Author - Richa Varu Rathod

Keep it Simple, Silly!!!

“Money saved is money earned.” As soon as we start earning, we think of saving and investing money to achieve our future goals like marriage, buying a house, or children’s education and retirement. To achieve the financial goals, we look into many options available in the market.

We all know about investments like FD, mutual funds, and stocks. Many of us aren’t aware of more investment options – hedge funds, futures and options, and alternative investment funds. In each of these categories, there exist many subcategories offering very detailed and complicated investment options. Some funds specialize in arbitrage investing, high-frequency trading, investment strategies that are top secrets, and so on.

The greed for getting maximum returns out of our investments makes us investigate and try all the options available. But the reality is that a huge chunk of these complicated investments simply fails to outperform simpler investments. Even the ones that do perform very well – choosing the right one itself is a very complicated task, which most normal investors cannot afford to do. Most individual investors work full-time at their job or business. Very complicated investments require constant time and attention –that simply isn’t available.

If it is complicated if it needs to be explained by someone sitting at a lunch table if it’s proprietary if it’s only available from certain companies and if it makes claims about your future financial health, don’t buy it.

Instead, go to the periphery of the market where all the least processed, least complicated, least expensive financial products can be found, fresh every day.

Like any industry, investing has its language. And one term people often use “investment portfolio,” which refers to all your invested assets.

Building an investment portfolio might seem intimidating, but there are steps you can take to make the process painless. One of the most important things to consider when creating a portfolio is your risk tolerance. Your risk tolerance is your ability to accept investment losses in exchange for the possibility of earning higher investment returns. Your risk tolerance is tied not only to how much time you have before your financial goal such as retirement but also to how you mentally handle watching the market rise and fall. If your goal is many years away, you have more time to ride out those highs and lows, which will let you take advantage of the market’s general upward progression.

Steps for building a portfolio

  • Decide the amount to be invested
  • Choose your investments based on your risk tolerance
  • Determine the best asset allocation for you based on the risk-taking capacity
  • Rebalance your investment portfolio as needed
  • Keep reviewing and update

Happy Investing!!!

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 research and analysis and should consult their investment advisors to determine the merit, risks, and suitability of the information provided.”


This Week in a nutshell (Aug 29th to Sep 2nd)

Technical talks

NIFTY opened the week on 29th August at 17,189 and closed on 2nd Sep at 17,540. During the week, NIFTY was up 2.0%. Index has breached 50-week moving average on the weekly chart with RSI at 58. Immediate support for the index stands at 17,137 and resistance at 17,559.

Among the sectoral indices, Realty (+3.0%), Auto (+2.2%), and FMCG (+2.1%) were the top gainers during the week.  IT (-3.4%), Pharma (-0.7%) and Metal (-0.3%) were the top losers in during the week.

