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29 Jun

The Evolving Chemical Sector

The Indian Chemical Sector has developed well in the last 10 years wherein, the companies built their initial capabilities to cater to the demand in the domestic and the international markets. Stepping in the FY23, the sector has many opportunities and growth drivers, and a few headwinds. Let’s discuss them in detail:

Opportunities and Growth Drivers:

China plus one: Supply chain disruptions and raw material unavailability from China caused during the Covid-19 pandemic have made many countries re-think their strategies and their over dependence on China as a raw material supplier. These countries have started reducing their dependence on China and investing in India as a part of the strategy “China plus one”. The Indian Chemical companies will benefit from this arrangement, and due to relaxed policies regarding foreign investments in the companies in this sector.
Hydrogen based energy: The world is looking at hydrogen as a clean alternative for fossil fuels as they aim towards carbon neutrality. The Chemical sector can benefit from this opportunity by becoming key material suppliers (for electrodes, electrolysers), operating hydrogen production assets, distributing or selling hydrogen, and thereby engaging in the emerging hydrogen market.
PLI scheme: The Indian government may bring PLI (production linked incentive) scheme for the chemical sector to boost domestic production and exports. This will help in manufacturing all core chemicals and supplying them to domestic as well as global markets.
Indian opportunity: As India is pushing for green energy and mobility shift to EVs, the Indian specialty chemical companies are well positioned to use their capabilities to create chemicals for batteries, electrolysers and solar panels.
Other tailwinds: The Indian chemical sector is experiencing strong global tailwinds coming from demand for chemicals from pharmaceutical companies, chemicals required for batteries, EV batteries, etc. The companies are expanding their capabilities so as to meet these ever-growing requirements.

Headwinds:

Supply- side issues: Many chemical producers are still dependent on China for procuring their key raw materials. The supply side issues persist as many of the suppliers in China remain shut, or are functioning at little capacity. This has led to increased raw material costs and reduced margins.
High freight costs: As the world struggles to contain high ocean freight costs, many chemical producing companies have to either take a margin hit or have to pass on the costs to their customers.

Is it the right time to invest?

We believe that the headwinds faced by the industry are temporary in nature, and can be dealt with in few quarters. The long-term growth story of the industry remains intact with a growing demand for its products across geographies.
As the stocks remain affected by multiple issues including the Russia-Ukraine war, rising interest rates, high raw material costs, high freight costs, etc. this may be the right time to look at the listed chemical manufacturing companies from a longer-term perspective.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Tanmay Gadre Chemicals #chemicals#growth 0 Comments Read more...

26 Jun

Week in a Nutshell (20-24 June)

Technical talks

NIFTY opened the week on 20th June at 15,334 and closed just below 15,700 on 24th June. The index is trading near the lower Bollinger Band level of 15,370 which might act as a support, although a weak one as the markets have been falling for the past three weeks. On the upside, the 16,200 level might act as a resistance, since a gap was made last week. The RSI (14) at 40 has been consistently coming down.

Among the sectoral indices, AUTO (+6.9%), CONSUMER DURABLES (+4.6%), and FMCG (+4.2%) were the gainers during the week. METAL (-2.7%) was the only loser.

