benchmarked against Nifty 500 Value 50 TRI. The scheme will be managed by Sharwan Kumar Goyal and Ayush Jain.
Outlook for the Week
Friday’s decline can be considered as a temporary pause before we see main indices marching beyond 19000. In the short term, 18050 should be seen as strong support with the coming week’s target placed at 18800.
Going forward, earnings will keep the overall action in the market stock specific. Some of the key results that are expected this week are Union Bank, Coal India, Canara Bank, UPL, Bosch, Dr. Reddys, L&T, Asian Paints, Siemens, Cipla, HPCL, and Tata Motors. On the macro front, IIP data for March will be released on 12 May. The inflation rate will be declared on the same day.
The week ahead sees a REIT offering from Nexus Select which is tapping the capital markets with its offering which includes a fresh offering of Rs 1,400 crs and an offer for sale of Rs 1,800 crs. Nexus Select Trust is India’s largest retail (malls) platform of 17 high-quality assets, strategically located in dense residential catchments across 14 prominent cities, and is ~96% leased. The company has a mix of rentals which are fixed and also variable with a percentage linked to tenant sales. The company has an annual 5 pct rental hike with its contracts which are typically renewed every three years.
At the upper band of Rs 100/unit (the market cap of Rs 15150 crore), the issue is at a Price/NAV of 0.78x (December 2022 NAV at Rs 127.7/unit), offering a discount and hence potential upside on the listing. There is no comparable player currently listed in the markets. It is offering a pre-tax yield of ~8 pct in FY24, at the upper price band. Investors looking for a fixed-income product with growth should consider this as an investment.
Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.
