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With the central government bringing the auto scrapping policy back on the table the volume of medium and heavy commercial vehicles on the road could come down significantly, said HDFC Securities in a report. This shrinking volume of commercial vehicles might not be all bad, as it opens pockets of opportunity with commercial vehicle (CV) sales gaining momentum as the on-road volumes decline. The report adds that the slowing loan growth and falling auto sales for the past two years could change rapidly with the scrapping policy in space. The move could benefit auto financiers as loan growth may surge while consumers look to buy new vehicles.

Nitin Gadkari, Minister of Road Transportation, earlier this month said that the scheme is being finalised and could be expected by next month. “While the intention is evident, little is known about the details of the scheme. These details would entirely determine the extent of the impact of the scheme on auto OEMs and auto financiers alike,” the report said. Analysts at HDFC Securities expect the scheme to be mandatory for all, however it is still unclear whether the government will offer incentives to owners at this juncture when the government’s financials are not too strong.

“We believe the announcement of this scheme will be beneficial as CV sales have been impacted by the increase in axle load norms, the introduction of BSVI vehicles and the COVID-related downturn,” HDFC Securities said. It estimates that around 6.5 lakh CVs were sold between financial year 2001-15 and 5.63 lakh between financial year 1996-2000. “The scrapping scheme would be an important driver of sales, in our view. Both the OEMs, Tata Motors and Ashok Leyland, will benefit from the above,” the report adds. Additionally it says that Eicher Motors and Mahindra & Mahindra could also benefit. HDFC Securities has an ‘Add’ rating on Tata Motors.

The benefit of the scrapping policy will also be enjoyed by auto financiers who have in recent years witnessed slowing loan growth as auto sales succumbed during the slowdown in the country’s economic growth. “Regardless of the vintage of vehicles covered, the scrapping policy will result in up-trading which bodes well for the growth prospects of vehicle financiers in the long-run,” HDFC Securities said. Financiers of used vehicles could also see strong demand with consumers lining up to buy pre-used vehicles at the current juncture. Although the report does not estimate the changes in assets under management for vehicle financiers without knowing the details of the policy, Cholamandalam Investment and Finance Company and Au Small Finance Bank remain the preferred picks in vehicle financing space.

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IRCTC shares jumped over 3 per cent to trade at Rs 1,459.95 apiece on BSE after the Indian Railway Catering and Tourism Corporation announced to run additional special trains with effect from Saturday, September 12, 2020. The stock hit a 52-week high of Rs 1,995 apiece in February this year since then the stock has corrected nearly 27 per cent. In March this year, Indian Railways cancelled all the passenger train services and passenger ticketing in an attempt to contain the fast-spreading Coronavirus pandemic. “Indian Railways to run additional 40 pairs of more special trains w.e.f. 12th September 2020. These will be fully reserved trains. Tickets can be booked from 10th September 2020,” Ministry of Railways said.

IRCTC shares were trading 1.39 per cent higher at Rs 1,434 apiece, as compared to a 0.66 per cent gain in S&P BSE Sensex. So far in September, IRCTC shares have gained 8 per cent. These trains will be in addition to the existing 30 special Rajdhani type trains started effective from May 12, 2020, and 200 Special Mail Express trains introduced effective from June 1 (total 230 trains).

IRCTC shares were listed on bourses on October 14, 2020, at a listing price of Rs 644 per share. In a BSE filing, IRCTC informed that these services shall be in addition to the Shramik specials and the special trains, which are already under operation. “The composition of these trains would be the same as of existing regular services. Stoppages shall be restricted in view of the suggestions of State Governments. These will be fully reserved trains,” it added.

Last month the government invited bids from merchant bankers for managing the stake sale in Indian Railway Catering and Tourism Corp (IRCTC). DIPAM while inviting Request for Proposal (RFP) said that the GoI intended to disinvest a part of the paid-up equity capital of IRCTC out of its shareholding through ‘Offer for Sale (OFS) method of shares by promoters through the stock exchanges’ as per Securities and Exchange Board of India (Sebi) Rules and Regulations. In the January to March quarter of FY20, IRCTC reported a 79.3 per cent jump in net profit from a year ago. The company reported a net profit of Rs 150.6 crore, compared with Rs 84 crore a year ago.

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Happiest Minds Technologies initial public offering (IPO) was oversubscribed within less than three hours from the opening of the window. The IPO saw massive response from retail investors who subscribed to the issue over 5 times their quota. From the 2,32,59,550 shares that are up for subscription, bids were received for 2,53,23,020 shares which translated to a 1.09 times subscription rate. Happiest Minds Technologies, a IT service and consulting firm, run by Ashok Soota beat the market blues as Sensex and Nifty danced between gains and losses.

Qualified Institutional Buyers (QIB), were seen bidding for only 8% of the stocks that have been offered to them. QIBs usually enter on the last day of the subscription window. On the other hand, Non-Institutional Investors (NII) bid for 21% of their quota in less than three hours. Large part of the NII demand, for the 63,43,513 shares offered to them, came on the BSE. Retail investors oversubscribed their portion by over 400 times taking their bidding to 5.44 times on Monday morning. Retail investors have been offered only 42,29,009 shares.

