Ind Inc is on the Path to Recovery!

Nifty 50 in the past six months has shown a solid up-move of ~14%. India has been amongst the best-performing markets globally. This renewed optimism surrounding the Indian markets is due to a variety of factors. Being a domestically oriented economy, falling raw material prices & favorable high-frequency indicators are some of the factors that favor India. Taking cues from the just concluded September Quarter earnings season we will try to understand key interesting observations.

The September quarter gone by has been an overall mixed bag with a little towards the positive side. But it appears that the worst of the problems is behind us and the wounds are healing faster.
It was observed that although the rural economy is gradually getting back on track, however, it is not translating to an increase in demand. This is mainly due to high inflation and slower income growth. However, adequate soil moisture and reservoir levels should result in a good rabi harvest, aiding the farm income. Additionally, a constant decline in the price of food and fuel would offer relief to rural India.
The volume growth in FMCG and Auto was impacted due to the stress in rural income. The tide turning in favor of rural demand would provide a big impetus for these industries.
Sectors like FMCG, IT, Industrials & Media continue to face margin pressure but are showing strong signs of revival. The leading commodity prices like Brent Crude, Steel, Coal, Aluminum & Palm oil have significantly corrected from their peak. Also, the attrition in IT companies is stabilizing. These factors would aid margins for these segments.
Among the indices, the Nifty Bank has registered the biggest increase in its profitability. The buoyant loan growth, margin improvement, and lower provisions have aided the profits. With the macro environment in favor, the banks are expected to continue to perform effectively.
The Net Interest Margins of Banks are near their peak as banks would be increasing their deposit rates to support deposits growth. However, as the terminal rate is yet to be reached the margins are expected to remain at similar levels. In addition, the corporate credit demand is expected to remain elevated and aid credit growth.
Apart from banks, the Capital Goods sector appears in a sweet spot. The segment will be benefitted from the government capex and expected pick-up in private capex. The strong order book in the September quarter signifies the same. The scenario of declining inflation should bode well for maintaining margins in the manufacturing sector.
Auto and Auto Ancillary is another sector that appears attractive. The comeback of demand, cooling commodity costs, and easing supply constraints make the route appear less bumpy for the Auto OEMs and Auto Ancillaries.
Nifty currently trades at a P/E of 22.2x which is trading closer to its historical average P/E of 21.2x. From this point forward, earnings delivery and macroeconomic stability will be required to support the gain. Taking into consideration the observations mentioned above the momentum in Nifty is expected to sustain.

Technical Outlook

Post two weeks of consolidation NIFTY finally breaks its narrow range consolidation and is continuing its prior uptrend. The tall bullish candle on the monthly expiry day has suddenly changed the momentum of stocks from sideways to bullish. In the recent minor throwback, prices have taken support near their 21-day exponential moving average and an instant rebound was seen post that. Now the rule of polarity will be applied in NIFTY where prior resistance will act as immediate support for the market. On the technical ground, the support for the index is placed near 18250 and any move below the same will extend the fall till 18100 levels. Similarly, on the higher side, 18650 will be the immediate resistance followed by 18800 levels. Nifty 50 closed the week at 18512, up 1.12%.

