Vijay Kumar Gaba

Economy: Activity holds up; strong sequential rebound led by seasonality (Nirmal Bang)

Early data for March’23 indicate that 78.1% indicators were in the positive territory on YoY basis, up from 68.8% in Feb’23. Final data for Feb’23 indicate that 71.4% indicators were in the positive territory on YoY basis.

On a sequential basis, there was a sharp rebound in March’23, led by seasonality. Around 75% indicators were in the positive territory in March’23, up from 50% in Feb’23. Final data for Feb’23 indicate that 34.7% indicators were in the positive territory.

Urban unemployment edged up to 8.5% in March’23 from 7.9% in Feb’23. Rural unemployment rose to 7.5% in March’23 from 7.2% in Feb’23.

Rural wages have sustained their rebound since mid-FY23 and rose by 8.1% YoY in Jan’23 vs. 7.6% YoY jump in Dec’22. In other rural indicators, tractor sales continued to hold up, growing by 13.7% YoY in March’23 vs. 20% YoY growth in Feb’23 (up by 32.9% MoM). Two wheeler (2W) sales grew by 9% YoY in March’23 (up 8.8% YoY in Feb’23) and were up by 14.2% MoM.

Motor Vehicle sales grew by an estimated 12.8% YoY in March’23 and were up by 12.2% MoM. Commercial Vehicle (CV) sales grew by 12.8% YoY in March’23 (up 3.2% YoY in Feb’23) and were up by 27.8% MoM. Passenger Vehicle (PV) sales grew by 4.5% YoY in March’23 (up 11% in Feb’23) and were flat MoM.

The S&P Global Manufacturing PMI improved to 56.4 in March’23 from 55.3 in Feb’23. Manufacturing as measured by the Index of Industrial Production (IIP) grew by 5.3% YoY in Feb’23.

The S&P Global Services PMI moderated to 57.8 in March’23 from a 12-year high of 59.4 in Feb’23. Traffic indicators moderated from peak levels or were largely flat. Diesel consumption was up by 1.1% YoY in March’23 (up 7.4% YoY in Feb’23) and petrol consumption was up by 6.8% YoY in March’23 (up 8.8% YoY in Feb’23).

Banks’ credit-to-deposit ratio continued to inch up and stood at 75.8% in March’23. Bank’s non-food credit growth continued to moderate gradually and stood at 15.4% YoY in March’23 (up 15.9% YoY in Feb’23), although it was up 1.8% MoM. Deposit growth continued to remain under pressure at 9.6% YoY in March’23 but it was up 1% MoM.

Near-term outlook for economic activity remains uneven (ICRA)

External demand is expected to be cautious following the ongoing geopolitical tensions and continuing Monetary Policy tightening by major Central Banks of some advanced economies, which could weigh on merchandise and services exports.

The GoI has enhanced high-multiplier capital spending in the Union Budget for FY2024. The large pipeline of infra projects, scheduled to be completed in FY2024, will aid in pushing project commissioning and thereby support investment demand. Timely execution remains the key.

Private sector capex is likely to pick up in FY2024 amid the rise in value of new project announcements, improving capacity utilisation levels, PLI schemes and GoI initiatives pertaining to clean energy. Besides, the GoI’s capex push has the potential to ‘crowd-in’ private capex.

Consumption of services remains quite robust while demand for goods is somewhat uneven. A sustained moderation in inflation would be the key to support consumption of low- and middle-income households.

India strategy: Behind the relief rally are incipient concerns on banking (Systematix)

India’s ranking moves up amid optimistic projections, while ROW factors in a recessionary scenario: Following the relief rally post the recent global banking debacle, our global ranking for Nifty has moved up from 13 to 6 since the end Feb’23 on the back of only a modest downgrade F1 EPS by 0.5% compared to the pervasive cuts in expected earnings and ROEs for major global benchmark indices reflecting the deepening worries about a global recession. Notably, European benchmarks, China, and the US have seen sharper declines. India’s upgrade is despite rich valuations- Nifty (49% higher than the global average F1 PE of 14.4x) and Sensex (57% higher). India’s growth optimism embodies a decoupling thesis of sorts, which is unsustainable.