Weekly highlights

All the major US indices have risen from 5.4% to 7.5%, a recovery after two weeks of continuous selling.
The WTI Crude oil fell 1.7% and Brent Crude closed flat for the week after worries about the US economy going into a recession, which means lower oil demand.
The minutes of the RBI MPC meeting got released this week. The rate-setting committee has indicated of further rate hikes are on their way as inflation has been consistently staying above the upper tolerance band of 6%. The RBI has the mandate to control inflation and let it stay at 4% +/- 2%. Hiking or lowering interest rates is one of the prominent tools to control inflation.
Another update related to RBI is the fall in forex reserves that the RBI maintains. The latest data released by the RBI report shows that the foreign currency reserves have fallen by USD 10 bn in the last two weeks as the RBI has stepped up intervention in the foreign exchange market. The RBI has been selling dollars to curb excessive volatility in the exchange rate and prevent runaway depreciation of the Indian rupee. The forex reserves with the RBI now stand at USD 590bn. The rupee has been depreciating against the dollar and now trades below ₹78.2/USD.
The government, from July 1 will ban 22 single-use plastic products such as plastic spoons, forks, plates, etc. Within that also falls plastic straws that come with tetra pack juices, milkshakes, and buttermilk. Manufacturers of such products including Amul, Parle Agro, Dabur, etc are pleading with the government to postpone the ban on straws as an alternative which is paper straws which are largely imported and they cannot be made available in a short span.
After a scare of a few electric two-wheelers catching fire, this week in Mumbai, a TATA Nexon EV car caught fire while parked. Now even though many EV manufacturers are saying that a small percentage of EVs catching fire is normal and is a global phenomenon, it will still create a negative sentiment in the minds of the prospective customers of electric vehicles.
However, good news for internal combustion engine (ICE) vehicles that run on traditional fuels like petrol, diesel, and CNG. Many manufacturers are about to launch their newer models and variants as we approach the monsoon and subsequently the festival season. Multiple test vehicles, covered in camouflage have been located by auto enthusiasts. This has always been a strong indication that upcoming launches are expected very soon.
FII (Foreign Institutional Investors) net sold ₹ 1,15,116 mn and DII (Domestic Institutional Investors) were net buyers this week. DIIs bought shares worth ₹ 1,16,704 mn.

Things to watch out for the next week

At the beginning of the month, economic data watchers will look for GST collection data, and in addition to that, stock market watchers will look for monthly automobile sales volume data. Automobile, a sector that contributes 7% to the GDP and creates big employment opportunities, a consecutive and steady recovery is essential for the economy.
The G7 Summit will be held in Germany on Monday. The leaders will likely discuss rising worldwide inflation and the post-war scenario in Russia, Ukraine, and the European Union.
The US economy had contracted 1.5% in the January to March 2022 quarter. A consecutive decline in the quarter ending June will officially make the US economy to enter into a recession. Hence, the quarterly GDP numbers to be released on June 29 will be keenly watched.

By Pranav Mahajan #WeekInANutshell #WeekInANutshell 0 Comments Read more...

23 Jun

Navigating through the challenges of the IT industry

During the 4QFY22 result season, stocks of IT services companies plummeted due to managements’ comments on probable medium-term margin pressures. IT stocks have been in a slump since then and have been struggling to show some signs of reversal. How does one navigate through this sector?

Demand prospects for Digital and Cloud Services:

Digital services comprise of service and solution offerings of an IT company that enable clients to transform their businesses. These include offerings that enhance customer experience, leverage AI-based analytics, and big data, engineer digital products and IoT, modernize legacy technology systems, migrate to cloud applications and implement advanced cybersecurity systems. Most firms are transitioning through IT and cloud-based solutions to meet competition and cut costs. Global lockdowns and work from home (WFH) culture have accelerated the expansion of digital services.

The BFSI sector is the largest contributor to the revenues of many IT companies. Enterprise clients in the Financial Services sector have ramped up tech spending to enhance customer experience, digitize core systems, and leverage technology to strengthen risks and controls.

Source: Company quarterly update

Cloud migration has picked up pace in the last 3 years. The recent global lockdowns and WFH culture led by Covid-19 have acted as a trigger to accelerate this journey. Enterprise clients are looking to migrate to cloud-based operations, which act as a business continuity tool in times of uncertainty. The shift to hybrid working models has contributed to the demand for IT services. Cloud transformation helps clients deploy streamlined operational efficiencies, increased adaptability and scalability, data security, and cost management.

Supply-side constraints

The IT industry has been facing certain structural headwinds such as:

Attrition levels: Voluntary attrition is when employees leave an organization for better prospects in the industry. With a robust demand environment, IT services organizations have seen higher attrition, resulting in supply-side constraints since 2QFY22. These challenges are expected to put pressure on margins over the medium term. IT companies are taking measures to stabilize attrition levels by correcting compensations, faster career growth, skill development programs, and greater engagement with employees.

Source: Company quarterly update

Subcontracting costs: Subcontracting is the process of outsourcing partial obligations of a contract. Due to tight labor market conditions and the non-availability of talent in-house, IT firms have turned to subcontractors. Rising subcontracting costs have brought margins under pressure. Reduced dependency on these services through increased hiring programs and stabilization of attrition levels can subside margin pressures.

