Samco Newsletter

[Rudresh]

Market Mode & Mood: Wait & Watch

The Indian equity market displayed a mixed performance in the past week🫨, with the benchmark indices, Sensex and Nifty 50, closing flat due to profit-booking in blue-chip stocks and significant Foreign Institutional Investor (FII) outflows😵. The Nifty 50 experienced a 0.8% decline, closing at 24,205.35, though down from the previous week. However, sustained inflows from Domestic Institutional Investors (DIIs) and decreased oil prices🛢️helped mitigate losses in key indices. The week’s performance paused the four-week downward trend for the Sensex and Nifty.

Overall, the Indian equity market exhibited a cautious and volatile trend during the Diwali week, with investors closely monitoring global economic conditions and domestic factors. While the benchmark indices remained relatively stable, the divergent performance of mid-cap and small-cap stocks highlighted the sector-specific dynamics at play.

Market swings on earnings downgrade

The Nifty 50 index has experienced a significant decline of 6% since October 1st, driven by a sharp downward revision in FY2025 Earnings Per Share (EPS) estimates. As per media reports, Bloomberg’s consensus Nifty EPS for this fiscal year was slashed by 13% in October, a substantial downgrade from the 2% reduction in September. This divergence between Bloomberg’s estimates and the Nifty bottom-up estimate highlights analysts’ waning confidence in an imminent earnings recovery📈.

Nearly half of the Nifty companies have faced EPS cuts exceeding 1% in October, according to a report from Emkay Global Financial Services. The Bloomberg FY2025 EPS estimate plummeted by 40% from its April 1st level, underscoring the severity of the downward revision.

A key concern is the sluggishness🐌in broad-based consumption, particularly urban consumption, despite a gradual improvement in rural consumption. The banking and non-banking finance sectors also exhibit areas of concern.

Bloomberg’s aggressive earnings downgrade likely triggered significant selling by foreign portfolio investors in the cash market during October, exacerbating the downward pressure on indices, even as domestic institutional investors partially offset this selling.

The week ahead for India

The upcoming US election🗳️, a closely contested race between Democrats and Republicans, is set to dominate the week. With both sides neck-and-neck, particularly in swing states, the outcome remains uncertain. The implications for India, especially its equity markets, are significant.

Market sentiment has been dampened by a combination of factors: high valuations, geopolitical tensions, and China’s new stimulus package. Corporate earnings are also under pressure due to rising costs and supply chain disruptions caused by the ongoing conflicts in Ukraine and the Middle East. Oil prices, though currently stable, could escalate if geopolitical tensions worsen. Foreign institutional investors (FIIs) are pulling out, signalling underlying concerns about growth. While rural demand has shown resilience, urban consumption is weakening. The auto sector🚗, though positive, still has pockets of concern. With many big companies yet to announce their quarterly earnings, uncertainty persists.

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Disclaimer: This content is for educational purpose only. https://sam-co.in/6j

[Rudresh]

All eyes on Fundamentals now!

A major event, the US election, is out of the way, and the focus would move to the economy and fundamentals📑.

The recent US election results sparked a brief market rally, but the week concluded with minor losses for Nifty and Sensex, down 0.69% and 0.28%, respectively🐻. The Federal Reserve cut its benchmark lending rate by 0.25% to a range of 4.5-4.75%, aiming to sustain the US economic expansion. This follows a 0.5% cut in September. Despite a positive global sentiment due to the US Fed’s rate cut, the Indian equity market witnessed a decline in three out of five trading sessions.

Trump’s win: A mixed bag for India

While some Indian analysts are optimistic about a second Trump term due to his relationship with the Indian Prime Minister and proposed tariffs on Chinese goods, there could also be potential drawbacks😬. Trump has criticised Indian protectionism and advocated for improved treatment of American companies in India.

Additionally, India’s manufacturing sector faces structural inefficiencies, relying heavily on Chinese inputs and lacking the value-add seen in competing Southeast Asian nations. Further concerns include the potential tightening of H1B visa regulations and the impact of Trump’s stance on birthright citizenship on Indian families in the US📕.

However, a second Trump term could bring benefits such as a resolution to the Ukraine war, reduced sanctions on Russia, and increased hydrocarbon production, leading to lower fuel prices. While lower fuel prices would provide short-term benefits to India, the environmental consequences of increased hydrocarbon production could have detrimental long-term effects on the Indian economy.