India earnings outlook: Further earnings downgrade potential remains: We expect further downside surprises to earnings due to a) lower than expected margins (as also demonstrated by initial 4Q results), b) deceleration in bank credit growth, c) slowing urban demand, and d) weak real GDP growth (4.4% in 3QFY23) amid global spillovers. Rural demand is on a moderate revival path. Hence, the forward consensus projection for NIFTY EPS growth of 14.3% CAGR (FY22-FY25E) is significantly optimistic; we continue to expect downgrades.

Episodic bounties for Indian banks dissipating now: Extending our earlier UW view on banks and BFSI sectors in general, our latest analysis and evidence fortify prospects of deceleration in lending growth and re-emergence of NPA cycle. Sectoral allocation of bank lending for Feb’23 reinforces the evidence that there is a broad-based deceleration in industrial lending even as lending to retail and NBFC remains robust. We believe with a lag the latter will also see a moderation. The slowdown in mortgage lending could be a precursor. In a scenario of credit growth decelerating to 10% from the current 15% and retail inflation falling from 6.7% to 5%, the GNPA ratio could rise by 200bps!!

Rising probability of rural wage-price; OW on consumption remains: The structural rise in dependence on the Agri sector, trend rise in cereal consumption, and the weather anomalies point towards the sustenance of rising wage-price spiral and higher terms of trade for the Agri sector. The expected drags on non-agri rural from lower remittances from urban areas and cutback in rural allocation in the Union Budget are juxtaposed against the imperative of the upcoming state and general elections. These will eventually force populism favoring the rural sector, Hence, our OW views on staples and agri sector remain supported.

Steel industry faces cost-competitiveness test as EU implements CBAM (CRISIL)

The cost of India’s steel exports to the European Union (EU) could rise as much as 17% following full implementation of the Carbon Border Adjustment Tax Mechanism (CBAM), which mandates stringent disclosures and purchase of carbon credits to offset the impact of emissions. Accounting for greenflation, which will drive overall steel prices higher, the total impact could be as high as 40%.

Under the mechanism, which the Council of the EU and European Parliament have agreed to implement from October 1, 2023, importing EU nations will seek quarterly disclosures across seven emission-intensive sectors from April 2024, and to gradually penalise emission differentials between 2026 to 2034 through purchase of carbon credits to bridge the cost differential with steel produced in the EU.

The seven sectors – iron and steel, aluminium, cement, fertilisers, electricity, as well as chemicals and polymers — account for ~35% of India’s exports to the EU in the merchandise space.

The EU move is a part of a long series of global emission-reduction measures implemented in recent years — such as COP26, under which India committed to Net Zero by 2070, and COP27, under which the milestone targets have been made more aggressive.

To be sure, the “common but differentiated responsibilities” formalised under United Nations Framework Convention on Climate Change have placed enhanced flexibilities on developing economies, providing them an opportunity to choose differentiated timelines for meeting Net Zero goals.

However, regulations such as CBAM, through which the EU wants to prevent an increase in outsourcing of product manufacturing to countries where implementation linked to carbon emission reduction is slower than in the EU — plugging carbon leakage as it were — may go a step beyond and force specific industries to expediate implementation or face heightened risk for business loss or cost-competitiveness.

Under CBAM, exporters will need to make quarterly reporting of emissions starting October 1, 2023, and from December 31, 2025, buy Emissions Trading System (ETS) certificates for their greenhouse gas emissions.

In the absence of a carbon-neutral technology, industries have been allocated free allowance starting at 100% in 2025 and ending at 0% by 2034. The ETS tax would be gradually applicable to the portion that does not enjoy the allowance.

Dollar’s rate advantage is narrowing (ING Bank)

The week has started with the market leaning again in favour of European currencies and the dollar losing some ground. The price action in short-dated bonds showed a reinforcement of European hawkish bets while the whole US Treasury yield curve inched lower.