Higher retention, hiring costs, and travel costs: Wage increments, employee retention costs, and accelerated hiring are some of the key factors that could drive margin pressures. With the reopening of economies, we expect travel costs to normalize over the medium term.

Industry-wide outlook:

While the above-mentioned factors are expected to take a hit on the profitability of IT services companies, we expect demand prospects to be robust with digital transformation and cloud migration being a key area of focus for enterprise clients. We expect margin pressures to persist over the medium term.

Should one invest now?

We believe the favorable long-term outlook remains intact, driven by enterprise client demand for cloud and automation, improved utilization levels, as well as the normalization of inflationary pressures. Increased costs due to supply challenges are likely to be transient. This may be the right time for investors with a longer time frame for investing to look at the sector.

By Rutuja Chavan IT attrition, margins, subcon costs 0 Comments Read more...

21 Jun

The Fed Game!!

Fed raised interest rates and pledged a whatever-it-takes approach to fighting inflation. Let us understand the rationale behind this decision.

Around 2 years back the world was panicking due to the pandemic. Economists were worried as everyone was locked inside their houses, not purchasing things, not using many services, leading to spending going down. When spending goes down, companies’ profits go down. When profits go down, people lose their jobs. When jobs are lost, the economy slows down, people grow poorer which is not good for the economy.

A slowing economy is an economist’s nightmare. Central banks across the world were facing this problem. Business and spending are hugely driven by borrowed money that is paid back. One way central banks try to stimulate more spending is by making it easier to take loans by lowering interest rates. India did the same in CY20.

There’s one more option on top of this: print more money. India did not opt for this option but the US did. As we all know, the US is the world’s biggest economy, whatever the US does affects the rest of the globe. Low-interest rates coupled with an excess supply of money caused the effect they wanted to see.

People and businesses started borrowing money. The money supply increased leading to spending and the economy started seeing its effects. So, the question arises why don’t we just keep the rates low and keep money printing? When there’s too much money easily available to everyone, spending increases too much. This leads to too many buyers of goods and services and not enough goods suppliers and service providers. There’s a ton of demand, but not enough supply. This always leads to prices increasing, contracting the buying capacity of the consumers which leads to inflation. Low-interest rates and money printing for too long result in inflation.

The US central bank printed high amounts of money is now leading to record inflation. How do central banks deal with this situation now? The opposite of what they did to increase economic activity – increase interest rates and stop printing money.

The inflation the world is seeing right now is not just because of low-interest rates and money printing. The markets falling is also because of the inflation that we’re seeing. Due to disruptions during the pandemic, many items are in short supply. That is making this inflation worse. Oil is one such. Microchips that go in all sorts of gadgets and cars are another example.

Of course, this isn’t the first time we’re seeing inflation. It has happened in the past multiple times. Inflation isn’t hurting India as much as it is hurting the west so far.

As an investor, you should focus on real returns. Real returns are what you get once you subtract the inflation. If an investment is giving you 6% and inflation is 7%, you actually lost money at a rate of 1% per annum. If you’re able to make 15% and the inflation is, say, 9%, your real return is 6%. Needless to say, this doesn’t mean you simply invest only in high return (which are high-risk) investments. You need to diversify according to your risk-bearing capacity. But the point remains, as an investor, real returns are the only way you should think of returns.

The equity markets are impacted due to such economic activities and investors might benefit from such a situation in long term. Our team recommends value stocks and you can even benefit from these stocks which are available at cheap rates.

Happy investing!!

By Richa Varu Rathod Investment articles fed reserve, INFLATION 0 Comments Read more...

19 Jun

Week in a Nutshell (13-17 June)

Technical talks

NIFTY opened the week on 13^th June at 15,878 and closed down 4% on 17^th June at 15,294. The index is trading below the lower Bollinger band and the next support is likely at 15,183. The recent high of 16,794 might act as a resistance. The RSI (14) of 36 indicates the index is nearing the oversold levels.

During the week, METAL (-9.1%), IT (-8.2%), and PSU Bank (-7.7%) led the sectoral losers. There were no sectoral gainers.