Weekly highlights

  • Wall Street was bleeding this week. The downfall started as investors were worried about the Federal Reserve’s determination to aggressively hike interest rates to fight inflation even as the economy slows.
  • Fed Chair Jerome Powell told the Jackson Hole central banking conference in Wyoming the Fed would raise rates as high as needed to restrict growth and keep them there “for some time” to lower inflation running at more than three times the Fed’s 2 percent goal.
  • The Fed’s stance worsened concerns about an economic slowdown and caused a significant selloff in the US market with the spillover roiling markets around the world.
  • The downwards rally continued as a rise in job openings fuelled fears the U.S. Federal Reserve has another reason to maintain its aggressive path of interest rate hikes to combat inflation.
  • On Thursday, US investor focus turned to a key report on the labor market. The weekly jobless claims fell more than expected to a two-month low last week and layoffs dropped in Aug-22, giving the Fed a cushion to continue raising rates to slow the labor market.
  • The S&P 500 ended the week with a loss of 3.3%. The index fell 1.1% on Friday after early gains from a U.S. jobs report as worries about the European gas crisis began.
  • The global markets continued to be in red as weak Chinese data and new Covid-19 lockdowns in China weighed on sentiments and on deepening worries about aggressive rate hikes and record-high inflation in the Euro region.
  • Japan’s jobless rate was steady at 2.6 percent in July, while the availability of jobs grew for the seventh straight month to a more than two-year high, government data showed on Tuesday.
  • Back home, the Indian market remained volatile during the week. It had a gap up opening and recovered quickly due to weak global cues, spooked by the aggressive stance taken by the US Fed to tame inflation that triggered fresh worries about interest rate hikes. This also increased the concerns over the possible withdrawal of foreign funds from Indian markets.
  • Auto stock gave positive returns this week amid reporting of Aug-22 sales volumes by auto companies. New product launches and shortage of semiconductors easing helped companies to step up production ahead of the festive season that kicked in with Ganesh Chaturthi on Wednesday. In domestic retail, Passenger Vehicles sales were up ~7% MoM and 2W sales rose ~3% MoM. On commercial side, 3W sales grew ~11% MoM with CV sales flat MoM.
  • India’s GDP growth rate was 13.5 percent in April-June as compared to 4.1 percent the previous quarter, data released on 31st Aug-22 by the Ministry of Statistics and Programme Implementation showed. The growth was pulled down by the poor show of the manufacturing sector, which reported a paltry 4.8 percent expansion in 1QFY23, negating the robust show by the services sector.
  • Oil prices tumbled below USD 100 per barrel on fears over slower economic growth due to renewed restrictions to curb COVID-19 in China and tighter monetary policy in US. West Texas Intermediate futures dropped 6.7% for the week and settled at USD 88 per barrel and Brent crude was at USD 93.95 a barrel.
  • Reliance Industries Ltd (RIL) held its 45th annual general meeting where it announced the plans to invest Rs 2 tn to set up a 5G network across India and has ear marked Rs 750 bn to expand its petrochemical capacity.
  • The foreign institutional investors (FIIs) were net buyers for the week as they purchased equities worth Rs 13,062 mn. Domestic institutional investors (DIIs) were net sellers as they offloaded equities worth of Rs 2,307 mn during the week gone by.

Things to watch out for next week

  • For the energy sector, a crucial OPEC+ meeting at the start of the week could decide the near-term fate of oil prices, while the global gas industry gathers in Milan to weigh the enormous pressures caused by Russia’s invasion of Ukraine and soaring fuel costs.
  • India’s bank deposit growth and foreign exchange reserves would be the key data points to track. IPOs and The European Central Bank policymakers meet to take a call on interest rates would set the mood for the market.​


Is recession round the corner? Don’t Panic!!!

During a recession, we experience an economic slowdown which leads to market volatility. But, there’s a wrong assumption that every stock experiences only losses at this time.

Let’s look at a few sectors that have performed well during a recession historically.

Consumer essentials

No one stops brushing their teeth or washing their clothes even during a recession. Stocks associated with FMCG products like toothpaste, soaps, shampoo, detergent, etc continue to make revenues. Sure, the frequency of such purchases might decrease, but such activities don’t come to a halt.

Discount retailers

As the population’s income declines, they start preferring inexpensive items. After all, consumer staples and essentials need to be purchased from somewhere. Thus, supermarkets, discount, and grocery retailers continue to make some revenue during this period.

Alcoholic Beverages

The demand for alcoholic beverages is almost unaffected by economic cycles. Since the demand remains similar, revenues and profits remain similar too.

Cosmetics and Apparel

While we may think consumer discretionary spending reduces in recessions, the apparel, and cosmetic sector witnesses a rise based on an interesting theory called “The Lipstick Effect”. According to this theory, people prefer treating themselves with small indulgences in periods of stress. Larger indulgences seem expensive; hence they move towards smaller items like lipsticks and clothes.

While we speak about these sectors, it’s important to understand that no business can be completely unaffected by the impact of a recession.

Every stock has a company behind it. And if companies make losses, it will directly or indirectly affect their stock price.

We, at Asset Multiplier, try to protect the principal capital of our clients in such volatile markets. We can help blunt the blow of recession by balancing your portfolio.

Happy Investing!!

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.”

This Week in a nutshell (July 4th to July 8th)

Technical talks

NIFTY opened the week on 4th July at 15,727 and closed on 8th July at 16,220. During the week, NIFTY was up 3.1%. The index has breached the 100-week moving average on the weekly chart with RSI at 46. Immediate support for the index stands at 15,881 and resistance at 16,308.

Among the sectoral indices, PSU Bank (+6.6%), FMCG (+5.7%), and Realty (+5.0%) were the gainers during the week with no sector in the red.

