Vijay Kumar Gaba

Chemical Sector (SMIFS Limited)

Our chemical channel checks suggest that slowdown in dyes, pigments, FMCG, etc still persist in December 22 and increasing central bank rates across countries to control inflation is weighing heavily on the demand & prices of commodities chemicals. Although commodity chemical prices are witnessing a rebound from the bottom in anticipation of strong demand in the coming months and minimal channel inventory.

Despite global headwinds, India remains on a strong footing in chemicals led by increasing interest of global companies to source from India to de-risk their supply chain, increasing share of specialty chemicals in overall product mix and robust capex aligned by chemical companies to capture future growth.

Since, China is relaxing its COVID curbs hence demand is expected to remain robust, although Chinese New Year which starts from 22nd January and ends on 5th Feb 23 can be a short term demand dampener.

The trends are mixed and so the commodity and speciality chemical prices trend are not clearly indicative of its fundamentals, however, as demand kicks in post near term hiccups we expect speciality chemicals is a suitable theme to bet on in 2023 since valuations are comfortable and India is likely to increase the market share in global chemical exports.

Consumer Finance (Jefferies Equity research)

Loan growth at NBFCs accelerated in 2022 & the momentum should sustain in 2023. NIMs should dip as higher rates are fully reflected in CoF, esp. at auto NBFC & AHFCs. Asset quality and credit costs should be stable.

Strong loan growth at auto NBFCs like Chola & AHFCs should drive healthy PAT growth, despite lower NIMs. Potential bottoming of NIMs largely by 2Q FY24 can be a re-rating trigger. Top picks are Chola & Aavas; risk-reward seems unfavorable at MMFS.

IT Sector Q3FY23 Preview (Emkay Equity research)

Revenue growth momentum is likely to moderate in Q3 due to furloughs, lower number of working days, deferred spending by few clients, and increased cautiousness among clients amid macro uncertainties. We expect revenue growth of 0.8-3.7% CC QoQ for Tier-1 companies and of -0.4% to 3.4% for mid-cap companies.

Except for LTIM, EBITM is expected to expand by 20-100bps QoQ for Tier-1 companies and 20-50bps for mid-cap companies on account of flattening employee pyramid, optimization in subcontracting costs, operating efficiencies, and rupee depreciation.

Nifty IT index gained ~6% in the last 3M, largely in line with the broader market indices. Risks of recession and potential cut in FY24 revenue remain; however, margin resilience and weak rupee would limit earnings cut. We roll forward our TP to Dec-23 across our coverage universe. Our pecking order is WPRO, INFO, TECHM, HCLT, and TCS among Tier-1 players, and Zomato, MPHL, BSOFT, FSOL, and PSYS among mid-caps.

Auto sales December 2022 (Nirmal Bang Institutional Equities)

Auto OEMs in Dec’22 posted a mixed set of trends across segments. Changing customer preferences towards SUVs and shunning of entry segment cars led to a sharp disparity in volume performance.

The rising cost of ownership for entry segment PV/Car has been a major deterrent in the revival of demand in this segment. Thus, despite higher discount levels, demand for the entry segment cars remains muted. Even exports have been impacted by the adverse geopolitical situation. Overall PV industry wholesales grew by 15% YoY to 3.1 lakh units.

Companies were also looking to clear the inventory before the calendar year-end. Also, with a sharp increase in COVID cases in a few countries, OEMs have turned cautious again.

In 2Ws, overall volume declined by 8.5% YoY and 5% MoM, largely impacted by weak export markets. We expect the export markets to remain muted on account of continued stress in the global economy amid USD unavailability and high inflationary trends. In the domestic market, going forward, we expect rural demand to catch-up on the back of improving consumer sentiments and high income levels driving domestic 2W demand, partly offset by headwinds such as elevated ownership costs and consistent price hikes.

EVs continued to see greater adoption in both 2W as well as PV segments. Strong new model pipeline and elevated fuel prices will continue to drive EV sales going ahead.

Tractor sales improved by 25% YoY mainly on the back of upbeat rural sentiments besides higher discount levels. Furthermore, pre-buying ahead of the upcoming emission norms in the 50HP+ segment led to the strong YoY growth. Going forward, good progress in sowing of Rabi crops and higher MSPs will likely aid demand for tractors in the near term.