Weekly highlights

High inflation has investors worried in recent weeks about a toll on corporate profits and economic growth. On Monday, the S&P 500 confirmed it’s in a bear market at is now down more than 20 percent from its most recent record closing high.
After a selloff triggered by a series of interest rate hikes by the Federal Reserve and other major central banks, all three US indices ended in the red this week. NASDAQ and Dow Jones were down 4.8% each while S&P 500 was down 5.8%. The cosmetics company Revlon Inc surged ~80% on Friday after reports suggested Reliance Industries may be considering buying out the company.
The Federal Reserve raised interest rates by three-quarters of a percentage point, the most since 1994. Officials have indicated that aggressive rate hikes will continue, with severe measures being used to combat rising inflation.
Crude oil prices were impacted as investors worried about the global economic outlook and markets were impacted post interest rate hikes around the world. Brent Oil was down 6.9% during the week and ended at USD 113.6/barrel while Crude oil ended 8.4% lower at USD 110.4/barrel on Friday.
The Indian Index of Industrial Production (IIP) climbed from 2.2% in March to 7.1% in April. The April industrial growth rate of 7.1 percent is the highest in eight months, notwithstanding the benefit of a favorable base effect.
Wholesale price inflation soared to a record high in May due to rising food and fuel prices, posing a challenge to authorities dealing with high inflation. Wholesale prices climbed to 15.9 percent in May vs 15.1 percent in April and was, according to economists, India’s highest since September 1991.
Retail inflation for May was 7.04% from April’s near-eight-year high of 7.79 percent due to a favorable base effect. The fall in inflation in May is unlikely to do much to slow down the Reserve Bank of India’s (RBI) rate hike cycle.
Foreign institutional investors (FIIs) continued to be sellers, selling equities worth Rs 232,740 mn. Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 172,270 mn.

Things to watch out for next week

Major central banks followed the US Federal Reserve in raising interest rates. Rising prices and tightening monetary policies have rattled investors which dragged the equities world over.
S&P Global will release the flash purchasing managers indices (PMI) data for June for major economies later next week. In addition, inflation, and consumer and business climate gauges will also be released. This will provide insights into the current state of the global economy.
With quarterly earnings season out of the way, investors will focus on macroeconomic activities and action would be stock specific. Indian investors’ attention will be on the progress of the monsoon across the country.

By Maitreyee Vaishampayan #WeekInANutshell economic activities, equities, INFLATION 0 Comments Read more...

17 Jun

Short-Term Performance is Everything

Two years ago value investing was dead, now it is the obvious approach to adopt in the current environment. What has changed? Short-term performance. There are more captivating rationales but underlying it all is shifting performance patterns. These random and unpredictable movements in financial markets drive investors’ behavior and are the lifeblood of the asset management industry; but they are also a poison for investors, destroying long-term returns.

Narratives + extrapolation

Short-term performance in financial markets is chaotic and meaningless (insofar as investors can profitably trade based on it), but they don’t see this; instead, they construct stories of cause and effect. Furthermore, because the stories are so compelling, investors are certain that they will go on forever. This is why when performance is strong absolutely anything goes. Extreme valuations, unsustainably high returns, and made-up currencies cannot be questioned – haven’t you seen the performance, surely that’s telling you something? Of course, what it is telling is not particularly useful. It is just that investors struggle to accept or acknowledge it. There must always be a justification.

Performance is not a process

Financial markets do not provide short-term rewards for efforts and hard work. Nor can any investment approach consistently outperform the market except by chance (unless someone can predict the near future). Many investors seem to accept this. If performance is good a fund manager can say almost anything and it will be accepted as credible. If performance is bad then everything said will be disregarded. The problem with lauding short-term performance as evidence of skill poses the question of what happens when conditions change. If the process leads to consistently good short-term outcomes, what does one say when short-term outcomes are consistently bad? When performance is strong it is because of ‘process’, when it’s weak it is because of ‘markets’.

Sustaining the industry

Not only do the uncertainties of markets give investors something to talk about, but they also give them something to sell. The sheer number of funds and indices available to investors is a direct result of the randomness of short-term performance. There will always be a new story or trend to exploit tomorrow. Judgments made based on short-term performance will make everyone look skillful some of the time.