Indian Service Sector Experiences Growth in October

India’s service sector saw significant expansion in October, with the HSBC India Services Business Activity Index rising to 58.5 from a ten-month low of 57.7 in September. This growth was fuelled by robust demand and strong sales pipelines, leading to increased business activity📈.

The service sector also saw a surge in new export sales, attributed to increased demand from clients in Africa, Asia, the Americas, the Middle East, and the UK🌎. Employment in the sector experienced its most rapid growth in 26 months, with approximately 13% of surveyed companies reporting job creation. While input price inflation rose to a three-month high📅due to higher food and wage costs, the overall inflation rate remained below the long-term average.

The HSBC India Composite Output Index, which combines data from the manufacturing and service sectors, also rose to 59.1 from 58.3 in September, indicating growth in both sectors🏭. The growth in new business inflows in both sectors contributed to increased sales and employment overall. A PMI reading above 50 indicates expansion, while a score below 50 denotes contraction.

So, what awaits next week?

The upcoming weeks are crucial for the market, with many companies set to announce Q2FY25 results. Macroeconomic indicators like India’s industrial and manufacturing production, inflation, and US inflation will be closely watched by analysts to gauge the market’s future trajectory.

To stay updated on actionable insights, visit :-: https://tinyurl.com/2yuwjf5t

[Rudresh]

The market hits a speed bump

The Indian equity market experienced a significant downturn📉, primarily driven by concerns about subdued second-quarter earnings and domestic challenges. The benchmark NIFTY 50 index plummeted by 2.55% during the week, while the BSE mid-cap and BSE small-cap indices suffered even steeper declines of 3.89% and 4.61%, respectively. Foreign Institutional Investors (FIIs) continued their selling spree, withdrawing $2.5 billion in November🗓️so far.

Sectorally, the IT index bucked the trend, rising 1.5% on the back of expectations for robust external demand💪fuelled by a weak rupee and potential US tax benefits. However, all other sectors witnessed declines😩.

India’s inflationary woes

India’s economic landscape is grappling with the persistent threat of inflation💸. Retail inflation, as measured by the Consumer Price Index (CPI), is edging closer to the Reserve Bank of India’s (RBI) upper tolerance limit of 6%. A significant contributor to this trend is the surge in food prices triggered by heavy rainfall that disrupted crop production🌾.

While some experts anticipate a decline in inflation to the RBI’s 4% target in FY26 as weather-related factors stabilise, the recent spike to 6.2% in October, primarily driven by soaring vegetable prices🫛, has raised concerns. As such, this development diminishes the likelihood of a rate cut in the upcoming December meeting. The weakening rupee further exacerbates the situation, potentially leading to higher oil import costs and subsequent fuel price increases⛽.

Despite these challenges, the RBI’s optimistic GDP growth forecast of 7.2% for 2024-25 suggests confidence in economic resilience. However, a significant slowdown in growth could prompt a shift in policy priorities.

India’s IPO market in a slow lane

The year 2024 has been a record year for IPOs in India🔔, both in terms of total issue size and number of offerings. The total issue size has surpassed the previous decade’s high of Rs 1.31 trillion in 2021, reaching a staggering Rs 1.38 trillion.

But that said, recent months have seen a decline in IPO activity and subscription numbers. Global economic uncertainties, rising interest rates, and tighter liquidity have made investors cautious.

While larger IPOs like Hyundai Motor India and Swiggy garnered mixed responses from investors and tepid listings, smaller IPOs from companies like Arkade Developers and BLS E-services witnessed strong demand and significant listing gains.

However, experts remain optimistic about the long-term prospects of the Indian IPO market, though the current slowdown raises concerns about its immediate future😟.

Adani Group likely to expand into the metals sector

Adani Group is gearing up to disrupt India’s metals sector with a planned $5 billion investment over the next 3-5 years, as per media reports🔭. This ambitious move, following their successful entry into the cement industry, aims to challenge established players like Vedanta, Hindalco, and Tata. The focus will be on mining, refining, and producing copper, iron, steel, and aluminium, leveraging synergies with existing businesses in renewable energy, transmission, logistics, ports, and infrastructure.

While their copper plant, Kutch Copper, is already operational, they plan to invest an additional $1 billion to double its capacity. This initial $5 billion investment is separate from the funds already allocated to Kutch Copper, signalling a significant commitment to the metals sector🏭.