In CVs, overall volume improved by 12% YoY, led by double-digit improvement in volume posted by all major OEMs, except Tata Motors. MHCV demand continues to remain healthy, led by traction in construction and mining activities as well as pent-up replacement demand. Even Passenger Carriers continued to witness strong demand momentum. While steady freight rates continue to keep the CV demand steady, rising interest rates remain a key deterrent.

Auto Components (Kotak Securities)

We expect auto component companies under our coverage to report a 1% qoq revenue decline (17% yoy growth) due to (1) a decrease in the 2W and PV segments’ volumes, and (2) weakness in export markets, offset by (1) low single-digit growth in replacement segment (tires and batteries), and (2) higher ASPs due to price hikes during the quarter. We expect the EBITDA margin to improve 40 bps qoq, mainly due to RM tailwinds, partly offset by negative operating leverage.

Cement sector (IDBI Capital)

Our interaction with cement dealers suggests that the avg. cement price at all India level has declined by 2% MoM in Dec-22. Historically we have seen that in December prices go soft. Importantly, decline in Dec-22 has come after three consecutive months of price hikes. And thus, average cement prices on QoQ basis have improved by ~2% in Q3FY23. Post sharp decline in energy prices in Oct’22/ Nov’22; first half of Dec’22 saw an increase in energy prices, though prices are softening again in second half of Dec’22. Demand recovery is seen in Nov-22 (up 28% YoY), supported by low base and overall pick up in demand. We expect cement companies to report earnings recovery in upcoming quarters led by demand revival, price hike and lower cost.

Farm input (IIFL Securities)

Global Agri-Commodity Price Index is trending above the long-term average. Remunerative Crop prices and tight Agri-inventory positions, will keep Agrochemical and Fertiliser consumption healthy. Indian Fertiliser players will benefit from subsidy disbursements and favourable Farm policies, from the FY24 (pre-election year) budget.

According to CRISIL, Indian Agrochemicals sector is expected to grow 15-17% in FY23 and another 10-12% in FY24; thanks to tailwinds from the ‘China Plus One’ strategy of global players and key molecules going off patent. Exports are likely to grow 12-14% in FY24, driven by capex investments towards molecules going off-patent, over next two years.

From this space, exporters and companies with global presence such as UPL and Anupam Rasayan, would benefit. As reiterated in the Chemicals section, from Agchem CSM point of view, we prefer SRF over PI Industries and Navin Fluorine. We would like to remain sideways on companies having exposure to domestic market such as Bayer Cropscience and Rallis India, due to risk of Supply Chain issues on Raw Material dependence outside India and limited triggers for growth.

Insurance Sector (CARE Ratings)

The domestic non-insurance industry’s total premium grew from Rs. 1.3 lakh crore in FY17 to over Rs. 2.2 lakh crore in FY22 i.e., CAGR of nearly 11.5%.

The gross premiums of the non-life insurance industry in India are expected to grow at 13%-15% over the medium term backed by supportive regulations and economic activity. Health, which is expected to cross the Rs 1 lakh crore mark, along with motor that is envisaged to reach the Rs 85,000 crore level by FY24, would continue to constitute the primary levers of non-life insurance growth.

Nifty in Seventh heaven (Motilal Oswal)

Over the last seven years (CY16-CY22), Nifty has consecutively delivered positive returns despite a multitude of disruptions (Demonetization, GST, Covid-19, etc.) along the way.

Ø  The Nifty-50 delivered a ~14% CAGR (up 2.2 times) during the period. The last such rally was seen way back in CY02-07, when the benchmark rallied for six consecutive years clocking a CAGR of 41% (up 5.6 times).

Ø  Notably, even though the index was up for seven years in a row, there are only two sectors – Oil & Gas and Financials, which have delivered positive returns in all these seven years.

Ø  Only two of the Nifty-50 stocks, Reliance Industries, and HDFC Bank have delivered positive returns in each of these seven years. However, none of these stocks has outperformed the benchmark in all these seven years.

Ø  Four stocks have outperformed Nifty-50 in six out of seven years – Reliance Industries, Bajaj Finance, Adani Enterprises, and JSW Steel. Coal India has underperformed Nifty-50 in six out of seven years, while five stocks BPCL, Cipla, Dr Reddy’s Labs, ONGC, and Tata Motors have underperformed in five out of seven years.

Ø  Within Nifty-50, Bajaj Finance and Asian Paints decline first time in CY22, after ten consecutive years of positive returns.