PremiumBenchmark Indian indices ended with losses for the fourth day in a row on Thursday after giving up initial gains. Barring auto and pharma, most sectors were weak in trade today. Global markets were shaky as US inflation turned out to be worse than expected, boosting bets the Federal Reserve could get more aggressive with its rate tightening.
Indian benchmark indices ended flat but with losses for the fourth day in a row on Thursday amid volatile trading. The indices were in the green territory in early deals but turned red in afternoon trade dragged by heavy selling pressure in IT, PSU banks and infra stocks. Sensex fell 445 points from the day's high before closing at 53,416.15, down 98 points. Nifty settled at 15,938.65, down 28 points or 0.18%.
BSE Midcap and Smallcap indices ended 0.4% and 0.6% each. Barring auto and pharma, most sectors were weak in trade today. Axis Bank, HCL Tech and SBI were the prominent laggards, while Sun Pharma, ONGC and Dr Reddy were the best gainers. Meanwhile, the Indian rupee ended at 79.88 per dollar today, down 7 paise from previous close.
Bharti Airtel said on Thursday it had closed the $1 billion investment deal with Google International LLC, after which the search giant will hold 1.2% in the Sunil Mittal-promoted company.
The carrier has allotted preferential shares amounting to over ₹5,224 crore to Google's entity while the remaining $300 million will be invested through commercial agreements over the next five years.
"The 'Special Committee of Directors for Preferential Allotment' of the company has approved the allotment of 71,176,839 equity shares of the face value of Rs. 5/- each fully paid up, on preferential basis to Google International LLC (Google) at an issue price of Rs. 734/- per equity share (including a premium of Rs. 729 per equity share)," the carrier said in a note to BSE on Thursday.
On the Multi Commodity Exchange, gold contracts for August delivery traded lower by ₹324 or 0.64% at ₹50,478 per 10 grams in a business turnover of 8,098 lots.
The Indian stock market has been resting on the shoulders of the retail investors for a while now. The question is, will this continue?
Retail investors get attracted to investing in stocks only when the price of stocks has been going up for a while. Cast your eyes on the chart alongside. As the BSE Sensex, India’s most popular stock market index, has gone from strength to strength, the number of demat accounts opened during a particular month have gone up as well. (Full story)
Mindtree revenue stood at ₹3,121 Cr in Q1FY23, reporting strong revenue growth of 36.2% YoY and 7.7% QoQ. The company posted operating profits of ₹658 Cr, registering a growth of 8.2% QoQ, demonstrating the company’s superior execution and better service mix. The company’s Operating Margins improved by 10bps QoQ to 21.1% and were aided by superior execution, lower onsite expenses and currency translation. However, its net profit for Q1FY23 stood at ₹472 Cr, registering a de-growth of 0.3% QoQ and 37.3% YoY. The management nonetheless has communicated a positive commentary on the verticals such as BFSI, Hi-tech Media, and Life Sciences. Deal-wins for the quarter also continued their robust momentum and stood at an all-time high of $570 Mn. The company continues with its multi-pronged strategy of consolidating service lines, undertaking consistent investment, focusing on garnering multi-year engagements, and scaling up top accounts that would aid in sales traction moving forward. We believe Mindtree has a resilient business model and has established a proven track record of strong execution capabilities.
We recommend a BUY rating on the stock and assign a 24x P/E multiple to its FY24E earnings of ₹133.9/share to arrive at a TP of ₹3,280/share, implying an upside potential of 13% from the CMP.
Asian markets were mixed Thursday as another forecast-busting US inflation print ramped up bets on a series of sharp interest rate hikes by the Federal Reserve, and other central banks race to tighten monetary policy.
Nikkei 225 ended 0.6% higher; Hang Seng fell 0.2%; Shanghai - Composite closed 0.1% lower. Meanwhile, London's FTSE 100 fell 0.3%
There were three crucial takeaways for investors in the Shree Cements Ltd stock from its FY22 annual report. A positive demand outlook, increased focus on alternate fuels and green energy to combat input cost inflation and reiteration of installed capacity guidance of 80 million tonne (mt) by FY30. (Full report)
On 23 June 2022, a video of an electric vehicle, the Tata Nexon EV, bursting into flames went viral on the internet. The video caused concerns about the safety of EVs even among the firmest believers of the EV megatrend. But this is not the first electric vehicle to have caught fire in India.