Misaligned incentives

The obsession with short-term performance is a vicious circle. Everyone must care about it because everyone cares about it. This creates a harmful misalignment problem where professional investors aren’t incentivized to make prudent long-term decisions; they are incentivized to survive a succession of short-time periods. Irrespective of whether this leads to good long-term results.

Source: ‘Short-Term Performance is Everything’, by Joe Wiggins published on www.behaviouralinvestment.com

Asset Multiplier Comments:

If investors are concentrated on short-term success, long-term returns may be unsatisfactory.
Investors can avoid the chances of capital erosion and damaging outcomes by choosing to stay focused on their long-term investing approaches.
They should refrain from trying to make sense of short-term market fluctuations because doing so can be mentally taxing and lead to poor choices.
Long-term investing decisions can make one look foolish in the short term, but they are sustainable ways of achieving capital gains over the long run.

By Rutuja Chavan Investment articles fund managers, investing 0 Comments Read more...

17 Jun

Beginners’ guide to investing…

“Bro, suggest me some good stocks please.”

“Hey, I heard stock X is going to go up, should I buy it?”

“I want to start an SIP, how to do it?”

“So, like can you double my money?”

As a 20 somethings guy working in the financial advisory industry, I have had my fair share of interactions mentioned above. Somehow you become the de-facto person in your circle whom people confer for financial advice. In this series of articles, I’ll be sharing some of the very basics of Investing for any beginner who has very little information about how the system works. Be advised that this is a very generalised heavily simplified version and the actual actions may differ on a case-by-case basis. Let’s take a dive into the world of bulls and bears, shall we?

The Difference Between Saving and Investing: A common misconception amongst first-time investors is that both are the same. However, there’s a critical difference between the two. Savings, in essence, are any money that you don’t spend from your earnings. For eg. On a salary of Rs. 50,000/- per month, a person is left with around Rs. 20,000/- every month, those are their savings. Investing is when you allocate these savings with the expectation of generating income and wealth. An example, of the Rs. 20,000/- saved the person buys Mutual Funds of Rs 10,000/- and Rs. 10,000 in a bank FD, only then can it be considered investments.
Set Goals: It might feel like a boring and tedious task, but a lot of investment decisions are based on the person’s financial goals, their risk appetite. The first step before investing is asking questions, why am I doing this? when/how will I be using this money? To appropriately assess investment options.
Safety Cover: A critical aspect before starting the investment journey is deciding on an adequate safety cover. It is generally advised to have at least 6 months of your expenses stored away in a rainy-day fund; any unexpected setbacks should not deter an investor from their investing goals. Unexpected illnesses/ accidents or death are the biggest threats to an investor’s long-term investing goals as they can cause wealth erosion pretty quickly. Investors should adequately Insure themselves before investing.
Discipline: Investing has very little to do with markets and everything to do with behavioural impulses. It’s easy to start investing, it’s difficult to keep investing and it’s hardest to stay invested. Many first-time investors lack the discipline to consistently keep investing, but persistence is the only thing that generates wealth in the long term. Another trap most first-time investors fall for is consistently checking their portfolio for gains and losses, which is as unpredictable as the wind blowing and are tempted to cash in on their investments for short-term gains or stop investing altogether because of losses. Discipline wins in the end.
Uncertainty: Like all things in life, Investing too is unpredictable and difficult to understand at times. Not every investment will give an investor their desired returns, nor does an average investor have the time and skills to analyse their investments periodically to take corrective actions. In order to mitigate the risks, it is recommended that investors confer with SEBI registered Investment Advisors to guide them through their investing journey.

This is the 1^st Part of the Introduction to Investing Series, which will discuss critical aspects of investing aimed at first time investors. Stay tuned for more.

By Pratik Mate Investment articles #Personal Finance, investing 0 Comments Read more...

14 Jun

Everybody’s gung-ho on EVs (Electric Vehicles), are we another sheep in the herd?

The primary motive of any business is to earn profits. Why are we saying this now – because today, there are businesses that have hardly made any profits which in turn means that they have destroyed shareholder’s wealth, although they have been very beneficial for the consumer.

A few examples of such businesses can be airlines, which have been highly beneficial for the mankind but most of them have failed to make any profits. A recent example would be food delivery apps which provide us with the convenience of quickly delivering food at our doorstep, have been losing money.