Nasdaq Near Its Bottom!
US tech companies that were once the darlings of the global investors have lost the sheen this year. The tech-heavy index Nasdaq 100 has shredded about 28% in 2022. It is the most brutal selloff since 2008.
The drag was led by record inflation which prompted the Fed to increase its pace of interest rate hikes. This added a strain on the multiples of these growth stocks.
However, the situation appears to have improved as several indicators point to better days ahead for the tech giant index.
Why do I say that?
Let’s take a look at some of the key triggers!
One of the catalysts is the cooling inflation print. In fact, in October 2022 the Consumer Price Index was better than the forecast at 7.7%.
The below-market breadth indicator shows the percentage of stocks in the Nasdaq 100 trading above their 200-day moving average (DMA). When this number falls below 20% it suggests that most stocks are in a long-term downtrend and there is limited scope for further downside. Whenever this indicator crosses above 20% from below is a sign that the long-term downtrend might be ending. Most of the time index has given phenomenal returns one and two years after such a signal.
Since the dot-com bubble burst, there have been 5 instances where the percentage of stocks in the index traded below the 20% threshold. The average one and two-year returns are 42% and 71% respectively.
Returns of Nasdaq 100 after crossing the 20% threshold
Nasdaq 100 has once again crossed above the 20% threshold on 27 May 2022. It remains to be seen how the index performs this time around.
In the chart below, I have plotted the Nasdaq Composite index along with the number of stocks hitting net new 52-week highs or lows. The number of stocks hitting net new 52-week lows is also reducing consistently after 480 stocks touched new 52-week lows in September 2022.
This is a sign of a major flush out from the system. Nasdaq has rallied handsomely most of the time after such a flush out in the past.
Given the easing inflation figures, the pace and ferocity of the rate hikes could slow down. Moreover, the sharp correction in Nasdaq 100 provides an attractive opportunity to invest in high-growth companies with rich cash flows, strong profitability, and a favorable outlook.
Back in India, not only Nifty IT moves in sync with Nasdaq 100 but the outperformance of Nifty IT has been significant. If the US tech index bottoms out here then it is also a positive indicator for Nifty IT as well….
Technical Outlook
Nifty started the week with a flattish note but with some swings on both the way and traded in a very narrow range for the first three initial days of the week and post that the market lost its grip after continuous rejection from 18400 levels. After five consecutive weeks of positive closing Nifty, this week closed near 18300 levels with a marginal loss. The 21-day exponential moving average is placed near 18265 levels and acts as an active support for the index. The chart pattern on the broader time frame for Nifty suggests we may witness some minor hiccups in the prices till 18000 levels. The resistance for the index is in the range of 18400 - 18460 levels. Nifty50 closed the week at 18307.65, down 0.23%.

Infrastructure is the Theme to Build Your Portfolio
“The world is looking for a trusted and reliable partner. India offers potential, strength and ability.”
- Narendra Modi, Prime Minister of India
I mentioned a few weeks ago how India is a land of opportunities. I also wrote about the CapEx boom that can lead to a megatrend. The spotlight on India is increasing for global manufacturing requirements. Domestic businesses are increasing their manufacturing and capital expenditure to meet world demand.
Adequate ports, rails, and roads must be in place to guarantee cohesive connectivity. Therefore this segment is witnessing a stronger demand than before.
To usher in a new era of infrastructure, the government has given a high budgetary allocation for infrastructure. The government allocated Rs. 10 lakh crore (US$ 130.57 billion) to enhance the infrastructure sector in the Union Budget 2022-23.
PM Gati Shakti is driven by seven engines, namely, Roads, Railways, Airports, Ports, Mass Transport, Waterways, and Logistics Infrastructure which will lead the economy in Unison.
The National Highways Network will receive an investment of Rs 20,000 crore to add 25,000 Kms in the current fiscal. Private investment is invited for four Logistics Parks in the form of a Public-Private Partnership (PPP). Policies such as 100% FDI under the automatic route have been set to ease foreign investment in India.
Further, the launch of the National Infrastructure Pipeline (NIP) has aimed at a total capital outlay of US$ 1370.34 billion. The below four sectors will amount to around 70% of the projected capital expenditure in infrastructure in India from fiscal 2020 to 2025.
Moreover, Production Linked Incentive (PLI) schemes encourage investments in this segment.
These steps and initiatives mark the start of a multi-year growth cycle. As the momentum in Infrastructure continues the increase in private investments will also start kicking in.
The pick-up in economic activity will boost the performance of India's core sector in the coming months.
As India is poised to grow, there lies a free way of attractive opportunities for companies in this sector. Solid growth prospects, healthy order books, and execution excellence are key factors that investors ought to keep a close eye on while evaluating companies to invest in.
Technical Outlook
Markets had a buoyant start for the week where the index initially witnessed a strong positive opening but the 18300 level was acting as a magnet for the index. On the 11th Nov i.e. Friday, the Benchmark index witnessed a strong gap up opening near 18300 levels and prices finally succeed to close above the same.
On the weekly chart, NIFTY has again formed a bullish candle and continues its prior bullish trend. The weekly trend oscillator RSI is above its respective reference lines indicating positive bias. The chart pattern suggests that if NIFTY sustains above the 18,300 level it could witness buying which would lead the index towards the 18,600 level. However, if the index breaks below the 18,000 level it would witness profit booking towards 17,800 and followed by 17,650 levels. Traders are advised to continue with an optimistic approach and now, with other sectors chipping in, we expect a good broad-based buying in the forthcoming week.
Expectations for the week
From a global standpoint, a slew of economic data is set to be released next week. As the fight against inflation is far from won, market participants will keenly watch the inflation figures of the UK and India. Additionally, UK’s unemployment rate would be in the spotlight given it was 3.5% in August, the lowest since 1974. In the US, figures for Production Price Inflation (PPI), Industrial Production, and Jobless Claims are expected which may influence market sentiment globally. Further, China’s Industrial Production data is due next week. Back home, D-street will see a number of new IPO listings. On the other hand, investors would be interested to see if the market rally in the frontline indices continues. Nifty50 closed the week at 18,349, up 1.28%.