Week ahead

The market’s weakness🐻was attributed to a combination of factors, including disappointing earnings, FII outflows, and uncertainties surrounding global and domestic economic growth. Despite this, domestic investor confidence remained strong, with monthly Systematic Investment Plan inflows reaching a record high of over 25,300 crores in October 2024. A few things to watch out for next week are the last leg of the Q2FY25 earnings season, the long-awaited NTPC Green Energy IPO listing and manufacturing, and Services PMI data.

To stay updated on actionable insights, visit :_https://tinyurl.com/2yuwjf5t

Disclaimer: This content is for educational purpose only. https://sam-co.in/6j

[Rudresh]

Indian market: push and pull to continue

Indian equity benchmarks capped a shortened week with moderate gains, following a significant rally on Friday spurred by robust US job market data. The Nifty 500 index surged 1.37% for the week. The Sensex also climbed 1.91%.

While concerns over the Adani Group’s legal troubles in the US and potential trade tensions with the US persisted🌎, investors remained optimistic about future corporate earnings. This positive sentiment propelled the market upward.

Adani Group of Companies in trouble once again?

The Adani Group is facing legal challenges in the US related to bribery allegations. The US Securities and Exchange Commission (SEC) has issued a summons to Gautam Adani, the founder and chairman of the Adani Group, and Sagar Adani, the executive director of Adani Green Energy. The charges allege that they, along with other senior business executives, bribed Indian officials to secure solar energy contracts amounting to Rs 2,000 crore (or $250 million). The Adani Group denies these allegations.

These legal troubles led to a significant decline of 23% in the Adani Group’s stock prices on November 23, raising concerns about the Adani Group’s governance standards😨.

Trouble further escalated to the group with Kenyan President William Ruto announcing the cancellation of two major projects involving Adani Group Companies. As per reports, these include contracts for expanding Nairobi’s main airport and a $700 million project for constructing power transmission lines⚡.

Experts suggest caution to investors, recommending close monitoring of legal proceedings and a thorough evaluation of the group’s financial health before making investment decisions.

Indian Corporate Earnings Report Disappoints

The September quarter (Q2FY25) earnings report for Indian companies reveals a weaker-than-expected performance, leading to a significant sell-off in the equity markets and raising concerns about a potential economic slowdown📉. This underwhelming performance has negatively impacted investor sentiment, particularly among overseas investors steadily withdrawing funds in recent months.

A closer look at the data reveals a mixed picture. While the Nifty showed a 4% year-on-year growth in profit after tax, this growth represents a second consecutive quarter of single-digit growth since the pandemic (June 2020).

Excluding commodity-related companies, the earnings growth is considered in line with expectations. However, the consumption sector🛍️has emerged as a weak spot due to sluggish government spending, which remained flat in the first half of FY25 compared to the previous year, and excess rainfall impacting demand.

A recent report highlights a concerning trend in earnings estimates. The beat-miss ratio, which compares the number of companies exceeding or falling short of earnings projections, was unfavourable. The earnings upgrade-to-downgrade ratio for FY25E has weakened considerably, with 121 companies experiencing earnings downgrades of over 3% compared to only 43 companies receiving upgrades exceeding 3%. This ratio of 0.4x marks the worst performance since the first quarter of FY21.

Despite the current challenges, corporate earnings recovery is expected in the second half of FY25 and continued favourable macro support💪. However, analysts caution that market volatility is likely to continue as global economic uncertainties and geopolitical risks remain.

To stay updated on actionable insights, visit :_https://tinyurl.com/2yuwjf5t

Disclaimer: This content is for educational purpose only. https://sam-co.in/6j

[Rudresh]

Indian benchmark indices had a mixed week, with the Nifty 50 closing flat. While it was better than the previous week, concerns over a slower pace of domestic rate cuts due to lingering inflationary worries and uncertainty surrounding the U.S. rate cut✂️trajectory dampened investor sentiment. Additionally, concerns over the policy stance of the incoming U.S. president further weighed on the market.

In contrast, the BSE small-cap and mid-cap indices fared better, gaining 3.16% and 0.77%, respectively🐂. The BSE large-cap index, while lagging behind, still managed a 0.17% gain.