What’s common here? Huge capital investment. A highly capital-intensive sector needs barriers to entry for the players to make money. If there are too many players, each one of them have to keep investing in order to just capture a small piece of the pie. Every player fails to make return on investment higher than their cost of capital, hence, all of them lose money.

Who benefits here – First, the consumer, who gets the products which are cheaper, with better quality and higher variety. Secondly, in the longer run, a player or just a handful of them who emerge as winners.

What does it take for the business to emerge as a winner – lower cost production, scalability and better quality of product. Achieving all three at the same time and on a consistent basis is extremely challenging when you have to face competitors who are also running towards the same goal.

Companies dealing in electric vehicles will be facing teething problems as they have to spend heavily on technology and infrastructure right from the initial stage. Legacy automobile manufacturers, which are funding their EV losses from their ICE (Internal combustion engine) business, are competing with new entrants specializing in EVs with the backing of deep pocketed private equity funds.

What is the conclusion? Are we writing obituaries of auto companies? – certainly not. There is a big market to be captured both for ICE vehicles as well as EV. The hope is that, whoever emerges as the winner may eventually turn profitable, although, nobody knows when.

Volume data of electric vehicles sold

Source: Federation of Automobile Dealer’s Association

Consulting firm RBSA Advisors estimates Indian EV industry to grow by 90% every year for the next 10 years and will touch USD 150 bn in 2030.

By Pranav Mahajan Auto electric vehicles 0 Comments Read more...

13 Jun

This Week in a nutshell (06-10 June)

Technical talks

NIFTY opened the week on 06^th June at 16,531 and closed on 10^th June at 16,202. During the week, NIFTY was down 2.3%. The index has breached the 50-week moving average on the weekly chart with RSI at 43. The immediate support for the index stands at 15,845 and resistance at 16,793.

Financial Services (-3.0%), IT (-2.6%), and Media (-2.4%) were the top losers, and PSU (+1.0), and Auto (+1.0%) were the only sectoral gainers during the week.

Weekly highlights

US inflation accelerated to a fresh 40-year high in May, a sign that price pressures are becoming entrenched in the economy. That will likely push the Federal Reserve to extend an aggressive series of interest-rate hikes. The consumer price index increased 8.6% YoY resulting in all 3 broad-based US Indices ending in the red by 3%.
Despite a dip on Thursday, benchmark crude oil rates were near their 13-week highs. Brent and West Texas Intermediate futures traded above $120 a barrel each. High crude prices hurt markets such as India, which meets much of its oil demand through imports. Brent closed at $121/barrel.
Official data released last month showed India’s official GDP growth reading hit a four-quarter low of 1 percent on a year-on-year basis in the January-March period. Economic growth for the full year ended March 2022 came in at 8.7 percent due to a low base of the previous year, though lower than the statistics office’s estimate of 8.9 percent.
RBI Governor Shaktikanta Das on Wednesday announced the unanimous decision of the Monetary Policy Committee (MPC) to hike the repo rate — the key interest rate at which the central bank lends money to banks — by 50 basis points to 4.9 percent. The RBI MPC also decided to remain focused on withdrawing its ‘accommodative’ stance to ensure inflation stays within target levels while supporting growth.
The RBI MPC raised its forecast for retail inflation — gauged by the Consumer Price Index — by 100 basis points to 6.7 percent. The RBI Governor acknowledged that inflation has accelerated to a faster-than-estimated pace in April and May. It is expected to be higher than 6 percent by December 2022, mainly due to elevated food prices.
American employers added 390,000 jobs last month, the government reported Friday, a sign of a slowdown in hiring but still a better-than-expected result amid a shortage of workers. The jobless rate held steady at 3.6 percent for the third consecutive month, just a tenth of a point above the pre-pandemic level in February 2020, the Labor Department said.
A report showing stronger hiring last month than expected is good news for the US Economy amid worries about a possible recession. But many investors saw it keeping the Federal Reserve on its path to hiking interest rates aggressively, thereby causing weakness in US Equities, The US Federal Reserve is on track for half-point interest rate increases in June, and July, and last week’s jobs report boosted expectations of continued tightening by the US central bank.
Shanghai and Beijing are placed on new COVID-19 alerts. The cities imposed further lockdown restrictions on Thursday and announced a fresh round of mass testing for millions of their residents. India too reported a total of 7,584 new coronavirus infections on Friday, prompting health authorities to a high alert on a possible resurgence of a 4^thWave
Foreign institutional investors (FIIs) continued to be sellers, selling equities worth Rs 126,629 Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 96,100 mn.