While a 25bp hike next week by the Fed does not look under discussion, Fed rate expectations have remained rather un-anchored and volatile when it comes to future policy moves. This continues to leave ample room for speculation about Fed Chair Jerome Powell’s tone in terms of future guidance. While data will clearly play a role, recent developments in the US banking sphere are creeping back onto investors' radars. First Republic Bank reported a larger-than-expected drop in deposits in its quarterly results, sparking a new round of heavy selling in the stock after a prolonged period of calm.

Should there be fresh instability in US banking stocks, dovish Fed bets may gather more momentum, and despite its safe-haven status, the dollar could stay on the back foot to the benefit of European currencies backed by hawkish central banks and without an excessively high-beta to sentiment.

Engineering and Capital Goods (Nuvama)

India’s capex landscape has been growing energetically since FY19, evident in governmentspending data and nominal GDP growth (Exhibit 1). This begs the question– where is the money being spent? Our study of India’s capex data notes a definite uptick in ordering across ‘three key legs’ of capex growth – Railways, Renewables and Power T&D coupled with conventional industrial/infra capex. We also observe a strong degree of conviction in opportunities in new age frontiers such as EV ecosystem, data centres and defence. This brings to the surface multi-year growth opportunities in transmission and railways – each potentially bagging meaty orders (INR120–150bn annually for HVDC transmission; INR250–350bn annually for locos plus trainsets product value for railways).

Transmission: The power demand-supply dynamic in India (link) clearly spells out that, if India is to avoid a power deficit by FY28–30, its plan of adding 30–40GW/year of renewable energy (RE) comes to stand as more of ‘a need’ than ‘a choice’. The natural deduction is that this will need to be connected, and to connect RE at this scale an equally large transmission capex is imperative (INR2.4tn as per CEA estimates; Exhibit 6). Given the backdrop, we estimate PGCIL’s capex (a barometer for India’s transmission capex) will likely double over the next two–three years. Hence, a fresh capex cycle in power transmission has already begun after a gap of ~4–5 years. Capex is expected across high voltage (rising CAGR) and medium/low voltage range (bulk of volumes), at the ISTS level. CEA estimates INR2.4tn to be spent in this area over FY24–30. India plans to add transmission lines/substations in the 400–800KV range, along with four large HVDC projects (worth approx. INR1tn).

Railways/new age capex: The mega push in rail capex will benefit the entire industrials value chain over this decade. Cyclically strong industrial capex (conventional segment) along with new-age areas such as EV ecosystem, data centres, RRTS/metros, wastewater management, warehouse and logistics, defence, smart infra etc. will continue to drive order inflows especially in low/medium voltage T&D products and relevant equipment suppliers through the next decade.

The growth story continues with > 1,100 loco orders expected annually for the next 2–3 years (vs. 700 till FY21). Of ~1,000 VB train sets, ~302 have been ordered and 600–700 more VB train orders are expected in future. Siemens is present across locos and trainsets (partner required) and we factor at least one more large loco/train set order by FY25E (INR100bn).

Industrial equities across our coverage universe have significantly re-rated over the past ~12–24 months, led by high industrial capex/infra momentum, which is evident in order inflows growth (across sector) and margin expansion (not yet broad-based). Most MNC equities  are currently trading above their long-term medians.

FMCG - Macro situation yet to recover (IIFL Securities)

For FMCG to grow well, good income growth in the low-income consumers is required. These consumers have two main sources of income viz Farm income and wages. Previously, when Farm income and wage growth is robust, FMCG companies tend to post strong sales growth and vice versa.

Past 20 years can be divided into 3 periods: FY00-06 when sales growth was weak, FY07-14 when it was strong and FY15-20 when it was weak again. The strong/weak periods of FMCG growth coincided with strong/weak periods of Farm inflation and Wage inflation.