Weekly highlights

  • Wall Street started the week on a positive note as investors kept their focus on the growth trajectory of the US economy. US Markets were subdued for a day as investors awaited minutes from the Federal Reserve’s meeting.
  • However, Wall Street ended higher after the release of the Fed minutes, which showed officials agreeing that the inflation outlook had deteriorated and expressed concern over lost faith in the Fed’s ability to stem it. The Fed at that meeting hiked rates by 0.75 percent for the first time since 1994.
  • Fed officials also indicated that a hike of 50-75 bps would be likely at the July meeting to control inflation.
  • US markets ended the week flat as Treasury yields jumped following a stronger-than-expected U.S. jobs report, which suggested the Federal Reserve may push further interest rate hikes to cool the economy and slow inflation.
  • Strong data from the U.S. Labor Department, which reported the United States added more jobs than expected in June, indicated a recession was not yet imminent amid persistent job growth and gives the Fed scope to deliver another large interest rate increase later this month.
  • Coming to the Indian market, the Nifty gained ~3% this week as Indian stocks witnessed buying interest during the week supported by positive cues from global peers, declining FIIs selling, falling commodities, and crude oil prices. However, depreciation in the Indian rupee remained a concern for the investors.
  • Government officials stated that they are trying to address volatility in the Indian rupee that has tumbled to record lows against the dollar in recent weeks. The rising trade deficit and investors retreating from the domestic share markets led to a fall in rupee value.
  • Even RBI announced several measures to improve foreign flows into the country to support the rupee.
  • The monthly trade deficit has been rising for the past few months. The trade deficit was up 62% YoY in the month of Jun-22.
  • Brent crude futures extended gains at the start of the week as a strike in Norway is expected to disrupt oil and gas output, fanning tight supply worries. The prices slipped later as fears of a potential global recession spurred concerns about oil demand.
  • The government is taking steps to curb inflation. It directed edible oil manufacturers to cut prices of imported cooking oils by up to Rs 10 per liter within a week and maintain a uniform MRP of the same brand of oil across the country. As the global prices have declined by 10 percent in the last week the price cuts should be passed on to consumers.
  • Cooling Oil prices coupled with the progress made by the Monsoon has now set the stage for the first-quarter earnings.
  • The foreign institutional investors (FIIs) remained net sellers for the week as they offloaded equities worth Rs 22,184 mn. However, domestic institutional investors (DIIs) purchased equities worth Rs 39103 mn during the week gone by.

Things to watch out for next week

  • The Indian Inflation data along with the result season will set the tone for the market in the upcoming week. D-Street will be interested to hear the management commentary about the future earnings growth trajectory.
  • The markets globally will be majorly influenced by the inflation numbers of the USA which hasn’t shown any signs of deceleration. Further, the USA’s Producer Price Index (PPI) and jobless claims are something the global markets will keep a track of.



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.”


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!!

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.”


Aims to reach Revenue of Rs 50,000 mn by FY25E: Bata India


Update on the Indian Equity Market:

On Monday, the Nifty failed to close in the green, despite recovering much of its intraday losses. Nifty closed at 16,530 (-0.1%). METAL (+1.1%), OIL & GAS (+0.6%), and PRIVATE BANKS (+0.2%) were the top sectoral gainers. MEDIA (-1.3%), REALTY (-0.8%), and CONSUMER DURABLES(-0.6%) were top losing sectors.

The top losers were SHREECEM (-3.1%), BPCL (-2.6%), and ASIANPAINT (-2.5%) while BAJAJAUTO (+4.0%), JSWSTEEL (+2.7%), and TATACONSUM (+1.7%) were the top gainers.

 Aims to reach Revenue of Rs 50,000 mn by FY25E: Bata India

Edited excerpts of an interview with Mr. Gunjan Shah, MD & CEO, Bata India with ET NOW on 2nd June 2022:

