Markets gains on FII flows; Uptrend intact in Nifty
Markets logged in decent gains on encouraging Q4 results by key corporates and persistent buying by the FIIs. Domestic market sentiments also took a hit after data suggested a possible slowdown in the US economy. Globally, investors were worried about the US debt-ceiling and stability of the banking industry. A slew of weak economic data points, from the US and China hinting towards a slower pace of economic growth disturbed the mood of the Indian markets over the week, but lower levels buying once again emerged in later part of the week as Nifty ended above key level of 18300.
For the week, the Nifty ended higher by 1.4 pct to 18,315 levels while the Nifty Midcap 100 and Nifty Smallcap 100 index gained 1 pct and 0.8 pct respectively. FIIs were net buyers to the tune of Rs 77.49 bn while DIIs were net sellers to the tune of Rs 12.62 bn.
On the commodity side, crude oil prices posted their fourth weekly decline, as renewed economic concerns in the U.S. and China revived anxieties about fuel demand growth. Brent and Nymex fell by about 1.5 pct for the week, longest streak of weekly decline since November 2021. Gold prices remained relatively stable at USD 2,020, while the silver prices experienced a significant decline. The selling of precious metals was mainly due to the strength of the U.S. dollar index.
Global ratings agency Fitch reiterated its BBB- rating with a stable outlook on India’s long-term sovereign debt, saying that growth prospects have brightened as the private sector appears poised for stronger investment growth. India’s IIP growth in March fell to 1.1 pct from 5.8 pct in February. India’s IIP growth of 1.1 pct in March is well below consensus estimate of 3.2 pct. The IIP growth of 1.1 pct is lowest in five months.
Stocks/Sector in Spotlight
- Larsen & Toubro (L&T) reported decent set of quarterly performance with consolidated revenue growth of 10.4 pct YoY, while margins contracted 74 bps YoY due to cost pressure in certain EPC project. Project and Manufacturing (P&M) margins came in at 8.6 pct in FY23 below guidance of 9 pct, owing to impact of increase in commodity prices and freight issue. Tender prospect from Infrastructure stands at Rs 6.5 trn, Energy – Rs 2.9 trn and Hi-tech -Rs 0.25 trn. Adj. PAT grew 10.1 pct YoY to Rs 39.9 bn, driven by higher other income up ~44 pct YoY to Rs 7.4 bn. Order inflows came at Rs 761 bn in Q4FY23 up 2.9 pct YoY (on high base). Order book stands strong at ~Rs 4 trn (2.2x TTM revenue), up 11.7 pct YoY as on Q4FY23.
- UPL has posted revenue growth of 4.5 pct YoY / up 21.1 pct QoQ to Rs 165.69 bn and was below market expectations. The quarter was impacted by a rapid decline in product prices and delays in planting season that resulted in headwinds for product placements. EBITDA decreased 19.5 pct YoY / down 5.6 pct QoQ to Rs 27.22 bn, while EBITDA margin stood at 16.4 pct (down 488bps YoY) in Q4FY23, led by a contraction in gross margins by 887 bps YoY to 40.7 pct. PAT stood at Rs. 10.80 bn (down 37.8 pct YoY / down 20.6 pct QoQ) in Q4FY23.
- Tata Motors’ India-CV business disappointed with muted margin expansion (150 bps QoQ; 390bps YoY) to 10.3 pct despite benefits of operating leverage (21 pct QoQ higher volumes), softening commodity prices and lower discounts. Whereas the India-PV business and JLR reported healthy margin expansion of 40 bps QoQ/40 bps YoY and 270bps QoQ/200bps YoY to 7.3 pct and 14.6 pct, respectively. Mgmt. expects the CV industry to grow in single digits in FY24 (vs. 34 pct in FY23). PV industry’s growth to moderate to 5-7 pct, as pent-up demand/inventory re-stocking has largely been factored in the base. JLR- Mgmt. has guided for JLR vols. at 400K in FY24 (vs. 321K in FY23; 4Q vols. at ~95K, excl. Chery JV). JRL FY24 Guidance EBIT margins of over 6 pct in FY24 vs 2.4 pct in FY23, 6.5 pct in Q4. Company plans Rs 380 bn capex this year. JLR confident to be net debt zero by FY25.