Wage growth improving: While writing our CY23 outlook, the real rural wage growth (for Sep ’22) was -2.7%. It has now improved to -0.5% (for Jan ’23), but is still not healthy enough to boost growth. Moreover, Non-agri real wage growth is even poorer at -1.4%, denoting slow pickup in economic activity outside of agriculture. The improvement over past few months is led by both nominal wage growth improving and inflation moderating. While currently still lacklustre, the trend if continued will be positive for FMCG players. We need real wage growth at ~2% or higher to sustain good volume growth.

Farm inflation moderating: While real wage growth has shown some small improvement, our proprietary IIFL Farm index has been lacklustre since past few months, and is showing a 3% YoY inflation in Feb’23. Vegetable prices, down ~20% is the main reason, despite cereals and milk prices witnessing double-digit inflation. Moreover, assuming that prices remain stable at current levels, YoY inflation will trend lower than the current 3% for each of the next 12 months.

We need further sequential inflation to pick up for the YoY growth to continue meaningfully. Over the past 3-5 months, the index has been largely flat. For FMCG growth to be strong, we need Farm inflation equal to or higher than CPI.

How to play the sector: Visibility of a good growth is better for Food companies in near term. Investors with short-term horizon can invest in Food companies, whereas HPC investors may require a slightly longer horizon. We recommend that investors start off with large companies currently in absence of visibility on the time and extent of recovery, and then shift into smaller companies in inverse proportion to the strength of the expected recovery as and when macro indicators suggest it. This is because large companies are better suited to weather the storm on account of their strong brands, better management talent, systems and processes. Smaller players tend to have a leverage to recovery as consumers as well as wholesalers increase the repertoire of categories and brands when demand conditions are robust.

Microfinance Industry Beats Covid Blues, Likely to Grow by 25% in FY24 (CARE Ratings)

The Microfinance industry (MFI) experienced a growth spurt in 9M FY23, expanding at a rate of 12% Y-o-Y due to a favourable macroeconomic climate and renewed demand from tier-III cities, which has led to a surge in disbursements over the past few months. NBFC-MFIs have surpassed banks in the overall microfinancing landscape, constituting approximately 38% of the total outstanding microfinance loans as of December 31, 2022, compared to 36% for banks.

CareEdge Ratings anticipates growth momentum to continue, with the NBFC-MFI portfolio growing at a rate of 20%-25% over the next 12-18 months. However, an increase in interest rates, high inflation, or another wave of Covid-19 could potentially impede economic growth and, as a result, impact the Microfinance sector adversely.

The removal of the lending rate cap by the Reserve Bank of India (RBI) has enabled MFIs to engage in risk-based pricing, which has boosted net interest margins (NIMs) and, in turn, increased returns on total assets (RoTA).

Credit costs have declined from their peak in fiscal year 2021 but still remain higher than pre-Covid levels, with a portion of the restructured book slipping into NPA. We expect NIMs to continue improving, resulting in RoTA rising to approximately 3.25% for fiscal year 2024, aided by controlled credit costs of approximately 2.5% for the same year.

Asset quality, although on an improving trend, still remains moderate as compared to the pre-Covid level owing to additional slippages arising from the restructured portfolio. The MFI sector has taken the cumulative impact on the credit cost of around 13% of average assets from FY21 to H1FY23 due to Covid-19. However, with an improving collection efficiency trend, GNPA is expected to improve to 3.5% and 3% in FY23 and FY24 respectively from a peak of 6.26% for FY22.

In terms of capital structure, NBFC-MFIs have managed to raise ₹3,010 crore of equity in 9MFY23, compared to ₹1,506 crore and ₹1,431 crore in FY2021 and FY2022, respectively, indicating a renewed interest from investors.

Nevertheless, due to the current global turbulence, investors are likely to exercise greater caution and selectivity in the future. Additionally, with increased support from investors and rising disbursement levels, the gearing level was 3.7x and 3.6x as of March 31, 2022, and December 31, 2022, respectively. We anticipate that the gearing level for the MFI sector will moderately increase to around 3.9x by March 31, 2024.