  • 4QFY22 has been a robust quarter for Bata. Revenue grew by 13% YoY and EBITDA grew by 45% on the back of price hikes and improved product mix.
  • When asked why the volume growth has been weak, are these metrics likely to continue, the CEO replied that the company has proactively worked towards margin expansion through different levers:
    • First, improving the product mix. The movement towards casualization and sneakerization has aided the effort. In 4QFY22, sneakers contributed ~20% of the total revenue.
    • Second, bringing cost efficiencies in different operations.
    • Third, price hikes.
  • Short-term bounce back has been seen in the market. There is a normalization of consumer behavior after distortion of almost 2 years. Reopening of schools and offices and marriage season is pushing the fashion and formal footwear sales.
  • Longer-term trends lie in “sneaker-isation” and “casualisation’ as people now want to take comfort out of home as well. Bata is making sure that its portfolio is in line with these trends and has been backed by the latest launched campaign of 24/7 casual collection along with Brand Ambassador Disha Patani.
  • Bata aspires to reach Rs 50,000 mn revenue by FY25E with the help of the following levers:
    • Ensuring portfolio in line with the faster-growing categories (Sneakerization),
    • Footprints expansion through deeper penetration into the Tier 3&4 cities to tap the rural and middle India which is ramping up at a faster pace,
    • Digital Footprint expansion, and
    • Keep looking into the inorganic opportunities.
  • Bata delivered ~24% EBITDAM in 4QFY22. Management commented that they are just nearing the pre covid levels and have worked on cost efficiencies to aid margin expansion and will try to keep the margins stable.
  • The company is looking to increase the market share in smaller towns aggressively by adding new stores. It expects consumer preference to shift from an unorganized market to an organized market.
  • The promoters sold ~2.8% stake in the company through a block deal on 1st Jun 2022 on which the CEO commented that it doesn’t impact the majority control the promoter has over the operations. It was a minor dilution which was in line with the restructuring of the family trust.

Asset Multiplier Comments

  • We think Bata is striking the right chord to bring in revenue growth. Strong market leadership, the revival of formal footwear along with strong growth in casual portfolio and various distribution initiatives would help the company reach rich dividends.
  • Continuous focus on cost savings across rentals & operations, manufacturing and driving efficiencies in its value chain, and improving product mix will aid margin expansion.

Consensus Estimate (Source: market screener website)

  • The closing price of Bata India was ₹ 1,829/- as of 06-June-2022. It traded at 54x/44x the consensus EPS estimate of ₹34.2/41.9 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,980/- implies a PE multiple of 47x on the FY24E EPS estimate of ₹ 41.9/-.

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.”






This Week in a nutshell (May 2nd to May 6th)

                                                                                       Technical talks

NIFTY opened the week on 2nd May at 16,924 and closed on 6th May at 16,411. During the week, NIFTY was down 1.63%. The index has breached the 50-week moving average on the weekly chart with RSI at 42. Immediate support for the index stands at 16,269 and resistance at 16,763.

Nifty Realty (-8.0%), Nifty Media (-6.0%), and Auto (-5.0%) were the top losers and there were no sectoral gainers during the week.

                                                                                     Weekly highlights

  • Wall Street had a very volatile week. At the start of the week, the stocks were trading higher on the back of news that the European Union is working on new sanctions against Russia for waging war on Ukraine that will target Moscow’s oil industry.
  • The rally continued after the Federal Reserve delivered a widely expected interest-rate hike of half a percentage point with another half-percentage-point rate hike expected at the upcoming policy meetings in June and July.
  • Bureau of Labor Statistics released data revealing a tight labor market that has emboldened millions of Americans to seek better-paying jobs, while also contributing to the biggest inflation surge in four decades.
  • Later in the week, US stocks ended sharply lower amid a broad sell-off, as investor sentiment cratered in the face of concerns that the Federal Reserve’s interest rate hike would not be enough to tame surging inflation. All three main Wall Street benchmarks erased gains made in the earlier rally.
  • The downward journey continued as stronger-than-expected jobs data amplified investor concerns over bigger interest rate hikes by the U.S. Federal Reserve to tame surging prices.
  • Indian markets also followed the lead and were no less volatile. Entirely unexpected – the Reserve Bank of India (RBI) on May 4 increased the repo rate by 40 basis points to 4.4 percent for the first time in almost two years since the start of the pandemic in 2020. This comes when inflation has been rising to an 18-month high amidst a rebound in domestic economic activity.
  • RBI Governor stated that India’s foreign exchange reserves are “sizeable” and the outlook for the country’s overall external sector is bright. Potential market opportunities have opened up due to geopolitical conditions and the recent trade agreements.
  • LIC launched its IPO on 4th May 2022. Through this IPO, the government of India will be liquidating its 3.5 percent stake in the corporation. The offer has garnered bids of 223.4 mn equity shares against the offered size of 162 mn shares, subscribing 1.38 times on Friday.
  • International Monetary Fund released data saying India’s GDP to hit USD 5 tn in FY29E and the Rupee at 94 a Dollar.
  • Oil prices dipped as worries about an economic downturn that could dampen demand for crude vied with concerns over new sanctions from the European Union against Russia, including an embargo on crude oil.
  • Larsen and Toubro Infotech (LTI) board approved amalgamation with Mindtree, creating a USD 3.5 bn IT service provider named LTIMindtree.
  • Axis AMC suspended two fund managers pending investigation of potential irregularities after conducting a suo moto investigation over the last two months and used reputed external advisors to aid the investigation.
  • Foreign institutional investors (FIIs) continued to be sellers, selling equities worth Rs 1,27,335 mn. Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 85,333 mn.