Things to watch out for next week

Volatility is expected to remain high as rising global inflation forces investors to reconsider their expectations for strong earnings growth. Fears of a further rise in Interest rates by Central Banks across the world, geopolitical concerns, and oil price volatility will keep investors on edge.
With the inflation data released, investors are looking forward to Fed’s intended 50 bps interest rate hike in the next meeting. The United States housing market updates for May are expected next week. Consumer Price Index (CPI) inflation data will be released for key economies, indicating whether global inflation rates have peaked.
With Q4 earnings out of the way, stock-specific actions will be limited as indices would track macro developments and geopolitical developments.

By Pratik Mate #WeekInANutshell INFLATION, week in a nutshell 0 Comments Read more...

10 Jun

To sustain ~7 percent NIM in FY23– Shriram Transport Finance

Update on the Indian Equity Market:

On Thursday, NIFTY closed at 16,478 (+0.7%) near its intraday high of 16,493 level. Among the NIFTY 50 stocks, DRREDDY (+3.0%), BPCL (+2.8%), and RELIANCE (+2.6%) led the gainers while TATASTEEL (-4.2%), SHREECEM (-2.0%), and GRASIM (-1.6%) led the losers. Among the sectoral indices, OIL & GAS (+2%), HEALTHCARE (+1.3%), and PHARMA (+1.2%) led the gainers, while METAL (-1.3%), and PSU BANK (-0.3%) were the only losers.

Excerpts of an interview with Mr. Umesh Revankar, Vice-Chairman and Managing Director at Shriram Transport Finance (SRTRANSFIN) with CNBC TV18 on 9^th June 2022:

The down cycle of commercial vehicles started 4 years ago. Mr. Revankar believes that currently, the industry is in an upcycle which will continue for the next 3-to 4 years.
New vehicle price hikes limited the industry’s growth scope last year. Going forward, there will be a gradual increase in the cycle instead of a steep increase due to geopolitical aspects, and higher fuel cost considerations.
The government’s goal is to build long-term logistics infrastructure and road transport which will create a demand for commercial vehicles in the next 3-4 years. This will work in favor of the transport industry.
Most of the company’s borrowing has a tenure of 2-4 years. Its cost of borrowing was higher 2 years ago compared to right now. The company is now borrowing its loans at much lower rates than 2-3 years ago.
The company believes that the RBI’s repo rate hikes won’t impact it much and that any increase in the borrowing costs can be easily passed on to its customers without losing any credit demand.
The company believes that it can sustain the NIM (net interest margin) of 7% from 4QFY22 even in FY23.
Fuel cost is 40% of the operational cost for the company of running a vehicle. Transporters either pass it to end-users or manufacturers and don’t bear any of these costs. In case of low demand, and higher vehicle supply, the transporters have to bear the costs and take a margin hit.
He believes that the demand for transporters has been robust and the transporters are not facing any challenge in passing on the fuel costs.
He believes that there is a good demand for vehicles in rural areas. The demand had dampened in between due to the increase in prices of vehicles. As the prices of the output of Rabi crop, wheat, and oil have increased, it has benefitted the farmers in the rural areas. So now, the people have adjusted themselves to the higher-priced vehicles.

Asset Multiplier Comments

We believe that the company is bound to benefit from the economic activity rebound which will drive demand and cyclical recovery in new CVs.
With the current provisions at 7.2% (Provision Coverage Ratio at 50%), we expect loan loss provisioning to normalize at ~2% levels.

Consensus Estimates (Source: market screener website)

The closing price of SRTRANSFIN was ₹ 1,170/- as of 09-June-2022. It traded at 8x/ 7x the consensus earnings estimate of ₹ 146/ 162 for FY23E/FY24E respectively.
The consensus target price of ₹ 1,495/- implies a P/E Multiple of 9x on the FY24E EPS estimate of ₹ 162/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Tanmay Gadre Shriram Transport Finance 0 Comments Read more...