NBFC-MFIs Outpace Banks

The microfinance industry has experienced a shift in market share, with NBFC-MFIs overtaking banks for the first time in four years. While banks held a dominant position during the Covid-19 period, the growth rate of NBFC-MFIs has now surpassed that of banks, resulting in NBFC-MFIs commanding a higher market share in the overall microfinance sector. As of 31st December 2022, NBFC-MFIs contributed around 38% to the outstanding overall microfinance loans, compared to banks' 36%. With a growth rate of around 20% till 9MFY23, NBFC-MFIs are currently leading the industry.

Nominal GDP growth could be ~7.5% in FY24 (MOFSL)

It is remarkable that the first three months of 2023 have already witnessed several different moods. The year began with very strong optimism on global economic growth; however, from mid-Feb’23, the positive sentiment started fading with US economic data turning out to be much stronger than expected. With the collapse of Silicon Valley Bank on 10th March 2023, the caution was quickly replaced by serious concerns. The US Fed hiked rates by 25bp this week, continuing its inflation fight. As highlighted in our earlier QEO, owing to increasing growth concerns in the US economy, inflationary concerns will take a back seat in 2HCY23.

India, however, seems to be shrugging off these developments so far. Real GDP growth continues to remain strong but we keep our forecasts broadly unchanged at 7%/5.2%/5.6% in FY23/FY24/FY25. We see nominal GDP growth at 16.3%/7.7%/10% in FY23/FY24/FY25, slightly higher than 14.7%/7.3%/9.3% expected earlier.

Going by the recent inflationary trends and unexpected surge in food prices (especially cereals), we have raised our CPI-inflation projections to 4.6%/5% from 4.3%/4.8% for FY24/FY25. However, we continue to believe that the rate hike cycle is close to an end, with the terminal repo rate likely to be 6.75%. We expect a 25bp hike in Apr’23, after which, the rates may remain unchanged till late-CY23.

India’s external situation had worsened significantly in 1HFY23, but the worst is already behind us. We expect CAD to stay ~3% of GDP in 3QFY23, before easing further in 4QFY23. We expect it to remain comfortable at <2% of GDP in FY24/FY25. Nevertheless, we expect INR to cross 85/USD by mid-CY23, before retreating in 2HFY24.

Weather anomalies to sustain high food inflation (Systematix Institutional Equities)

Risk of weather anomalies on the agricultural produce and the food grain production is imminent. This is expected to create shortages at several fronts, given the renewed uptrend in food grain consumption over the last few years.

Given that the government buffers have been drawn down considerably due to the free food grain distribution program, the impact of the immediate weather anomalies have the potential of sustaining high food inflation.

These weather anomalies are also creating disparities between small, medium, and large farmers as adaptation of expensive technologies and agricultural inputs can be afforded more easily by the large farmers.

Therefore, policy responses are needed on multiple fronts including post harvesting storage infrastructure, water management and technological support to the wider set of the farming community to create resilience against weather anomalies.

·         Extreme temperature events are expected to happen more frequently; anomalies likely to be larger in North than South India. However, this increase in temperature is not bad news for all the crops. For example, the production of chickpeas benefits from a slight increase in temperature during the winter season. Similarly for potatoes, if the minimum temperatures are rising to some extent, it benefits.

·         The recent bouts of widespread rains are worrisome, and it is highly likely that productivity and production levels to remain strained. It happened when farmers were carrying out their irrigation process. However, the extent of the strain is yet to be determined. Not just wheat but several other crops got impacted particularly those having later phase of maturation of the crop. It seems to be a type of an alarming situation of the recent extreme climatic events.

·         Impact of El Nino is not expected to have a direct impact on the Indian monsoon. Historical records suggest that its impacts are not as straightforward. Therefore, it is too early to comment on the magnitude of its impact on the Indian monsoon. We have to wait and watch for some time.

·         Technological adaptations are only visible in some clusters of farming community suggesting that there is an evident gap in technology generation and technology adoption. Medium and large farmers are incurring substantial spending in their farm management. However, due to excess use of nutrients than required (unnecessary application of more nitrogen and pesticides, more irrigation because of the availability of those resources with them), it is damaging their agricultural system.

