Result season keeps market busy; Macro data, Brent prices, Currency movement in focus
Markets extended the downfall for the third week in a row as gains were capped after the RBI, in a surprise move, imposed a 10 pct incremental cash reserve ratio (ICRR) on banks starting August 12. Inflation concerns resurfaced as RBI elevated their CPI forecast by 30 bps to 5.4 pct. Global markets was volatile after credit rating agency Moody’s cut its ratings on a handful of small and mid-sized banks of the US and put several of the country’s biggest lenders under review for potential downgrade. For the week, the Nifty ended down 0.4 pct to 19,428 levels while the Nifty Midcap 10 and Nifty Smallcap 100 indices fell 0.6 pct and 0.4 pct respectively. On the institutional activity front, FIIs were net sellers to the tune of Rs 47.01 bn while DIIs were net buyers to the tune of Rs 22.23 bn.
Crude oil surged to its highest levels since November 2022, driven by the sustained output reductions led by Saudi Arabia and Russia, intensifying concerns about supply adequacy. Brent crude ended the week at USD 83.81 a bbl. Gold prices fell 1.5 pct to USD 1,946 an oz.
The RBI Monetary Policy Committee has maintained the key policy repo rate at 6.5 pct. This is the third meeting in a row that the MPC has chosen to keep the repo rate unchanged. At its February meeting, the MPC hiked its rate from 6.25 pct to 6.50 pct. According to RBI Governor Shaktikanta Das, India’s GDP will likely rise at a 6.5 pct annual rate in FY24. Inflation is expected to be 5.4 pct in FY24, according to the RBI. The temporary application of a 10 pct incremental CRR to absorb excess liquidity. Raising the CRR would have had monetary policy implications, therefore the temporary hike is intended to be a non-disruptive manner of dealing with the issue of excess liquidity in the system following the recent demonetization of Rs 2000 notes.
On the macro front, India’s manufacturing activity remained robust, although it marginally moderated for the second consecutive month in July. On the other hand, the domestic service PMI exceeded market expectations, reaching a 13-year high, driven by a rise in new orders, particularly in international sales.
US consumer price inflation moderated in July, bolstering hopes that the US Federal Reserve is near the end of its rate hiking cycle. Europe’s manufacturing downturn has been worsening and its services sector came close to stalling in July, as shown in the latest economic data. Another data from China showed that the Chinese economy slipped into deflation in July and increased concerns about consumer demand from the world’s second largest economy.
Stocks/Sector in Spotlight
- Britannia Industries reported sales of Rs. 40,107 mn in Q1FY24 which was up by 8.4 pct against sales of RS. 37,009 mn in Q1FY23.EBITDA increased by 37.6 pct to Rs 6,890 mn in this current quarter over Rs. 5,007 mn in the corresponding period in the previous year. EBITDA margin came at 17.2 pct in Q1FY24 as compared to EBITDA margin of 13.5 pct in Q1FY24. The company reported 35.7 pct of increase in Profit to Rs. 4,555 mn YoY.
- Aarti Industries posted Sales at Rs 14,140 mn in Q1FY24 which was down by 28.3 pct from Rs. 19,720 mn in Q1FY23. EBITDA of the company stood at Rs. 2,010 mn in this quarter which was declined 45.63 pct from Rs. 3,696 mn in Q1FY23. Margins came at 14.21 pct vs 18.72 pct. During Q1FY23 company posted Profit at Rs. 700 mn which was down by 62.98 pct from Rs. 1,890 mn in Q1FY23.
- Siemens During the quarter, the company’s revenue increased 14.5 pct YoY to Rs 48,045 mn. Siemens operates on an October to September fiscal year, hence the quarter ended June 30, 2023 is designated as Q3. The company’s EBITDA margin increased over 200 basis points to 11.6 pct from 9.7 pct in the same time last year.Its net profit for the quarter ended June 30, 2023, increased by 51 pct YoY Rs 4,558 mn, owing to an increase in operating margins during the quarter. Management continues to see consistently good performance across all of our businesses, with a healthy mix of orders coming from both the public and private sectors, particularly in infrastructure and railroads.
- Bharat Forge posted 36 pct sales growth to Rs.38,773 mn in Q1FY24 from revenue of Rs 28,515 mn in Q1FY23. EBITDA reported by the company stood at Rs. 6158 mn in this quarter as compared to RS. 4379 mn in the same quarter reported in previous year. EBITDA margin of the company came at 15.9 pct in Q1FY24 vs EBITDA margin of 15.4 pct in Q1FY23.During Q1 company posted standalone profit of Rs. 3114 mn showing 27.9 pct growth in YoY. Company will spend approx. Rs ~10,000 mn combined standalone Capex in India in coming years.
- Dreamfolks reported sales of Rs. 2660 mn in Q1FY24 showing 66 pct growth in sales YoY. EBITDA margin decline by 4 pct YoY and EBITDA margin stood at 7 pct as compared to EBITDA margin of 12 pct in Q1FY23.Margins declined due to increase in Common Area maintenance charges and increase in ESOP charges. The company also reported 3.77 pct decline in profit and profit of the company stood at 129 mn in Q1FY24 as compared to the profit of Rs. 134 mn in Q1FY23. Management of the company revised their guidelines of the margins of 15 pct to 11-13 pct. Company also has announced Rs.0.50 per share dividend.
