Month: July 2024

Stock Picks: Oil and Natural Gas Corporation (ONGC) share price has zoomed 94% in a year and Oil India Ltd offered multi-bagger returns to the investors, cheering investors and analysts.

Analyst confidence in the earnings growth of these upstream oil and gas producers remains strong as Brent Crude prices, which had dipped below $80 a dollar in the first half of June for a short period, have sustained above $80 a barrel thereafter. This has also boosted investor sentiments.

Brent is likely to sustain above $80 a barrel, analysts feel. The demand-supply dynamics are expected to support the Brent crude prices and that may also be positive for investor sentiment towards Oil India and ONGC share prices.

Brent crude’s price rise closed in on $85 a barrel in the last couple of weeks as the Organization of the Petroleum Exporting Countries (OPEC) and its allies continued with voluntary cuts. The OPEC has not given any indications towards easing the voluntary cuts. Further, the geopolitical uncertainty in the Middle East is also supporting the upside of Brent.

On the demand side, while China remains soft, the International Energy Agency or IEA has maintained its global demand growth forecast, analysts said.

Analysts at JM Financial say that IEA expects global oil supply growth for Calendar Year 2024 to be limited to only 0.8mmbpd (million barrels per day) due to OPEC+ output cuts, implying a deficit of ~0.2mmbpd. They believe the strong pricing power of OPEC+ will continue to support Brent at ~USD 80/bbl, which is the fiscal break-even crude price for Saudi Arabia. JM Financial analysts see this as a sweet spot for ONGC and Oil India. The current stock prices of ONGC and Oil India reflect an assumption that these companies will be making money by selling oil at around $70 a barrel.

Additionally, a strong 4-6% dividend yield and a firm production growth outlook over the next 1-3 years are positives. JM Financial has given Buy ratings for ONGC and Oil India. Oil India is also likely to benefit from Numaligarh Refinery capacity expansions.

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As India gears up for the first full-year Union Budget under the NDA government post the 2024 elections, stakeholders across sectors are eagerly awaiting strategic reforms and budgetary allocations. In a recent research note, Fisdom Research delves into the anticipated measures expected to shape FY25, focusing on critical areas such as infrastructure, defense, rural development, healthcare, taxation, and more. These measures aim to catalyze economic growth, enhance social welfare, and bolster various sectors, aligning with India’s vision for comprehensive development and prosperity.

Increased Capex Spending

Expectations are high for sustained high capital expenditure on infrastructure sectors like roads, power, urban development, and railways, said the brokerage. This strategic allocation aims to stimulate economic growth, create employment opportunities, and foster long-term economic multipliers. The BJP manifesto emphasizes robust infrastructure development, aligning with recent interim budget highlights that underscore fiscal prudence with a maintained fiscal deficit target of 5.1 percent. As per Fisdom, key stocks to monitor include Larsen & Toubro (L&T), KNR Constructions, and PNC Infratech, poised to benefit from increased infrastructure investments.

Higher Railway Spending

The brokerage also expects significant investments to be anticipated in expanding and modernizing railway infrastructure, encompassing new lines, station redevelopment, and the introduction of modern trains. This initiative aligns with BJP’s manifesto commitments to enhance railway connectivity and infrastructure. Stocks such as IRCTC, Container Corporation of India, and Titagarh Wagons are likely to gain traction in response to heightened railway sector allocations, it noted.

Affordable Housing and Urban Development

Fisdom also expects funding allocations for affordable housing and satellite township development near metro cities to bolster urban infrastructure and enhance access to affordable housing. The BJP’s pledge to construct 30 million new homes underscores the focus on urban development, complemented by continued investments in affordable housing projects. Real estate stocks such as DLF Ltd., Godrej Properties, and Oberoi Realty are poised to capitalize on these developments, it added.

Modernization of Armed Forces

Fisdom anticipates an increase in defense budgetary allocations to support the armed forces modernization efforts, emphasizing technology acquisition and indigenization. This strategic move aligns with BJP’s commitment to bolster defense capabilities through advanced technology and modern equipment. Defense manufacturers such as Bharat Electronics Ltd. (BEL), Hindustan Aeronautics Ltd. (HAL), and Bharat Dynamics Ltd. (BDL) are expected to benefit from enhanced defense spending.