Over the last few months, there have been many reported incidents of two-wheeler electric vehicles abruptly bursting into flames. These EVs were manufactured by the likes of Ola, Okinawa, and Pure EV.
However, this is the first from a reputed Indian automaker - Tata Motors (Read more)
The state-run company on Wednesday said the power ministry has approved an investment of ₹973 crore for the proposed 1,856 MW Sawalkot hydro electric project in Jammu & Kashmir. Sawalkot project is a run-of-the-river project proposed on the river Chenab in district Ramban & Udhampur of Jammu & Kashmir.
Improved mobility and a stable tax regime could help lift cigarette volumes by 5-6% this fiscal helping them move beyond pre-pandemic levels, ratings firm Crisil said in a note on the sector.
At an expected sales of 93 billion sticks, the organised cigarette industry volume will be 3% higher than in fiscal 2020, analysts at Crisil said.
“Credit profiles, however, will remain healthy owing to higher volumes, healthy operating margins, and strong balance sheets, an analysis of cigarette manufacturers rated by Crisil Ratings, which account for over 90% of organised sector volume, shows," the report added.
ITC share price has been on an uptrend since last week of February, helping the Indian conglomerate re-enter the list of top 10 Indian stocks in terms of market cap. As per the information available on the BSE website, ITC Ltd ended the Wednesday session with a market capitalization with a market valuation of ₹3,63,006.90 crore.
During the last three months, GAIL’s stock price has corrected around 20%. Investors are puzzled and are awaiting for its first quarter (Q1FY23) result to understand its future prospects. Despite expectation of modest sequential increase in gas transmission and marketing segment volumes in line with recent trends, why operating profit is expected to decline meaningfully? Let us throw some light on it. We expect GAIL’s operating profit to decrease by 15% qoq to Rs. 3159 crore as against Rs. 3715 crore in Q4FY22.
Notably, GAIL's EBITDA (operating profit) to drop largely due to decline in gas marketing EBITDA, lower gas transmission EBITDA driven by an uptick in operating costs and sharp decline in petchem EBITDA amid lower volumes following the temporary shutdown taken in Q1FY23.
The CPI rose 9.1% in June added to signs last month that the inflation outlook was worsening and prompted the Fed to accelerate its rate increases at its June meeting. The Fed’s June rate rise, the largest since 1994, lifted its benchmark rate to a range between 1.5% and 1.75%. The markets prepared for another 100bps hike in July 26-27 meeting. The Fed is paying closer attention to an inflation measure that includes volatile food and energy prices as it aggressively raises interest rates.
Normally, the Fed prefers to look through fluctuations in food and energy categories and focus instead on measures of so-called core inflation, which remove those volatile items. The market is worried that inflation psychology could be shifting in a way that will lead consumers and businesses to continue to accept higher prices. The global market may trigger sell-off in the near term following high inflation data and other negative indicators. All these factors put pressure on global equities and sell off continues globally. India cant remain immune to this. Indian market is likely to trade with negative biased following sharp surge in U.S. inflation and likely rate hike by Fed. The depreciating rupee, widening trade deficit, selling pressure from FIIs and high inflation likely to impact the market sentiment in the near term.
Japan warned on Thursday that a new wave of coronavirus cases appears to be rapidly spreading through the nation, calling on people to be especially careful ahead of an upcoming long weekend and imminent summer school vacations.
Crude oil prices rose marginally on Thursday but the volatility remains a concern amid recession fears. Volatility continued during the day amid expectations of a further rate hike by the US Federal Reserve.
The September contract of Brent on the Intercontinental Exchange was at $99.80 per barrel, higher by 0.23% from its previous close. The August contract of WTI on the Nymex was unchanged at $96.30 a barrel.
