Weekly Market Outlook From 30th Oct to 3rd Nov 2023

Markets volatile; Q2 results, geopolitics in focus.

Markets rallied taking cues from positive markets after the U.S. Fed maintained its stance on interest rates, fueling expectations that the central bank has concluded its rate hikes. Positive auto sales figures, an increase in GST collection, robust factory data, and Q2 earnings surpassing estimates also contributed to the positive sentiments. Global stock markets experienced marginal gains as the Fed maintained unchanged interest rates for the second consecutive time. The U.S Federal Reserve has decided to keep benchmark overnight interest rates steady at 5.25-5.50 pct. The Fed stated in its statement that with job gains still strong and inflation still elevated, the central bank continues to consider the extent of additional policy firming over time. 

For the week, the Nifty ended up 0.9 pct to 19,230 levels while the Nifty Midcap 100 and the Nifty Smallcap 100 index gained 2.3 pct and 2.6 pct. FIIs were net sellers to the tune of Rs 55.46 bn and DIIs were net buyers to the tune of Rs 50.72 bn. 

Crude oil prices have seen a second consecutive week of decline due to eased Middle East concerns, reducing worries about supply disruptions in a key oil producing region. Brent crude oil prices dropped from USD 90.48 a bbl to USD 84.89 a bbl. Gold prices saw selling pressure over the week as investors exercised caution, refraining from making significant moves while awaiting the release of the U.S. Gold prices ended the week at around USD 2,000 an oz.

India’s manufacturing growth slowed in October but remained robust despite challenging global economic conditions. The manufacturing Purchasing Managers’ Index posted 55.5 in October, down from 57.5 in September. The score was forecast to rise to 57.7.