Farmer Support and Agri-Infrastructure

Expectations include higher Minimum Support Prices (MSPs) for major crops, strengthened agricultural infrastructure, and support for PM Kisan Samman Nidhi. These measures aim to bolster agricultural productivity and rural incomes, reflecting BJP’s manifesto promises and recent budgetary support. Stocks to watch in this sector include Mahindra & Mahindra Ltd., Escorts Ltd., and UPL Ltd.

Support for Startups and MSMEs

As per the brokerage, anticipated expansions in credit programs like Mudra loans and initiatives such as the Startup India Seed Fund Scheme are expected to bolster the startup ecosystem and MSME growth. The BJP’s focus on supporting entrepreneurship aligns with interim budget measures aimed at providing financial support to startups and MSMEs. Financial services and IT sectors, represented by stocks like HDFC Bank Ltd., Kotak Mahindra Bank Ltd., Tata Consultancy Services (TCS), and Infosys Ltd., are likely to benefit from these initiatives.

Job Creation through Public Welfare Schemes

The upcoming Union Budget is poised to emphasize infrastructure projects and public welfare schemes as key avenues for generating employment, particularly in rural areas, it noted. With a focus on job creation highlighted in the BJP manifesto and reinforced in the interim budget, sectors like construction, IT, and services are expected to benefit significantly. Investors eyeing this development should keep an eye on stocks such as Larsen & Toubro (L&T), Tata Consultancy Services (TCS), and Infosys, which are positioned to capitalize on increased government spending in these sectors, stated the brokerage.

Healthcare Initiatives

The brokerage expects continued expansion of the Ayushman Bharat scheme and enhanced focus on healthcare services for women and senior citizens in the upcoming fiscal year. The BJP’s commitment to expanding the Ayushman Bharat scheme aligns with interim budget provisions that aim to increase public health expenditure to 2.5% of GDP. This strategic focus is expected to boost sectors such as healthcare providers and pharmaceuticals, with stocks like Apollo Hospitals Enterprise, Fortis Healthcare, Sun Pharmaceutical Industries, and Cipla poised to benefit from heightened government support and expenditure, it predicted.

Renewable Energy Investments

According to Fisdom, anticipated increases in investments in renewable energy sources, including solar and wind power projects, are set to drive clean energy technologies forward. The BJP’s focus on renewable energy investments, supported by interim budget allocations, underscores the government’s commitment to sustainability. Sectors such as renewable energy are poised to thrive, with stocks like Tata Power Ltd., Adani Green Energy Ltd., and NTPC Ltd. offering potential growth opportunities for investors interested in green initiatives.

Green Initiatives

Support for green hydrogen projects and sustainability-focused infrastructure, including incentives for battery energy storage systems, is expected to feature prominently in the upcoming fiscal agenda. Highlighted in the BJP manifesto and complemented by interim budget incentives, these initiatives aim to promote environmental sustainability and innovation. Investors interested in sustainability projects may consider stocks such as Inox Wind Ltd. and Suzlon Energy Ltd., which are positioned to benefit from increased government support and market demand for green technologies, forecasted the brokerage.

Personal Income Tax

Expectations for revisions in income tax slabs to provide relief to the middle class are high, with potential increases in basic exemption limits and adjustments to tax thresholds anticipated, it said. The BJP manifesto’s emphasis on enhancing disposable income for the middle class aligns with the interim budget and hints at tax structure rationalization to support economic activities. Sectors benefiting from increased consumer spending, including consumer goods and retail, may see potential growth opportunities for stocks such as Hindustan Unilever, Nestle India, Marico, Avenue Supermart, and Titan Company, noted Fisdom.