Auto companies under our coverage universe are expected to witness 29% YoY growth (down 2% QoQ) in revenue, while higher RM cost and lower scale would impact their profitability on QoQ basis. EBITDA margin of our automobile coverage universe is expected to expand by 130bps YoY (down 94bps QoQ) to 10%, while PAT is expected to increase by 25% QoQ (vs. net loss YoY). We expect PAT of our auto coverage universe (ex-TTMT) to increase by 98% YoY (flat QoQ), while TTMT is expected to report a net loss of Rs15bn, as against a net loss of Rs61.8bn YoY, due to significant impact of chip shortage on JLR production.
Most companies within the OEM space and auto ancillary segment are expected to report a profit in 1QFY23, barring TTMT. We expect TTMT to report Rs15bn net loss during the quarter. As YoY numbers are not comparable due to Covid second wave impact, QoQ comparison is justified. On QoQ basis, M&M (MM), Escorts Kubota (ESC), Apollo Tyre (APTY) and CEAT outperformed with >20% PAT growth. CEAT is also seen as a major outperformer, as we expect 89% YoY (up 56% QoQ) growth in net profit to Rs453mn.
We expect Bajaj Auto (BAL) to report a subdued PAT due to lower volumes and higher commodity cost despite decent exports. We expect MM to deliver a better performance due to improved PV and tractor volumes, while Escorts Kubota (ESC) would also deliver a better performance due to growth in the construction equipment business and higher tractor volumes. While TTMT is expected to report a net loss, all other companies within our coverage universe i.e. MM, ESC, BAL, Maruti Suzuki (MSIL), Hero MotoCorp (HMCL), TVS Motor (TVSL), Ashok Leyland (AL), APTY, JK Tyre (JKT), CEAT, Minda Industries (MNDA), Bharat Forge (BHFC) and RK Forgings (RMKF) are expected to report a profit in 1QFY23, though PAT would decline QoQ in most cases. TTMT is expected to report Rs15bn net profit (vs. Rs1.3bn net profit in 4QFY22 and Rs61.8bn net loss in 1QFY22) due to significant impact of chip shortage on JLR production.
Our View: We expect the automobile industry to witness a volume improvement across segments, from the current low level, with likely revival in rural economy backed by normal monsoon and better MSP on crops. Additionally, 2QFY23 would be benefitted from festive seasons. We expect some improvement in the semiconductor supply, but the issue would continue for the next 1-2 quarters. We believe the CV segment would outperform the industry, while within this segment, M&HCV would stage a strong bounce-back with healthy double digit YoY growth in FY23E. Thus, we remain constructive on the automobile sector. We expect near term pressure on exports due to currency devaluation in most exports markets, while domestic 2W segment would bounce back in FY23. Along with a valuation comfort, the risk-reward is highly favourable for select 2W and tractor companies, which would give a strong outperformance going ahead.
Top Picks: Escorts, HMCL and MSIL
In the June quarter of FY23, tier-II IT company Mindtree Ltd. reported a revenue growth of 5.5% sequentially, in constant currency. This was in-line with consensus earnings estimate. Its order book rose 46% sequentially to a record high $ 570 million in Q1 and the management has indicated of a strong pipeline for FY23. (Full report)
We are close to the crucial support zone of 15950 – 15900, but till it remains unbroken, one should use this decline to go long. On the higher side, 16040 – 16140 remains a sturdy wall for the weekly expiry session. As of now, there is no clear indication of the Nifty coming out of this trading range; but any decisive move beyond these mentioned levels would trigger some momentum in an index. Until then the pragmatic approach would be to buy as close as possible to the support zone and try to exit around the higher boundaries.
Global markets continue to remain a key factor; hence, one should keep a close eye on these developments. Meanwhile, traders can continue to focus on thematic moves and try to identify potential movers from the same.
Yes Securities recommends ‘Add’ for Mindtree Ltds based on its strong Q1 results. The recommendation said that the company reported strong financial performance with revenue slightly above estimates and EBIT margin significantly above estimates for the quarter. It added that improving employing pyramid, positive operating leverage and efficiency measures should help to broadly maintain 20% plus EBITDA margin going ahead. The securities maintains ADD Rating on the stock with a revised target price of ₹3,432, valuing the stock at 27x on FY24E EPS.