India’s Economic Growth Falters in Q2 FY25
India’s economic growth slowed down to 5.4% in the second quarter of the current fiscal year (Q2FY25), marking a significant deceleration😩. Weak industrial performance, particularly in mining, manufacturing, and utilities, coupled with low capital investment and bleak exports, contributed to this slowdown.

However, the agricultural sector remained resilient, registering healthy growth, and the services sector, excluding utilities, continued its steady expansion🌽.

Economists expect a revival in the second half of the year, driven by increased government capital expenditure, especially in infrastructure projects. Healthy agricultural output is likely to boost rural consumption, and moderating food inflation is expected to stimulate consumer spending.

As such, the pressure to cut the rate mounts for RBI. While challenges persist, the government remains optimistic about achieving its GDP growth target of 6.5-7% for FY25🏦.

Telecom Firms Target Defence Contracts

India’s defence forces are increasingly sourcing telecom equipment from domestic companies, creating a significant new market for these firms. This shift away from traditional foreign suppliers like Huawei, Nokia, and Ericsson is fuelled by geopolitical tensions, particularly with China, and the refusal of some foreign companies to provide sensitive technologies.

Indian companies like HFCL, STL, and Tejas Networks are capitalising on this opportunity to develop advanced telecom infrastructure tailored for defence applications.

With a projected global market value of $138 billion for defence communications infrastructure in the next decade🗓️, Indian companies are poised to play a key role in this sector.

Value creation strategy for investors

Indian conglomerates increasingly embrace the strategy of demerging their distinct business divisions and listing them as independent entities. This approach aims to unlock shareholder value, streamline operations, and facilitate focused growth📈.

Companies like Hindustan Unilever and NTPC are following global trends by demerging their ice cream and renewable energy businesses, respectively. This allows for better capital allocation, specialised management, and potentially higher valuations in the market💸. Similarly, Tata Motors seeks to simplify its operations by separating its passenger and commercial vehicle divisions.

The history of the Nifty 50 is replete with successful demergers that have created shareholders’ value. Companies like SBI Life Insurance and HDFC Life Insurance, once part of larger financial conglomerates, have thrived as independent entities.

Conclusion

Investors remain cautious, though easing geopolitical tensions🌍might offer some relief. Experts believe that the absence of positive catalysts in the market will likely prevent aggressive buying by foreign institutions in the final month of the year, suggesting a potential period of market consolidation.

To stay updated on actionable insights, visit :_https://tinyurl.com/2yuwjf5t

Disclaimer: This content is for educational purpose only. https://sam-co.in/6j

[Rudresh]

Awaiting cues

Indian equities kicked off the week with a strong surge, hitting a one-month high🚀. This rally was fuelled by expectations of an interest rate cut, prompted by weaker-than-anticipated GDP data. The Nifty 50 and BSE 500 indices gained 2.3% and 2.7%, respectively, buoyed by positive sentiment from a robust services PMI reading of 58.4 in November.

However, the market’s momentum slowed down towards the end of the week🐌. The RBI opted to keep interest rates unchanged but reduced the cash reserve ratio (CRR). This marked the first CRR cut since March 2020. While the move aimed to stimulate the economy, the RBI also downgraded its GDP growth forecast for 2024-25 and raised its inflation projection, dampening investor optimism.

RBI balances inflation and growth

The RBI chose to keep the policy repo rate steady at 6.5% during its bi-monthly Monetary Policy Committee meeting held from December 4th to 6th, 2024. This decision was made to address both inflationary risks and concerns about economic growth.

Despite a slowdown in economic growth, the RBI remains committed to controlling inflation, which surpassed its acceptable limit in October 2024. To balance this, the RBI opted to reduce CRR by 50 basis points in two stages, aiming to inject liquidity into the banking system. This move is intended to encourage credit growth and support economic activity🪜.

The central bank also revised its forecasts for the fiscal year 2025, lowering growth estimates to 6.6% and increasing inflation estimates to 4.8%.

The decision to hold the repo rate came amidst a complex macroeconomic environment, with challenges including a drop in GDP growth in the second quarter of fiscal year 2025, elevated inflation, and global economic uncertainties.

In a slow lane

The Indian automobile industry is experiencing a slowdown in sales, particularly in the passenger vehicle and two-wheeler segments🛵. While wholesale dispatches saw a slight year-on-year increase in November, this growth was primarily driven by commercial vehicles and exports. The slowdown in the PV segment is attributed to several factors, including moderation in demand for utility vehicles, which were previously a major driver of growth, rising cost of ownership, including vehicle prices, fuel costs⛽, and higher interest rates, and declining footfalls and retail sales.