                                                                       Things to watch out for next week

  • The 4QFY22 earnings season so far has not succeeded to uplift the market sentiments. The commentary so far from companies on rising pressure on their margins and muted demand environment has tempered the enthusiasm of investors.
  • We expect volatility to remain high in the coming days as surging global inflation is forcing investors to reconsider their assumptions of strong earnings growth. Fear of further up move in the US 10-year bond yield, geopolitical concerns, fluctuations in oil prices, and earnings season will keep the investors on their toes.


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.”


Guidance of 20%+ EBITDA Margin for FY23E – Mindtree

Update on the Indian Equity Market:

On Wednesday, the Nifty bounced back and closed at 17,137 (+1.5%) with support from recovery in the beaten-down HDFC stocks and the IT sector. AUTO (+2.2%), OIL & GAS (+1.9%), and IT (+1.2%) were the top sectoral gainers. MEDIA (-0.5%), METAL (-0.3%), and PSU BANK (-0.2%) were the top losing sectors.

The top losers were BAJAJFINANCE (-2.9%), BAJAJFINSV (-1.3%), and ICICIBANK (-1.3%) while BPCL(+4.2%), TATAMOTORS (+3.8%), and SHREECEM (+3.7%) were the top gainers.

Edited excerpts of an interview with Mr. Debashis Chatterjee, MD & CEO, Mindtree with CNBC-TV18 on 19th April 2022:

  • When asked about the merger of Mindtree and L&T Infotech, the CEO stated that it is speculation at this point and will not be able to comment on it. There were opportunities where both the companies have worked together in the past on specific deals.
  • If the management change happens, some leverages can be gained by working together. It will be able to extract synergies if the merger happens as the portfolio of both entities is complementary to each other.
  • The demand environment is robust as the need for getting future-ready has never been more than what it is today. To become future-ready, one has to do it with digital transformation.
  • There is a change in deal patterns as the deal cycles tend to be more iterative and of shorter spends. But over some time, it tends to become a large engagement with the particular client.
  • The deals 2 years ago were more of manage services deals which were annuity deals for 3-4 years and would give revenue visibility for a longer period. Currently, some of these deals are getting converted into digital transformation deals which are used by the clients to maximize their revenue stream. These deals are iterative deals that are of shorter period, but over some time when these short deals are added, it does become large.
  • Mindtree has adopted the strategy where it leverages its consulting-led capabilities, creates outcome-based opportunities, and works with clients as their transformation partners for a long period.
  • The CEO commented to look at the Total Contract Value (TCV) on annual basis. TCV for FY22 is up by 17% YoY at USD 1.6 bn and the TCV annual growth is on track.
  • It maintains the EBITDA Margin guidance of 20%+ for FY23E.
  • CEO commented that margin is a factor of many levers and disciplined execution. Two years back, Mindtree had spent a lot of time putting up proper processes to ensure margin management, use the levers consistently, and get a predictable model.
  • The objective of the company is sustainable margins and to re-invest the excess profit into the business.
  • The mantra of the organization is profitable growth for which margins are equally important.
  • Wage hikes are expected from time to time and will impact the margins by 100-200 bps. But, this is already baked in the margin guidance given by the company.

Asset Multiplier Comments

  • With Mindtree’s strong capabilities in all layers of digital i.e. experience, data, and back-end/core systems, it is well-positioned to become a digital transformation partner and participate in Clients’ revenue growth.
  • Looking at the deal wins momentum, focus on garnering multi-year engagements and scaling up top accounts would aid in sales traction moving forward.