Covid-19 cases witnessed a massive jump as the country registered over 20,139 new cases and 38 deaths due to Covid-19 in the last 24 hours. The total number of active caseload currently stands at 1,36,076 in the country.
Delhi witnessed an active caseload of 1,966, Maharashtra 16,922, Haryana 1,601 cases while Kerala reported more than 26,451 Covid cases. Tamil Nadu has 18,282 and Karnataka has 6,603 active cases.
The increasing numbers are pushing the positivity rate in an upward direction as the country’s daily positivity rate reached 5.10% while the weekly positivity rate is 4.37%.
· The company reported 2.7% QoQ in CC terms, IT services grew 2.0% QoQ in CC terms while P&P grew 5.1% QoQ in CC terms
· EBIT margin of IT services was down 180 bps QoQ while that of the company declined 90 bps
· TCV grew 23.4% on a YoY basis
Key triggers for future price performance
· The company continues to win multiyear deals in Cloud transformation, cyber security, etc, as new deal bookings continue to be strong
· Maintains revenue guidance of 12-14% revenue growth in CC for FY23E and EBIT margin of 18-20%. However, now it has guided at the lower end of the band of 18% for EBIT margin
· Revival of P&P business is critical as it is a high margin business
· With improvement in large deal wins, expansion in geographies, investment in sales & capabilities, we expect HCLT to register 12.0% CAGR in FY22-24E
The Tata group company's net profit fell 98.7% year-on-year to ₹1.22 crore. Revenue rose 10.5% to ₹666.4 crore. Ebitda fell 84.3% to ₹24.13 crore, and operating margin dropped to 3.62% from 25.46% a year ago.
Intraday Picks
DIVISLAB (PREVIOUS CLOSE: 3,779) BUY
For today’s trade, long position can be initiated in the range of Rs3,755- 3,730 for the target of Rs3,890 with a strict stop loss of Rs3,680.
SRTRANSFIN (PREVIOUS CLOSE: 1,269) BUY
For today’s trade, long position can be initiated in the range of Rs1,257- 1,249 for the target of Rs1,294-1,310 with a strict stop loss of Rs1,229.
BOSCH (PREVIOUS CLOSE: 16,367) SELL
For today’s trade, short position can be initiated in the range of Rs16,480- 16,570 for the target of Rs16,050 with a strict stop loss of Rs16,760.
There is only 20-30% likelihood of a global recession and chances of prolonged stagflation in the economy seem more, according to State Bank of India research report Ecowrap's latest edition, which has projected that India's inflation rate is expected to come closer to 5% by March 2023.
"The fear arises that spiralling inflation and an aggressive monetary policy tightening cycle may lead to the recession, particularly in the US economy. However, the fear is unfounded," it said.
In India, retail inflation has been over the Reserve Bank of India's upper tolerance band of 6 % for the sixth consecutive month in a row in June. Retail inflation came in at 7.01% in June.
"CPI inflation moderated slightly to 7.01 per cent in Jun 2022 as compared to 7.04 per cent in May 2022 due to moderation in food inflation. The June data now confirms the fact that peak had passed," the report said.
Mindtree lost more than 3% to ₹2,812 apiece on the BSE in Thursday's opening deals. The IT company on Wednesday posted a 37% rise in net profit at ₹471.6 crore for the three months that ended on June 30, 2022. This was driven by improved operational efficiencies, increased utilization and revenue growth.
The Indian rupee weakened in opening trade on Thursday to hit record lows against the greenback for a fourth straight session after data showed U.S. inflation, already at four-decade highs, accelerated even further.
The rupee was trading at 79.75/76 per dollar, compared to its close of 79.63 on Wednesday. The unit touched a life low of 79.77.
Like most businesses, the technology services industry was thrown into a tailspin during the global financial crisis of 2008. Then, all IT services companies, save for two, slowed down on hiring.(Read more)
Nomura on Wednesday sharply lowered India’s gross domestic product (GDP) growth forecast for 2023 to 4.7% from 5.4% estimated earlier on the back of the global economic slowdown, elevated inflation and rising interest rates. However, it maintained its growth projection for 2022 at 7.2%, highlighting a robust near-term economic growth outlook.