To manage the slowdown, car manufacturers have reduced dispatches to prevent dealers from incurring financial losses. However, it remains to be seen if this will be sufficient. There are also concerns about a potential slowdown in financing, which could further impact sales.

Despite this, the premium segment, including luxury cars, is performing well, suggesting that high-end buyers remain unaffected. The 2W segment presents a more optimistic picture, with overall industry wholesales up 15%. As for CVs, the industry anticipates flat sales growth or a marginal decline in the current fiscal year💸.

Conclusion

Global markets are currently exhibiting a cautious outlook, primarily due to geopolitical events. In India, the equity market is also expected to remain range-bound in the near term. Investors are awaiting improved corporate earnings and clearer visibility on potential rate cuts to drive upward momentum.

To stay updated on actionable insights, visit :_https://tinyurl.com/2yuwjf5t

Disclaimer: This content is for educational purpose only. https://sam-co.in/6j

[Rudresh]

Awaiting Christmas cheer!

The week began with some selling pressure in the Indian equity market due to ongoing global tensions in the Middle East. However, this was balanced by expectations of a potential Fed rate cut and the easing of inflation💸. Despite this, cautious investor sentiment led to a narrow trading range for Indian shares. The week concluded with a slight uptick, with the Nifty 50 index gaining ~0.5% and the Nifty 500 index rising ~0.3%.

New RBI Governor sparks hope for Growth-Focused monetary policy

The recent appointment of Sanjay Malhotra as the new Governor of the Reserve Bank of India (RBI) has generated significant buzz in the financial markets🏦. This unexpected change, replacing Shaktikanta Das, who served two terms, has raised expectations of a shift towards a more growth-oriented monetary policy. Economists are increasingly predicting a potential rate cut in the upcoming February policy review🔭.

Malhotra’s immediate task will be tackling inflation.

However, policymakers face a complex challenge in balancing growth and inflation. Incoming inflation data over the next three months will be critical in determining the MPC’s course of action. Any unforeseen spikes in retail inflation could disrupt the committee’s calculations and plans🌋.

While the new Governor’s arrival brings hope for a more growth-focused approach, the MPC’s decisions will ultimately be driven by evolving economic data and the need to balance growth and inflation objectives⚖️.

Easing inflation fuels hopes for a rate cut

India’s economy received a boost in November📅 as retail inflation fell back within the central bank’s target range, paving the way for a potential interest rate cut in early 2025. The Consumer Price Index (CPI) eased to 5.48%, down from a 14-month high of 6.21% in October. A seasonal drop in vegetable prices primarily drove this decline🍆.

Economists are optimistic that the downward trend in inflation will continue, allowing the RBI to shift its focus towards supporting economic growth. The RBI has projected CPI inflation at 4.8% for the fiscal year 2025. However, experts caution that the timing of a rate cut will depend on several factors, including global economic conditions and the volatility of food prices. Food inflation, in particular, has remained a concern. Despite the positive inflation data, the RBI remains vigilant about potential price pressures.

Oil impact

The end of the Syrian Civil War has had a surprisingly muted impact on global oil markets⛽. While Syria is strategically located in the Eastern Mediterranean, it is not a major oil producer, so its return to peace has not significantly affected prices. Instead, oil prices have faced downward pressure due to Saudi Arabia’s decision to cut prices for Asian buyers. Saudi Aramco reduced its premium for Arab Light crude, signalling a potential oversupply in the market. OPEC+, the oil cartel led by Saudi Arabia and Russia, has also decided to maintain current production levels, further contributing to the oversupply🛢️. Analysts predict this trend could continue into 2025 due to a slowing Chinese economy and increased US oil production.

The Indian equity market is anticipated to remain range-bound in the near term. China’s stimulus measures have added pressure to the market. While domestic IIP and retail inflation figures were in line with expectations, they remain elevated, casting uncertainty over potential rate cut cycles in 2025, given the strong US economy. However, the upcoming Christmas season could bring some much-needed positivity to the market🎄.

To stay updated on actionable insights, visit :_https://tinyurl.com/2yuwjf5t

Disclaimer: This content is for educational purpose only. https://sam-co.in/6j