The over Rs 700 crore issue of Happiest Minds Technologies includes an offer for sale for 35.66 million shares and a fresh issue of 6.6 million shares. “At the higher end of the price band, the issue is valued at 29x FY20 P/E (fully diluted), which is comparable to larger mid-sized IT companies,” said brokerage firm Motilal Oswal in a note. Happiest Minds is being eyed as a good bet in a defensive sector like Information Technology with its strong presence in digital services and fast improving financial performance. Happiest Minds IPO is offering shares in the Rs 165-166 price band. The IT company managed to raise Rs 316 crore last week. Anchor investors included the likes of the Government of Singapore, Goldman Sachs, Kuwait Investment Authority, and Nomura Funds Ireland, among others.

A key factor driving the company’s business and attracting investors towards it is the strong promoter in Ashok Soota. Before establishing Happiest Minds in 2011, Ashok Soota was one of the founding members of MindTree Ltd prior to which he was also the vice chairman of Wipro Ltd. “Considering the very high exposure to digital services and strong promoter background we expect that the company will continue to grow at a faster pace as compared to similar sized companies and therefore should command a premium valuation to the peer group,” said Yash Gupta, Equity Research Associate, Angel Broking.

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Exposure to equity markets, as a part of the total financial balance sheet of Indian households, stood at just 14% at the end of financial year 2019, lowest among major economies. Brokerage and research firm Motilal Oswal, in a recent report, noted that while exposure to equity markets as a part of household financial assets is lowest in India, American households had the highest exposure at 45%. The only other countries even close to the United States of America were Spain and Canada. With the high exposure, dividend income now contributes 7% to the personal income in the United States.

“American households are unique with regards to their exposure to the equity markets. Total financial assets of US households amounted to $94 trn (or ~440% of GDP) at end-CY19,” the report said. Along with having 45% of their financial assets invested in equity markets, American households invest close to 32% of their assets in long-term or retirement assets, similar to insurance and pension entitlements. Only 14% of their household financial assets were held in the form of deposits and 7% were invested in debt securities.

The report showed that the exposure to equity markets in the United States has been inching higher with each year since 2008. “The share of equities in household financial assets has risen almost continuously from its near all-time trough of 33% in 2008 to 45.5% in 2019, marking the highest rate since 1972,” the report said. Talking about the US Fed’s new monetary policy, the report added, “it seems pretty clear that the US authorities – fiscal as well as monetary – are now committed to boosting the household sector, and have conclusively left behind inflationary worries.” Although Motilal Oswal added that higher inflation in the US is unlikely in the imminent future, it did note that an unexpected resurgence in inflation could alter the reality.

On the other hand in India the household exposure to equity markets is similar to that seen in countries like Japan, Singapore, and the United Kingdom. The S&P BSE Sensex is down over 6% since the beginning of this year while stock markets in the United States are trading with gains year-to-date.

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IndiGo, SpiceJet saw share prices surging over 4% on Thursday morning as investors reacted to the increased capacity for domestic airline carriers to 60%. The Government of India’s Civil Aviation Ministry increased the allowed passenger capacity to 60% from the 45% it had permitted in June this year. Shares of IndiGo jumped to trade at Rs 1,304 per share, up from its closing price of Rs 1,248 on the previous day. SpiceJet, the other private listed carrier was trading at a high of Rs 53.7 per share, after having closed at Rs 50 apiece in the previous day.

Although the capacity has been increased to 60%, analysts say the aviation industry is still far from returning to normalcy. “Although 60% capacity is better than where they were a few months back, the ramp-up has been slow,” Paarth Gala, Research Analyst at Prabhudas Lilladher told Financial Express online. He added that airlines operated between the capacity of 25%-30% for a long time and have only recently started utilising around 35% capacity.

“While this move is sentimentally positive for Airline companies we believe that demand will remain muted in the near future and is expected to pick up post the festive season and maintain a neutral rating on the sector,” said Jyoti Roy, DVP- Equity Strategist, Angel Broking. After restarting the aviation industry in May, the passenger traffic has been inching higher with each passing week. According to analysts at ICICI Securities, weekly average daily fliers in the week ending August 29 crosses the 1 lakh mark. “These are early trends and should improve going ahead at a rate that would depend upon the trajectory of Covid-19 impact,” ICICI Securities said in a report. The brokerage firm added that the average daily passenger has risen from 64,000 in June to 1 lakh at the end of August and average daily passenger per departure has risen from 90.4 to 99.6.

The slow ramp-up in the industry that is one of the worst hit by the pandemic has not yet helped the airlines break-even. “The sooner Airlines reach the 60% capacity the better they will be when it comes to managing their costs,” Paarth Gala added. Analysts across the board remain bullish on IndiGo in the sector with its increasing market share and better financial performance. In the first quarter of this fiscal year, IndiGo reported a net loss of Rs 2,844 crore, with cash burn of close to Rs 40 crore per day during the lockdown due to high fixed costs in the sector.

Year-to-date the share price of IndiGo is still down 4.3% after having surged 50% from its March lows. SpiceJet is still struggling, being down 55% since the beginning of this year.

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