Stocks/Sector in Spotlight

• L&T’s Q2FY24 PAT at Rs 32.2 bn beat estimate led by higher revenue, gain of Rs 5.1 bn on TOD monetization and higher other income. Consolidated revenue/EBITDA grew by 19 pct/15 pct YoY to Rs 510 bn/ Rs 56.3 bn. Core P&M business revenue/EBITDA grew by 24 pct/ 12.3 pct YoY to Rs 349 bn/Rs 25.8 bn with P&M margins at 7.4 pct. Order inflows beat estimates and grew 72 pct YoY to Rs 892 bn with order backlog at Rs 4.5tn (3.2x P&M revenue). L&T lowered its FY24 margin guidance to 8.5- 9 pct from 9 pct earlier.
• Titan sales rose by 23.4 pct YoY to Rs. 107 bn from sales of Rs. 86 bn in Q2FY23. During the quarter the EBITDA of the company grew by 17.4 pct YoY and stands at Rs. 15.3 bn vs the EBITDA of the Rs 13 bn in the same quarter of the previous year. The company posted an EBITDA margin of 14.2 pct in Q2FY24 as compared to EBITDA margin of 15 pct in Q2FY24. PAT increased by 9.7 pct YoY to Rs. 9.16 bn. 
• Bharti Airtel Ltd. reported revenue of Rs 370.44 bn in Q2FY24, down 1.1 pct QoQ but up 7.3 pct YoY. This was mainly on account of the devaluation of Nigeria’s Naira and other currencies during the period. The company posted an operating profit of Rs 195.14 bn with operating margins growing by 40 bps, largely led by larger 4G conversions and a better service mix. PAT for Q2FY24 stood at Rs 29.60 bn, registering a growth of 38 pct QoQ. The management expects ARPU to improve from the current level of 203 due to a richer customer mix. Aided by strong customer conversion from 2G to 4G/5G and other services, ARPUs are expected to improve but till they really charge for 5G the upside for ARPUs will be limited. 
• Tata Motors Q2FY24 Consolidated revenue grew 32 pct YoY to Rs 1,051bn. Consolidated EBITDA grew on a low base, by 121 pct to Rs 137.2 bn due to better-than-expected EBITDA in standalone (CV). EBITDA margin expanded 530bp to 13.1 pct. Standalone (India CV) revenue grew 24 pct to Rs 185 bn and EBITDA grew on a low base, by 204 pct to Rs 19.8 bn, driven by a richer mix and favorable commodity costs. JLR revenues grew 30 pct YoY to GBP 6.9 bn and EBITDA grew 89 pct to GBP1 bn. The FY26 target remains unchanged at 10 pct. 
• Hero MotoCorp Limited’s Q2FY24 performance was in line with estimates. Hero Moto reported a 4.7 pct QoQ increase in volumes, It reported a 7.7 pct increase in revenue to Rs 94.45 bn. Further, EBITDA increased by 10.1 pct QoQ to Rs 13.28 bn. EBITDA margin expanded by 30 bps QoQ to 14.1 pct on 80 bps expansion in gross margin. The EV business dragged the EBITDA margin by 90 bps due to a lack of scale benefits. Adjusted PAT increased by 11.5 pc QoQ to Rs 10.54 bn. 
• Sun Pharma’s reported Revenues and net earnings were inline. It reported Q2FY24 revenue at Rs 121.9 bn, up 11.3 pct YoY and 2.1 pct QoQ. EBITDA at Rs 31.8 bn was up 7.5 pct YoY but down 4.6 pct QoQ. EBITDA margin stood at 26.1 pct, contracted by 92 bps YoY and 183 bps QoQ. PAT stood at Rs 23.7 bn, up 5 pct YoY and 17.5 pct QoQ. PAT margin stood at 19.5 pct was down 117 bps YoY but up 255 bps QoQ. 
• ACC’s Q2FY24 volumes increased ~18 pct YoY (down ~14 pct QoQ) while blended realisations dipped ~1 pct QoQ (down ~6 pct YoY). Q2FY24 EBITDA came in at ~Rs 5.5 bn (down 29 pct QoQ). Volumes at 8.1MT grew ~18 pct YoY. Realisations dipped ~1 pct QoQ. Overall, EBITDA/t stood at Rs 677 vs Rs 818 in Q1FY24.
• Ambuja reported marginally weak set of results for 2QFY24 on account of weak volume growth of only 2 pct YoY on consolidated basis (after adjusting for volumes sold to ACC under MSA), and capacity expansion largely coming in H2FY26 which will delay volume growth for the company. On a consolidated basis, Ambuja reported 5 pct revenue growth. While EBITDA/mt at Rs 995 is better on YoY basis, it is down by Rs87/mt on QoQ basis.
• Marico reported the sales of Rs 24,760 mn during Q2FY24 which was down by 0.8 pct YoY as compared to sales of Rs. 24,960 mn on Q2FY23. The company posted EBITDA of Rs. 4,970 mn in this quarter up by 14.8 pct YoY vs EBITDA of Rs. 4,330 mn on Q2FY23. The EBITDA margin of the company stood at 20.1 pct vs the EBITDA margin of 17.3 pct. During the quarter the company has a 17.3 pct rise in profit. The profit for the quarter stood at Rs. 3,600 mn as compared to the profit of Rs. 3,070 mn on Q2FY23. 
• Tata Consumer Products reported sales of Rs. 37,340 mn in Q2FY24 up by 11 pct YoY. The EBITDA of the company also increased by 30 pct during the quarter of FY24 and currently stood at Rs. 5,690 mn as compared to the EBITDA of Rs. 4,380 mn in the same quarter of the previous year. The company posted an EBITDA margin of 15.2 pct Vs the EBITDA margin of 13 pct. The company EBITDA margin improved by 220 bps. During the Q2FY24, the company posted PAT of Rs. 3,590 mn vs profit of Rs. 3,550 on Q2FY23. Profit grew 1 pct in Q2FY24. 
• Britannia reported sales of Rs 44,330 mn during Q2FY24 which was up by 1.21 pct YoY as compared to sales of Rs. 43,080 mn on Q2FY23. The company posted EBITDA of Rs. 8,710 mn in this quarter up by 22.3 pct YoY vs EBITDA of Rs. 7,120 mn on Q2FY23. The EBITDA margin of the company stood at 19.61 pct vs the EBITDA margin of 16.26 pct. During the quarter the company’s profit rose by 19.35 pct to Rs. 5,860 mn.
• Adani Enterprises posted sales of Rs. 225.1 bn in Q2FY24 which declined by 41 pct YoY. The EBITDA of the company improved by 30.2 pct during the quarter of FY24 and currently stands at Rs. 24.3 bn as compared to the EBITDA of Rs. 18.6 bn in the same quarter of the previous year. The company posted an EBITDA margin of 10.7 pct Vs EBITDA margin of 4.90 pct in Q2Y23. Despite a rise in EBITDA, the company’s profit during Q2FY24 declined by 22.9 pct YoY to Rs. 3.33 bn vs profit of Rs. 4.32 in Q2FY23.
• Tata Steel Q2FY24 sales declined by 7 pct YoY to Rs. 556.8 bn from sales of Rs. 598.7 bn in Q2FY23. During the quarter the EBITDA of the company declined by 29.5 pct YoY and stands at Rs. 42.6 bn vs the EBITDA of the Rs. 60.6 bn in the same quarter of the previous year. The company posted an EBITDA margin of 7.6 pct in Q2FY24 as compared to EBITDA margin of 10.12 pct in Q2FY24. The company posted loss of in this quarter of Rs. 65.1 bn against the profit of Rs. 12.9 bn in Q2FY23. The company’s Europe Business losses expanded.
• Hero MotoCorp total sales stood at ~5.75 Lc units in Oct’23. The company registered a volume growth of 26 pct/7 pct on a YoY/MoM basis. TVS Motors’ total 2W sales were 4.2 Lc units, up 22 pct/9 pct YoY/MoM. 3W sales were down 10 pct YoY/MoM both at ~14.1k units. Eicher Motors (RE) sold a total of ~84.4K units of RE, up 3 pct/ 8 pct. Exports were down 40 pct/20 pct YoY/MoM to 3,477 units in Oct’23.
• Maruti Suzuki posted total sales of 1.99 Lc units, up 19 pct/10 pct YoY/ MoM. The domestic sales were up 21/12 pct YoY/ MoM respectively. Mahindra’s Auto division grew by 32 pct/7 pct YoY/MoM to ~80.7k units. Its PV segment witnessed a growth of 35 pct/6 pct YoY/MoM to 43.7K units and the 3W segment saw 85 pct/8 pct YoY/MoM growth to ~9.4K units. Tata Motors reported total sales of ~83K units, up 6 pct YoY but down 2 pct MoM. The domestic CV sales grew 4 pct/-13 pct YoY/MoM basis to ~32.5K units. Domestic PV sales were up 7 pct/8 pct each YoY/MoM basis to 48.5k units. Domestic PV sales were up 7 pct/8 pct each YoY/MoM, up 13 pct YoY but down 12 pct MoM. 
• The domestic MHCV segment grew 15 pct/-21 pct YoY/MoM and the domestic LCV segment witnessed growth of 12 pct/3 pct YoY/MoM respectively. Eicher Motors (VECV) reported total CV sales of 7.5 K, up 24 pct/4 pct YoY/MoM.