 Consensus Estimate (Source: market screener website)

  • The closing price of Mindtree was ₹ 3,668/- as of 20-April-2022. It traded at 32x/27x the consensus EPS estimate of ₹115/134 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,381/- implies a PE multiple of 33x on the FY24E EPS estimate of ₹ 134/-.

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.”


A Merger of Equals: HDFC

Update on the Indian Equity Market:

On Tuesday, the Nifty closed lower at 17,957 (-0.5%) as indices were trading on a weak note amid profit-taking in HDFC twins following a sharp rise in the last session. CONSUMER DURABLES (+2.4%), FMCG (+1.3%), and AUTO (+1.2%) were the top sectoral gainers. FINANCIAL SERVICES (-1.6%), PRIVATE BANK (-1.5%), and BANK (-1.5%) were top losing sectors. The top losers were HDFCBANK (-3.1%), BAJAJFINSV (-2.4%) and HDFC (-2.2%), while ADANIPORTS (+3.1%), NTPC (+2.8%) and TATAMOTORS (+2.4%) were the top gainers.

 A Merger of Equals: HDFC

Edited excerpts of an interview with Deepak Parekh, Chairman, HDFC with ET on 5th April 2022:

  • The merger between HDFC and HDFC Bank is a merger of equals and comes at the right time as the latest Reserve Bank of India (RBI) regulations have narrowed the operational arbitrage for non-bank lenders.
  • Both the institutions have been evaluating the pros and cons of a possible merger for mutual benefit.
  • Over the past two years, there have been regulatory changes for Banks and Non-Banking Financial Companies (NBFCs), considerably reducing the barriers for a potential merger.
  • A host of guidelines issued by the RBI in the last three years on harmonizing regulations between banks and NBFCs include guidelines requiring large NBFCs to conversion into commercial banks, particularly those with more than Rs 500 bn of asset bases.
  • Non-Performing Assets (NPA) classification has been harmonized, NBFCs are now required to provide liquidity coverage ratio, and scale-based regulation has been introduced where the upper layer of NBFCs will have a much stricter regulatory watch.  These measures have considerably reduced the risk arbitrage that was there between a Bank and an NBFC.
  • The Liquidity Coverage Ratio (LCR) requirements are a big drain on NBFCs same as Cash Reserve Ratio (CRR) & Statutory Liquidity Ratio (SLR).
  • NBFCs need to keep their maturities in the next 30 days in a separate bank account. It needs to take all loan repayments, bond repayments, deposit repayments, and estimated disbursements in one account and transfer it to a liquid fund accruing a 2% return.
  • The strategic rationale for the proposed merger includes SLR and CRR for banks, which was 27% and has now been reduced to 22% (18% for SLR and 4% for CRR).
  • Interest rates are more favorable at present. Banks have an option to invest in priority sector lending (PSL) certificates, to meet the PSL requirements.
  • The merger makes the combined entity strong enough, countering competition and making the mortgage offering more competitive. The funding challenges both in quantum and cost will be minimized by the combined entity.
  • The bank has requested a phased-in approach in respect of SLR and CRR, priority sector lending as well as grandfathering of certain assets and liabilities and in respect of some of its subsidiaries. These requests are under consideration by RBI in terms of a letter received on April 1.
  • In a letter to RBI, HDFC has also asked for time, to be compliant on existing assets of HDFC, a specific period of 2-3 years, with new loans complying with SLR and CRR regulations.
  • The bank is aware that Developer finance, apart from earning a higher rate of interest, gets retail loans. When a builder launches a product and a construction finance is being offered, HDFC captures the first few days’ business, which emanates into large mortgage loans. However, loans given for the purchase of land will have to stop.
  • Chairman believes that the HDFC brand is not disappearing, and the brand will live through HDFC Life, HDFC MF, and HDFC Bank.
  • The time for a merger has come because of regulatory changes. NBFCs are being regulated like a bank but don’t enjoy the advantages of a bank like an overdraft, and lower cost of funds.

Asset Multiplier Comments

  • Benefits like an increase in product coverage, cross-selling opportunities to HDFC’s customers, the ability to raise funds at competitive rates, and loan book expansion will boost the performance of the Bank in long term.
  • We think the merger will be able to extract synergy benefits and will aid the competitive positioning of the combined entity as it will have the same cost structure as other banks.