- Eicher Motors consolidated revenues grew by 19 pct YoY to Rs 38 bn, on ~20 pct Royal Enfield (RE) volume growth to 218.5k units. EBITDA-margin expanded by ~150 bps to 24.5 pct. Overall, adjusted PAT grew by 48 pct to Rs 9.1 bn, with share of profit from associates at Rs 1.7 bn vs Rs 538 mn in Q4FY22. The Company declared dividend of Rs 37/sh.
- Mankind Pharma saw a strong debut on its listing day despite volatility in the overall equity markets. The stock opened with more than 20 pct gains at Rs 1,300 on the NSE. The price band for the offer was Rs 1,026-1080 per share. The public issue received a robust response from qualified institutional investors including the anchor book.
- Morgan Stanley Capital International (MSCI) added Max Healthcare Institute and Sona BLW Precision Forgings to its India Standard Index. MSCI also included Hindustan Aeronautics Ltd (HAL) in the India Standard Index. Meanwhile, it has excluded Adani Total Gas, Adani Transmission, and Indus Towers. Kotak Mahindra Bank, ONGC, Maruti Suzuki, NTPC, Mahindra & Mahindra, Yes Bank, Siemens, Interglobal Aviation, Ultratech Cement, and Zomato, among others, will also see an increase in weight post the MSCI rejig.
International News
- US initial jobless claims rose to 264,000, an increase of 22,000 from the previous week’s unrevised level of 242,000. Economists had expected jobless claims to inch up to 245,000.
- The US producer price index for final demand inched up by 0.2 pct in April after falling by a revised 0.4 pct in March. Economists had expected producer prices to rise by 0.3 pct compared to the 0.5 pct drop originally reported for the previous month. The US consumer price index climbed by 0.4 pct in April after inching up by 0.1 pct in March. Economists had expected consumer prices to rise by 0.4 pct.
- The Bank of England lifted its benchmark interest rate for the twelfth straight session and signaled more tightening to address the persistent strength in domestic price pressures amid an improvement in the economic growth outlook. The nine-member Monetary Policy Committee, led by Governor Andrew Bailey, decided to lift the bank rate by 25 basis points to 4.50 pct, the highest since 2008.
- China’s consumer price inflation reached its lowest level in more than two years in April largely due to the base effect and factory gate deflation deepened, providing space for monetary policy easing. The consumer price index posted an annual increase of 0.1 pct from the last year, slower than the 0.7 pct rise in March.
Mutual Funds Industry Update
Silver ETFs getting investors’ traction; asset bases reach Rs 1,800
Silver exchange-traded funds (ETFs) has attained an asset base of nearly Rs 1,800 crore till March 2023 within one and half years of the introduction of the product by markets regulator Sebi. According to data from the Association of Mutual Funds in India, the industry has seven silver ETFs– Nippon India Silver ETF, ICICI Prudential Silver ETF, Aditya Birla Sun Life Silver ETF, HDFC Silver ETF, Axis Silver ETF, Kotak Silver ETF, and DSP Silver ETF- with an asset under management of Rs 1,792 crore as of March 2023. All these funds were launched in 2022. In addition to these, UTI Silver Exchange Traded Fund was launched in April this year. Of these Rs 1,792 crore asset bases, Nippon India Silver ETF and ICICI Prudential Silver ETF contributed 80 percent of the total AUM.
Outlook for the Week
Quarterly results will continue to be tracked this week with Berger Paints, Pfizer, Bank of Baroda, Bharti Airtel, IOC, GAIL, Interglobe Aviation, SBI, United Spirits, NTPC, and Power Grid among the key results. Institutional activity will be watched closely as FIIs have been buying aggressively in Indian markets. The 2023 Karnataka Assembly election saw the Congress script a massive win in the southern state, winning 135 seats in the 224-member House and a vote share of 42.9 pct. The market has already discounted the results last week with numerous exit polls suggesting the same. Market reaction is expected to be muted. We expect Nifty 50 to gain further momentum and we may see follow-up buying with weekly target placed at 19,000.
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.