International Updates

• US initial jobless claims crept up to 217,000, an increase of 5,000 from the previous week’s revised level of 212,000. Economists had expected jobless claims to come in unchanged compared to the 210,000 originally reported for the previous week. 
• According to the preliminary estimate from the US Bureau of Economic Analysis (BEA), the US GDP increased at an annualized pace of 4.9 pct in the third quarter.
• China’s Caixin manufacturing Purchasing Managers’ Index dropped to 49.5 in October from 50.6 in the previous month. The sector contracted for the first time since July.
• The Bank of England kept interest rates at a 15-year high. The Monetary Policy Committee (MPC) voted 6-3 to retain the Bank Rate at 5.25 pct, reiterating its September decision after 14 consecutive rises.
• The monetary base in Japan jumped 9.0 pct on year in October, coming in at 670.612 trillion yen. That exceeded expectations for an increase of 5.6 pct, which would have been unchanged from the September reading. 

Outlook for the Week

Investors will turn their attention to corporate earnings, now in their last leg. In addition, domestic and global macroeconomic data, foreign capital inflow, US bond yield, ongoing Israel Hamas conflict, risk of US market recession, will dictate the trend of market in the coming week. In the coming week, Protean eGov Technologies IPO and ASK Automotive IPO are opening for subscription. Investors will closely scrutinize the economic data from the US, including the PMI and nonfarm payroll releases, to gain further insights into US economic performance. The market continues to remain a ‘sell on rise’ unless it is able to sustain above 19500/19600 levels. 

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