PSU Banks – rising from the ashes?

Investors often in the hunt for multi-bagger encounter wealth-destroyers. When you speak of wealth-destroyers one of the names that pop into their minds is PSU banks!
The Nifty 50 and Nifty Private Bank indexes both have outperformed the Nifty PSU bank by ~8x and ~11x respectively. But the recent stock performance of PSU banks has been rather unprecedented. On a YTD basis, the Nifty PSU bank Index has gained about 34%, while the Nifty 50 and Nifty Private Bank index have gained only ~14.25% & ~2.2% respectively.
There are a lot of reasons behind this change in the market’s perception of PSU banks. In this article, we will cover some of the important factors catalyzing this upward movement.
PSU Banks have historically been plagued by poor asset quality due to their reckless lending. During the previous corporate credit cycle i.e., from FY10-14 PSU Banks reported high loan growth of ~17%.
This growth was largely driven by the corporate book, especially in the Infra segment. The hasty lending, economic slowdown & RBI’s asset quality review opened pandora’s box of Gross NPAs.
However, since FY18 the sector has witnessed a gradual improvement with Gross NPAs down to about ~6% levels in FY22 from the highs of ~11% in FY18.
PSU banks have especially focused on improving their corporate lending practices. This is evident from the fact that the credit growth in the corporate segment had slowed down and there has been a significant improvement in the credit rating profiles of corporates.
Cautious corporate lending certainly bore fruit as slippages from corporates for the PSU Banks were in the range of 0.1% to 3% in FY22. PSU banks relatively performed better than their private peers in corporate slippages.
The retail segment on the other hand has never really troubled the PSU banks as a major chunk of their retail segment comes from housing loans.
The heavy corporate book which was once considered a drag for PSU Banks is now set to push their loan growth. Due to a high Public, Private Capex and increasing utilization of working capital limits there has been a pick-up in corporate credit. As PSU banks have a large pie of corporate loans versus private banks, they are set to benefit the most.
The system credit has increased during the last few quarters. The PSU banks were able to increase their market share during this time period and generated better growth than anticipated. In Q1FY23 PSU banks increased their loan market share to 58.6% up 60 basis points.
Improving asset quality, pick-up in loan growth, better Capital adequacy, and lower provisions are expected to aid the return ratios of PSU banks. The market has already started discounting these positives which has resulted in an improvement in PSU bank’s valuations. They are expected to witness further re-rating; however, the valuations are expected to remain below the previous peaks.

Technical Outlook
On a technical aspect, the index is firmly placed above all the major exponential moving averages on the daily chart and has maintained its cycle of higher highs – higher lows, construing to have a bullish setup. However, as Nifty is hovering near 18,000 levels, we have seen some tentativeness at higher levels; but we do not construe this as any sign of worry. Traders are just opting to take some money off the table after seeing a decent up move in a previous couple of weeks. As far as levels are concerned 17,750-17,700 is likely to cushion any fall on an immediate basis; whereas, on the flip side, a decisive breach over the immediate resistance of 18,200 could trigger a strong rally towards 18,400 and beyond.