·         Household-level analysis indicate that the small and marginal farmers are prone to face severe losses due to climatic stress and are also susceptible to incur substantial adaptation losses as compared to medium and large farmers.

Real Estate-Demand & supply fall MoM; outlook positive (Nuvama Institutional Equities)

Housing demand in India’s top seven cities declined 2% MoM (up 17% YoY) in Feb-23. Launches continued to trend down, falling 39% MoM/21% YoY. YTD (i.e. CY23) demand increased 13% YoY; however, supply slid 18% YoY. Unsold inventory continued to decline (down 9% YoY/3% MoM) in Feb-23 with inventory months falling to 18 months from 25 in Feb-22 (18 months in Jan-23). Prices rose YoY in all the cities during the month.

Despite rising interest rates as well as housing prices, we believe the sales momentum would sustain, particularly for organised developers.

Launches continued to fall in Feb-23, with supply down 39% MoM/21% YoY. Hyderabad witnessed the highest fall of 86% MoM, followed by Chennai. Kolkata and the NCR witnessed new launches shooting up 104% MoM and 57% MoM, respectively. YTD launches are down 18% YoY, though they surged ~200% YoY each in the NCR and Chennai.

With demand outstripping supply over the past year, unsold inventory dipped 9% YoY in India in Feb-23. Bengaluru, Pune and Kolkata saw the maximum rate of correction in inventory (18–22% YoY). Inventory pan-India improved to 18 months in Feb-23 from 25 months in Feb-22. Average prices increased in all cities YoY in Feb-23.

Apparel Retail (ICICI Securities)

Companies having higher exposure to tiers-1&2 cities and value-pricing are likely to outperform: We expect companies that are over-indexed (~65-70% retail presence) to tier-1 and tier-2 cities with higher exposure to value price points to outperform in the apparel retailing space. Amongst branded players, we expect Madura, Arvind, Go Colors, SHOP, Manyavar and Kewal Kiran to be relatively less impacted by the general slowdown. However, amongst value retailers, we expect Westside and Zudio (each ~69% stores in tiers-1&2 cities) to likely outperform even the branded players by achieving >15% SSSG.

South and west regions to outperform north and east: As per our channel checks, we note that south and west regions are relatively less impacted by the general slowdown and are outperforming other markets. This we believe is led by: (1) higher share of urbanisation (chart-3), (2) higher disposable incomes due to larger share of developed industries such as IT, pharma and manufacturing. In our coverage universe, we note that DMART, Go Fashion, Westside and Zudio have higher exposure (68-96% of their overall retail presence) to south and west regions. However, for brands like US Polo, Flying Machine, Tommy, etc, tier-1 cities in the north are performing well. In north and east, we observe that VMART, W and Aurelia have higher exposure (>50%) to tier-3 and beyond cities, which are facing maximum slowdown.

Rural likely to underperform in Q4FY23: Our channel checks indicate pockets of slowdown in discretionary consumption, especially in rural markets (tier-3 and beyond). Even in the online retail ecosystem, we observe similar trends: overall online customer visits (footfalls) have declined at higher rate (12-43% during Jan-Feb’23 vs Dec’22 (chart 1) for companies that are over-indexed to tier-3 and beyond cities. Consequently, Pantaloons, VMART, W and Aurelia brands (having >45% retail presence in tier-3 locations and beyond) are likely to face revenue growth headwinds during Q4FY23, in our view.

Plastic pipes – growth Structural, Sustainable & Scalable! (Prabhudas Liladher)

Home building materials market (plastic pipes, tiles, wood panel, sanitaryware and faucets) is estimated to touch Rs 2.7tn by FY26 from Rs 1.3tn in FY22. During CY13-20, the sector was impacted by real estate slowdown, GST implementation and demonetization & Covid-19 pandemic over FY16-21, which resulted in single digit growth CAGR of ~6% during same period. The plastic pipe sector, however, has grown at 10% CAGR over FY13- 21.