- PI Industries reported sales growth of 24 Pct YoY to Rs 19,104 mn, which increased by 20.9 Pct YoY to Rs 18,661 mn. Gross margin improved by 267 basis points YoY and 220 basis points QoQ to 47 Pct. EBITDA margin increased by 209 YoY and 310 basis points QoQ to 25 Pct. Absolute EBITDA stood at Rs 4,726 mn, increased by 35 Pct YoY. Company posted profit at Rs 3,829 mn, which was up by 46 Pct YoY.
- Hero Moto Corp reported sales of Rs. 88,510 mn in Q1FY24 which was up by 4.7 pct YoY from the revenue of Rs. 84,775 mn in Q1FY23. EBITDA of the company increased by 44 pct YoY and margins came at 16 pct vs Margin of 11 pct in Q1FY23. The company reported profit of Rs. 7,005 mn in this quarter against the profit of Rs. 5,855 mn posted in the same quarter of previous year. Profit was up by 19 pct YoY.
- Mazagon Dock Shipbuilders ltd. Posted total income of Rs. 24,050 mn in the Q1FY24 as compared to total income of Rs 23,660 mn, increased by 1.6 pct YoY and 5 pct QoQ. During this quarter company’s EBITDA grew by 30 pct YoY and stands at Rs. 4,040 mn. EBITDA margin stood at 16.7 pct in Q1FY24 as compared to EBITDA margin of 13 pct in Q1FY23. Company reported profit of Rs. 2870 mn which was up by 32 pct YoY but down by 10 pct QoQ. Currently company has strong order book worth of Rs. 391,170 mn.
- The merger of Zee Entertainment and Sony India has been approved by the National Company Law Tribunal. According to the terms of the agreement, Sony would indirectly own 50.86 pct of the combined firm. The founder of Zee will possess approximately 4 pct of the company, with the remaining shares held by ZEEL’s other owners. Zee will now file with the Registrar of Companies (ROC) within 30 days of obtaining the directive, followed by MIB vetting. Following this, the stock will be delisted for six weeks before the merged firm is relisted.
- HCL Tech has signed a USD 2.1 bn deal with a tenure of 6 years. The deal is entirely new and involves the shift of in-house operations and some consolidation of other vendors. The deal will flow into revenues starting November 2023. HCLT will rebadge employees of Verizon Business as part of this deal.
- Suzlon QIP was oversubscribed, the applications were closed within a day. QIP issue had a base size of Rs 15 bn and an oversubscription option of Rs 5 bn. The Company said it received bids worth Rs 46 bn with 80% demand from long-only funds. The floor price of the QIP issue was set at Rs 18.44 a piece.
Mutual Funds Industry Update
- SIP AUM surges to Rs 8.32 lakh crore in July inquiry The SIP contribution in July stood at an all time high of Rs 15,244.73 crore in July. The number was Rs 14,734 crore in June and Rs 12,140 in July 2022. On a month-on-month basis, the contribution increased by around 3%. The number of SIP accounts stood at the highest ever at 680.52 lakh for July 2023, compared to 665.37 lakh in June. Mutual fund folios in July reached an all-time high of 15,14,21,270 compared to 14,91,31,708 in June. The retail asset under management which includes equity, hybrid, and solution oriented schemes stood at Rs 24.17 lakh crores in July 2023, with an average asset under management of Rs 23.77 lakh crore.
HSBC Mutual Fund launches HSBC Consumption Fund
HSBC Mutual Fund has launched HSBC Consumption Fund, an open ended equity scheme following a consumption theme. The new fund offer of the scheme is open for subscription and will close on August 24. The performance of the scheme will be benchmarked against Nifty India Consumption Index TRI.
Nippon India Mutual Fund launches Nippon India Innovation Fund
Nippon India Mutual Fund has announced the launch of Nippon India Innovation Fund, an open-ended equity scheme that will invest in innovation themes. The new fund offer of the scheme will open for subscription on August 9, and it will close on August 23. The investment objective of the scheme is to provide long-term capital appreciation to investors by primarily investing in equity and equity-related securities of companies seeking to benefit from innovation. The fund’s flexibility will allow it to identify the better investment opportunities by identifying companies ahead of the curve in new innovation, technologies or business models.
Kotak Mutual Fund launches Kotak S&P BSE Housing Index Fund
Kotak Mutual Fund has launched Kotak S&P BSE Housing Index Fund, an open-ended scheme replicating/tracking S&P BSE Housing Index. The new fund offer of the scheme is open for subscription and will close on August 21. The scheme will be benchmarked against S&P BSE Housing Index (Total Return Index). The scheme will be managed by Devender Singhal, Satish Dondapati, and Abhishek Bisen. The investment objective of the scheme is to replicate the composition of the S&P BSE Housing Index and to generate returns that are commensurate with the performance of the S&P BSE Housing Index, subject to tracking errors.
Outlook for the Week
For the coming week, global cues, the movement of rupee against the dollar, crude oil price movement and institutional activity will determine the market trend. Stock markets will remain closed on Tuesday, 15 August 2023 on account of Independence Day. Focus will continue to remain on the Q1 earnings season.
The outlook for market remains bearish with spread of Nifty 50- Nifty 500 breaching key support. A breach of support would indicate more addition of short positions in Index futures in the coming days in order to hedge their existing portfolio. We expect markets to face sudden jerk on breach of the recent low of 19296 with immediate target seen at 18200.
USDINR for week activated major breakout form running triangle to close above 82.65 and has opened gates for upside towards 88. The key trigger for USDINR may come from breakout in Brent Crude prices which has seen strong cushion at USD 86 a bbl and may act as a key catalyst for its journey towards 88.