Corporate Tax

Anticipations include potential reductions in corporate tax rates for MSMEs to bolster growth and sustainability. Emphasized in the BJP manifesto, these measures aim to support MSMEs and startups as pivotal drivers of economic growth and employment. Investors monitoring this sector may consider stocks such as HDFC Bank, Kotak Bank, and Axis Bank, which are well-positioned to capitalize on a competitive tax environment aimed at attracting investments and boosting industrial growth, it predicted.

As India prepares for the FY25 Union Budget, expectations are set on transformative measures across key sectors to drive economic resilience and social welfare. The anticipated reforms underscore the government’s commitment to infrastructure development, defense modernization, rural upliftment, healthcare enhancement, and progressive taxation policies. These initiatives are pivotal in navigating India towards sustained economic growth, fostering sectoral resilience, and unlocking opportunities for both investors and stakeholders across diverse industries.

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Indian stock market seems to be at relatively normal valuations at the Nifty level, said Deepak Shenoy, Founder and CEO of Capitalmind. In an interview with Livemint, Shenoy said he continues to invest in India’s domestic manufacturing industry, energy sector, and local consumption. Here are edited excerpts.

Q. As the earnings season kicks off, what are your expectations for corporate earnings in Q1? Which sectors do you anticipate will perform well?

A. We expect Nifty 50 aggregated EPS to report a high single digit on the back of strong earnings growth from sectors like Financials, Automobiles & FMCG sectors. On the other hand, IT & Pharma may continue to face headwinds however things are expected to bottom for these over the next couple of quarters.

Q. How do you analyze TCS’s Q1 results and what is your outlook on the overall IT sector? Do you foresee growth bottoming out in the second half of the year?

A. The market commenced the Q1FY25 earnings season on a positive note, with TCS reporting robust figures: a 5.4% YoY revenue growth and an 8.7% profit growth. These results have provided a much-needed boost to the IT sector, where sentiment has been sluggish, and the IT sector valuations appear reasonable.

Q. Certain private banks have seen a decent uptick, while the challenges over deposit growth and credit costs prevail. What is your outlook on the banking sector and its current valuations?

A. Banks are experiencing robust loan book growth (especially mid-sized private banks, which have reported loan growth of 15-20% YoY). However, NIMs are anticipated to be under pressure, and the proportion of low-cost deposits might keep declining. Credit costs are expected to rise slightly, particularly in segments such as Agriculture and Micro Finance.

Despite these challenges, asset quality is likely to remain strong, helping to keep provisions in check.

Q. How do current stock valuations compare to historical averages, and what implications does this have for potential future returns?

A. At the Nifty level, we are at relatively normal valuations. The Nifty 50 is currently trading at 23 times PE (TTM), which is in line with the historical averages (the Nifty 10Y median PE is 23.4 times). On a one-year forward, we are currently trading at around 21 times.

Q. Do you foresee any significant market corrections shortly? If so, do you believe such a correction would be a buying opportunity or could it unsettle the market for an extended period?

A. We don’t predict, we respond. Will there be a correction? We don’t know. If there is, would it be a buying opportunity? We don’t know, we’ll have to find out when the correction happens. Will it unsettle the markets? We have no idea, and we can tell you after it does, but then the question will be: when will the markets settle? (To which our answer will be: we don’t know).

We simply do not want to get into predictions.

Q. What is your perspective on SEBI’s oversight in the derivatives market given the recent F&O frenzy? Are you concerned about the increasing retail participation in options trading?

A. I’m not majorly concerned about retail participation in options. India has always had very high retail participation in options, going back to 2003. The frenzy might have a systemic impact for which we believe that either margin should be increased, or that contract sizes must go up, to reduce the impact of lesser capitalized traders.

Q. How much impact do you see on brokers’ business from Sebi’s uniform transaction fee rule?

A. For the listed brokers, this appears to be about 10% to 20% of their net incomes, but we will have to see how the brokers react, either by raising their fees or by reducing their costs elsewhere. We do not know about the largest brokers in India, which are private companies.

Q. What are your expectations from the upcoming Union Budget? Which sectors do you think will be in focus, and what strategies should investors consider in the upcoming days?