Consensus Estimate (Source: market screener website)

  •  The closing price of HDFC was ₹ 2,623/- as of 05-April-2022. It traded at 3.7x/3.4x the consensus book value per share estimate of ₹ 716/ 785/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,200/- implies a PBV Multiple of 4x on the FY24E BVPS estimate of ₹ 785/-.

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.”






 Organic revenue growth guidance of 20% for the medium term: Happiest Minds

Update on the Indian Equity Market:

On Wednesday, Nifty closed lower at 17,246 (-0.4%)in the highly volatile session. METAL (+1.2%), OIL AND GAS (+0.4%) and PHARMA (+0.4%) were the top sectoral gainers.AUTO (-1.0%), FINANCIAL SERVICES (-0.9%) and BANK (-0.6%) were top losing sectors.

The top losers were KOTAKBANK (-2.6%), HDFC (-2.4%), and BRITANNIA (-2.1%) while DIVISLAB (+2.5%), HINDALCO (+2.5%) and TATASTEEL (+2.0%) were the top gainers.

Edited Excerpts of an interview with Joseph Anantharaju, Executive VC& Chief Executive Officer-Product Engineering Services, and Venkatraman Narayanan, MD and CFO, Happiest Minds with CNBC-TV18 on 22nd March, 2022:

  • The IT industry is facing two concerns i.e. higher attrition and margin pressure. On margins, the MD commented that the company has been outperforming its guidance of 22-24%(EBITDAM) for the last four quarters. This is largely on account of Work From Home (WFH)scenario and other cost saving factors.
  • For FY23E,the MD stated that demand seems to be robust and the company would be working on maintaining the EBITDA Margins at 24-25%. The pressure would be from wage hikes to retain the talent as the attrition rates are high. The new recruitment would cost higher. This increase in cost is expected to be compensated through rate increases to the customers. The favourable exchange rate is also helping to maintain the margins.
  • MD’s Comment on the Russia-Ukraine conflict: There is flow of work continuing to India. Earlier it was because of entire digitalization move, which was applying pressure on supply side. Now he expects this conflict to add to this pressure. According to him, demand would not be an issue, but meeting the demand and requirements of the customers and attracting talent would be a challenge.
  • The bill rates of services rendered from Eastern Europe are higher than services rendered from India. There is a headroom to cover for the increased cost by negotiating for higher rates without impacting the quality of deliverables. This is the upside for the Indian Tech Industry.
  • On the company’s organic revenue growth guidance of 20%, the MD clarified that it is for a period of time spanning five years. He expects the revenue growth range to be around 32% YoY for FY22E.
  • On high attrition rate problem, VC commented that the company expects the number to trend down a bit. It has taken a few measures, upcoming high increments and increased level of engagement, learning and development training to attract people is expected to maintain or reduce the current attrition levels. With current campus batch coming in and supply increasing,the company expects the attrition rates to taper down and to release some pressure on margins going forward.
  • The contribution of BFSI segment have been reducing in past couple of quarters. BFSI sector for the company have not been a traditional segment. Consulting, leasing and payroll service providers are the type of clients of the company. BFSI sector have been highly penetrated by the earlier entrants and large IT companies. Happiest Minds have been entering BFSI sector in adjacent areas rather than the traditional/old ones.
  • The marginal drop in BFSI segment is because of the recalibrations and reallocation in the verticals. Edutech is growing faster than BFSI in last two quarters. The recent merger and acquisition has lead to faster growth in Consumer Packaged Goods (COG) segment.
  • There is openness from existing and new customers with regards to considering the rate adjustments due to inflation and wage increases.

Asset Multiplier Comments

  • We think the strong deal momentum across verticals, emphasis on digital business and client centric approach may help the company to achieve its medium-term guidance of 20%+ revenue growth.
  • The ongoing talent crunch may keep margins under check in the near term, but the initiatives taken by the company may help to maintain the EBITDA Margins stable at 24-25%.

Consensus Estimate (Source: market screener website)

  • The closing price of Happiest Minds was ₹ 1,145/- as of 23-March-2022. It traded at 76x/ 68x the consensus earnings per share estimate of ₹15/ 17 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,510/- implies a PE Multiple of 89x on FY24E EPS estimate of ₹ 17/-.

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.”