Indian plastic pipes industry has historically grown faster than the GDP led by multiple factors like real estate, irrigation, urban infrastructure and sanitation projects. Then increased awareness, adoption and replacement of metal pipes with plastic pipes have also aided this growth. Currently, plastic pipes market is valued at ~Rs 400bn with organized players accounting for ~67% of the market. By enduse, 50-55% of the industry’s demand is accounted by plumbing pipes used in residential & commercial real estate, 35% by agriculture and 5-10% by infrastructure and industrial projects. Going ahead, domestic pipes industry growth is projected to witness higher CAGR against the past. Between FY09-21 industry grew at 10%-12% CAGR, while demand is anticipated to expand at 12%-14% CAGR between FY21-25 and more than Rs 600bn by FY25E led by a sharp increase in government spending on irrigation, WSS projects (water supply and sanitation), urban infrastructure and replacement demand.

Long term positive outlook on real estate to benefit building materials: The Indian real estate sector grew at ~10% CAGR from USD50bn in 2008 to USD120bn in 2017 and is expected to grow at ~17.7% CAGR to USD1tn by 2030. The key structural growth drivers for Indian real estate market are rising per capita income, improved affordability, large young population base, rapid urbanization and emergence of nuclear families. Demand for home building materials such as pipe & fittings, sanitaryware & faucets, ceramic and wood panel are correlated to real estate market’s growth. Thus, we believe that plastic pipe sector is expected to deliver healthy growth over long-term.

Healthy volume growth post stabilization in raw material prices: Plastic pipe industry has seen sharp recovery post pandemic. Organized players being well placed to handle fluctuations in PVC resin prices (main raw material) have gained significant market share. The correction in raw material prices, mainly PVC resin prices fell by 57% from recent peak of Aug-21 to Nov-22 and then stabilization in prices at Rs 85-90/kg, are expected to drive the volume.

Plastic pipes industry – fastest growing segment in building materials: The market for plastic pipes is valued at approximately Rs400bn, with organized players accounting for ~67% of the market. By end-use, 50-55% of the industry’s demand is accounted by plumbing pipes used in residential and commercial real estate, 35% by agriculture and 5-10% by infrastructure & industrial projects. Industry grew at 10-12% CAGR between FY15-20, while demand is anticipated to expand at 12-14% CAGR between FY21-25 and is expected to reach more than Rs 600bn by FY25E led by sharp increase in government spending for irrigation, WSS projects (water supply and sanitation), urban infrastructure and replacement demand.

Cement: Demand and prices fizzle out (Elara Capital)

As per our interactions with dealers, sales executives and C&F agents, the cement industry witnessed a muted price trend in March as price hike attempts failed to sustain due to volume push, lower-than-expected demand, and increased discount offerings. Thus, all-India average retail price dropped INR 8 per 50 kg bag MoM to INR 371 in March.

Central India reported a price dip of INR 5 per bag, followed by North India (down INR 6 per bag), West India (down INR 8 per bag), East India (down INR 9 per bag) and South India (down INR 10 per bag). As per market intermediaries, demand in March was subdued due to limited laborer availability in select markets, unseasonal rains, and liquidity issue given delayed payments for government projects and rising interest rates. Market intermediaries in many pockets expect cement firms to attempt price hikes in INR 10-40/bag range in April.

The cement industry witnessed a QoQ improvement in profitability in Q3FY23 post a challenging Q2. We believe margin recovery may continue in Q4 as well, on the back of: 1) better volume, 2) easing cost pressure and, 3) operating leverage benefits.

Bank credit (Axis Capital)

As per the latest RBI Weekly Statistical Supplement (WSS), non-food credit grew 16.0% YoY as of Mar 10, 2023 (vs. 15.9% YoY as of Feb 24, 2023). Outstanding credit increased by Rs 1,054 bn during the fortnight. Overall credit growth (including food) was 15.7% YoY as of Mar 10, 2023 (15.5% as of Feb 24, 2023).

Deposits growth stood at 10.3% YoY (vs. 10.1% YoY as of Feb 24, 2023). Aggregate deposits were up by ~Rs 965 bn during the fortnight. Demand deposits were down by Rs 316 bn while time deposits were up by Rs 1,281 bn during the fortnight.