A. We don’t have any suggestions for the upcoming days. Budgets are not the best reason to buy stocks until after the budget itself. We believe the largesse provided by the central bank dividend, a higher tax collection, and strong demand for India’s debt will allow for the government to continue its focus on growth and progress. We continue to invest in India’s domestic manufacturing industry, the energy sector, and local consumption.

Q. Are there any emerging opportunities or new sectors that investors should consider in the current market conditions?

A. There will always be interesting sectors and opportunities. But they are unrelated to current market conditions as you have to think longer term. As a PMS, it is our job to find new areas of investing opportunities; in the last year, we have found it interesting to buy into the Surging India story, where we focus on domestic premium consumption, travel and hospitality, energy independence, manufacturing, and core infrastructure.

Q. SIPs, AIFs, ETFs, and similar other products have become a preferred investment tool for risk-averse investors. What is your assessment of such products, and can you spell do’s and don’ts for investors considering these?

A. SIPs are not relevant here – it’s just a concept of investing regularly into something. ETFs haven’t become meaningfully different, as most of the investment into ETFs comes from the EPFO.

AIFs are only relevant to High Net worth Investors, who have to invest Rs. 1 crore or more. This usually involves much higher risk so these are not taken by risk-averse investors, but more by those that can take a lot more risk.

Simple do’s and dont’s are:

● Don’t buy products you don’t understand

● Do invest for the longer term, and don’t be swayed by short term ups-and-downs

● Don’t take loans to invest in anything, regardless of how exciting they make it sound

● Do your research before investing

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HCL Technologies vs TCS: After the strong Q1 results 2024 announcement by the Indian IT majors, investors may find it tricky to choose either of the two IT stocks when the Indian stock market opens on Monday. Even though the TCS share price moved upward on Friday after the declaration of the TCS results for Q1FY25 on Thursday, experts expect more upside in the IT stock, while bulls are expected to react strongly to HCL Tech shares after strong HCL Tech results. HCL Tech declared its Q1 results for 2024 on Friday, and stock reaction is expected on Monday.

Expecting substantial upside in the Indian IT sector post-Q1 results 2024 of TCS and HCL Tech, Siddhesh Mehta, Research Analyst at SAMCO Securities, said, “Following TCS’s robust earnings report, another leading Indian IT firm, HCL Technologies, surpassed Q1FY25 earnings expectations with a notable YoY increase of 7% and 21% in revenues and profits respectively. The robust performance of TCS propelled the Nifty IT index, which surged by 4.53% on Friday to end the week near its all-time high. With HCL Tech’s impressive results, this upward trend will likely continue, and Monday could become another significant day for the Indian IT sector.”

TCS vs HCL Tech results

Comparing Q1 results 2024 of TCs and HCL, Sugandha Sachdeva, Founder of SS WealthStreet, said, “India’s largest IT company, TCS, has reported upbeat June quarterly results exceeding market estimates on the back of healthy execution and mega and large deals to ramp up. The results are reflective of all-round execution on both margin improvement and revenue growth. The company reported net profit growth of 9% (YoY) to ₹12,040 crore, while revenue from operations surged by 5.4% YoY, aided by growth across most verticals. The company has also declared an interim dividend of ₹10 per share. The company constantly pursues innovation and strengthens client relationships, and the deal pipeline remains strong amid growing traction in Gen AI projects. The Q1 results indicate demand recovery and an improving growth trajectory.”

“HCL Tech results were beat on all estimates, however, concerns with the company’s growth in FY25 persist. The net profit included a one-time gain from the divestment of the JV with State Street which will significantly impact the Q2 topline as well. The topline health was aided by strong growth in the Telecom vertical and in the retail vertical which helped offset the decline in Healthcare and Utilities verticals. The top line was also buoyed by healthy growth in the software segment which was expected to decline owing to seasonality,” said Manish Chowdhry, Head of Research at Stoxbox.