Falling crude oil prices on fears of an impending global recession could help offset inflationary risks in the economy, arrest the rupee’s free fall, boost corporate margins and slow the pace of interest rate hikes, analysts said.
Crude prices continued declining on Wednesday after a selloff on the previous day when prices tumbled by about 8% to breach the $100 per barrel mark for the first time in three months, on concerns about a global economic slowdown and growing covid cases in China. (Read more)
# Mindtree reported a strong performance in 1QFY23 with EBIT margin coming in at 19.2%, 75bps above our estimate of 18.4%.
# Revenue grew by 4% QoQ/29% YoY in USD to US$399mn, 0.7% above our estimate of US$397mn (consensus US$399mn). Sequential constant currency growth came in at 5.5% vs. our estimate of 3.7%. (consensus 4.9%)
# EBIT grew by 9% QoQ (up 47% YoY) to Rs5.9bn while EBIT margin stood at 19.2% (up 23bps QoQ /up 144bps YoY), 75bps above our estimate of 18.4% and 85bps above consensus estimate of 18.3%.
# Its net income stood at Rs4.7bn (flat QoQ/ up 37% YoY), while adjusted net margin came in at 15.1% vs. our estimate of 15.2%. Net income was impacted by lower non operating income, which fell by 45% YoY and 56% QoQ to Rs395mn.
Our View: The company reported strong performance in 1QFY23 beating our estimates across all parameters. We expect the company to report healthy revenue due to strong deal pipeline and strong order book. The revenue contribution from top clients increased by 110bps QoQ to 26% which is high compared to the mid-cap peer group. At present, we have SELL rating on the stock.
ACC, Angel One, GTPL Hathway L&T Infotech, Tata Elxsi, and Tata Steel Long are some of the companies that will also be in focus as they declare their June quarter earnings on Thursday. (Full report)
Benchmark equity indices Sensex and Nifty may open in the red and remain under pressure amid shaky global markets. Domestic markets reversed their early gains to close lower for the third day on Wednesday due to selling in oil & gas, banking and IT stocks.
The 30-share BSE Sensex declined by 372.46 points or 0.69% to close at 53,514.15, while Nifty 50 ended 0.6% lower at 15,966.65.
The Federal Reserve said price increases remained “substantial" across the US in recent weeks though some areas saw signs that inflation is cooling, amid indications of a slowdown in demand and rising worries of a recession.
While economic activity “expanded at a modest pace, on balance, since mid-May," several Fed regions “reported growing signs of a slowdown in demand," and some contacts noted “concerns over an increased risk of a recession," the Fed said Wednesday in its Beige Book report, typically published two weeks before each meeting of the policy-setting Federal Open Market Committee.
The Fed’s report came hours after another government release showed June consumer prices rose 9.1% from a year earlier, the fastest in more than four decades. (Bloomberg)
Oil fluctuated near $96 a barrel as sizzling US inflation data raised the prospect of more aggressive interest rate hikes, while high gasoline prices are starting to taking their toll on consumption.
U.S. West Texas Intermediate crude for August delivery was at $95.93 a barrel, down 37 cents, or 0.4%, after rising 46 cents in the previous session.
Stocks and US equity futures struggled Thursday after sizzling US inflation data hardened expectations for more aggressive Federal Reserve monetary tightening that could lead to a recession.
An Asian share gauge dipped amid declines in China and mixed performance in Japan and Hong Kong. S&P 500 and Nasdaq 100 contracts shed about 0.5%. Japan’s Topix index added 0.1%; South Korea’s Kospi index dropped 0.3%; Australia’s S&P/ASX 200 index added 0.4%; China’s Shanghai Composite index fell 0.4%; Hong Kong’s Hang Seng index shed 0.1%
US stocks finished lower on Wednesday as a shockingly hot US inflation report rattled financial markets, boosting bets the Federal Reserve could get even more aggressive with its rate tightening move.
The S&P 500 ended 0.4% lower. The Dow Jones Industrial Average fell 0.7%, while the Nasdaq composite dropped 0.2%, erasing nearly all of an early 2.1% loss.
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