Certificate of Deposits (CDs) issued during the fortnight ended Mar 10, 2023, were Rs 454 bn vs. Rs 326 bn in the previous fortnight. YTD CDs issued are at Rs 6.3 trn vs. Rs 2.0 trn for YTD same time last year.

On YTD basis, overall loan growth was 13.9% (non-food credit growth at 14.2%) and deposits growth was 9.1%. SLR ratio at the end of the fortnight stood at ~28%.

Loan to deposit ratio (LDR) stood at 74.5% (vs. 74.4% YoY as of Feb 24, 2023) while incremental LDR stood at 107% (vs. 108% as of Feb 24, 2023).

For the fortnight ended March 24, 2023, average system liquidity was deficit of ~Rs 558 bn vs surplus of ~Rs 430 bn in the previous fortnight.

Thermal Power: To Clock 64.8% PLF in FY24; Peak Demand to Grow 6% (CARE Ratings)

After growing at 9.5% and 6.4% in FY23, the base and peak demand are expected to increase by 5.5% and 6%, respectively, in FY24.

•      While the base deficit may remain near 0.5% for FY24, the peak deficit is expected to remain elevated. After spiking at 4% in FY23, CareEdge Ratings predicts it will be above 1% in FY24.

•      Coal/lignite fired thermal plants saw a reduction in plant load factor (PLF) during the Covid-19 lockdown periods, but have rebounded. PLF is estimated to be 63.8% in FY23 and 64.8% in FY24.

•      Thermal power generation accounted for approximately 73% of total generation in India during FY22, and similar levels are expected for FY23. The contribution is likely to be around 72% in FY24. With a substantial increase in renewable capacity and higher output from wind farms (due to improved wind speeds) and better availability of gas at competitive prices by FY25, the contribution of coal/lignite-fired plants is expected to decrease from current levels but likely to remain above 68% in FY25.

•      Coal dispatch to the thermal power sector, expected to peak at around 85% of total dispatch in FY23, is anticipated to continue at similar levels during FY24. Improved captive mine production during FY23 and going forward alleviates some concerns about Coal India Ltd and The Singareni Collieries Company Limited (CIL/SCCL) production ability, transportation bottlenecks, and increasing dependence on imported coal.

Telecom: Rising competitive intensity to delay tariff hikes (Kotak Securities)

R-Jio’s renewed aggression in postpaid and Bharti matching R-Jio’s unlimited data offering on 5G has raised the competitive intensity to attract premium subscribers, and would likely delay the prospects of a tariff hike and 5G monetization, in our view. The new family postpaid plans effectively caps the customer outgo at ~Rs205-235/month and provides an arbitrage for higher-end prepaid subs to move to family postpaid to reduce their outgo per connection. We also note Bharti is already at a premium to R-Jio on headline prices in most packs and taking a unilateral tariff hike (like it took on minimum recharge packs) seems difficult to us.

Industry-wide subscriber trends have been muted (down ~11mn, despite sharp growth in IoT/M2M subs) since the last tariff hike in Dec 2020. With inflation above RBI’s target range, upcoming several key state elections and general election in 2024, we believe tariff hikes would now be deferred until after the general elections. We now build in 20% smartphone tariff hikes from June 2024 (versus Sep 2023 earlier). A delay in tariff hike/5G monetization is clearly a negative, but we remain optimistic on tariff hikes as engagement picks up on 5G and telcos’ shift focus on generating returns after pan-India 5G rollouts (March 2024).

Vi is the worst impacted by tariff hike delays, with its FY2024E cash EBITDA declining to ~Rs63 bn (from Rs80 bn annual run-rate). Without an expedited fund raise, we do not expect Vi’s capex to inch-up meaningfully to bridge the gap on 4G coverage or rollout 5G, which would result in further market share erosion. According to our estimates, Vi stares at a cash shortfall of ~Rs55 bn over the next 12 months and a delay in tariff hike/fund-raise, could lead to Vi shutting shop.