“HCL Tech also delivered better-than-expected results for the June quarter, with consolidated PAT rising by 20.4% YoY to ₹4,257 crore. Sequentially, the net profit surged 6.8% compared to the March quarter. However, the revenue witnessed a drop of (1.9%) for Q1FY25 while it rose by 6.7% compared to the same quarter last year. India’s third largest IT services company estimates constant currency revenue growth of 3-5 percent (YoY) for FY25 and an EBIT margin of 18-19 percent. The IT major has also declared an interim dividend of Rs.12 per share, its 86th consecutive quarter of dividend payout. The company’s growth trajectory looks positive as new deals are won, and they expect strong demand due to the increasing adoption of emerging technologies like Generative AI,” Sugandha added.

TCS vs HCL Tech: Which stock to buy

On which IT company has delivered better Q1 results 2024, Avinash Gorakshkar, Head of Research at Profitmart Securities, said, “.TCS has delivered better-than-expected numbers; it has managed to maintain its revenue growth and strong outlook for the entire FY25. In the case of HCL Tech’s results, it has also managed to beat the market estimates, but HCL Tech’s revenue has slipped, and its growth outlook for FY25 is weak. This means TCS has delivered better Q1 results for FY25 than HCL Technologies.” Gorakshkar suggested buying TCS shares ahead of HCL Tech shares when the Indian stock market reopens on Monday next week.

“As for the price outlook, both the stocks are looking promising from a one-year perspective, where TCS share price is now looking slightly more attractive on the back of its consistent growth profile, strong ROIC, healthy margins and robust execution. TCS shares have formed a strong base at ₹3,600 and look poised for further gains from a medium to long perspective. Although the stock appears slightly stretched after surging for eight quarters in a row, a cool-off in prices towards the ₹3,600 to 3,650 could present an opportunity to capitalize on the upward momentum, targeting higher levels of around ₹4,700,” said Sugandha Sachdeva.

“HCL Tech share has established a base at ₹1,250 mark while the stock is likely to face some hurdle at ₹1,697 mark, its lifetime high, and once it surpasses the same, it can extend its march towards ₹1,950 to ₹2,000. Some corrective dips cannot be ruled out after the recent surge, but as long as the support mentioned above holds on a closing basis, the dips strategy looks prudent,” Sugandha concluded.

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Budget 2024: The date for the presentation of the Union Budget 2024 has been fixed on 23rd July 2024. This means we are just six sessions away from the budget presentation, and hence, intraday traders are expected to remain extra cautious in the coming week.

According to stock market experts, Union Finance Minister Nirmala Sitharaman is scheduled to present a growth-oriented budget; hence, infrastructure, banking, auto, and consumer durable segments will be in focus. As company results are also underway for the Q1FY25, they advised intraday traders to maintain a stock-specific approach with a particular emphasis on the above-mentioned segments.

Stock market tips before Budget 2024 date

Before the Budget 2024 date, Amit Goel, Co-Founder & Chief Global Strategist at Pace 360, advises caution due to the expected volatility. While averages show a slight decline before the budget, significant volatility can create opportunities but also heighten risks. In this pre-budget period, it’s advisable to buy stocks in sectors that could benefit from the budget, anticipating a post-budget rise. Increased volatility can present opportunities for short-term options traders, who are advised to use strategies like straddles or strangles to capitalize on price swings in either direction.

On segments where a stock-specific approach may yield higher returns, Avimash Gorakshkar, Head of Research at Profitmart Securities, said, “As the Indian economy has delivered a stellar performance in FY24 and Modi 3.0 Government is committed to achieving $10 trillion target by the end of next five years, FM Sitharaman is expected to remain focused on keeping the fiscal deficit under control. In that case, the government’s earnings are expected to shoot up, which qualifies banking and auto segment stocks as highly attractive. In the wake of rising income, one’s expenditure is expected to shoot up, which is expected to benefit consumer durable companies.”

Gorakshkar said that FM Sitharamn is expected to push job creation as well. In that case, the infrastructure segment will continue to focus on the BJP-led NDA government in New Delhi. One should monitor the quality of stocks in the abovementioned segments ahead of the Union Budget 2024 date, fixed on 23rd July 2024.

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