Rs

India Strategy

India Strategy | Earnings drought ending, finally!

October 2024

The Tug-of-War

Gautam Duggad

-

Research Analyst

(Gautam.Duggad@MotilalOswal.com)

Investors are advised to refer through important disclosures made at the last page of the Research Report.

1

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

April 2021

Content:

The Tug-of-War

01

Page #3-7

Summary

02

Page #8

Corporate earnings at a glance:

BFSI and Defensives to drive

earning growth

03

Page #11

New highs are the new normal

04

Page #15

Another flat quarter; commodities

drag

05

Page #29

MOFSL Universe: 2QFY24 Highlights

& Ready Reckoner

06

Page #45

Sector & Companies Preview

AUTOMOBILES

–

Pg45

Festive demand revival

will be a critical

monitorable

CAPITAL GOODS

–

Pg63

Momentum picking up

pace selectively

CEMENT

–

Pg74

Muted volume growth;

weak prices hurt

profitability

CHEM. SPECIALTY

–

Pg84

Sequential recovery

seems to be underway

CONSUMER

–

Pg96

Consumption trends

sustain; jewelry to

outperform

CON. DURABLE

–

Pg120

Cables & wires to

outperform; UCP margin

to expand YoY

EMS

–

Pg126

Strong revenue growth

outlook continues

FIN. BANKS

–

Pg132

Earnings growth modest;

asset quality trend to be

divergent

NBFC

–

Pg152

Trends point at

seasonally weaker 1H

NON LENDING

–

Pg166

Growth saga of capital

markets-linked

companies continues

HEALTHCARE

–

Pg176

Domestic formulation on

a strong footing

INFRA - Pg195

Order inflows subdued;

tender pipeline robust in

2Q

LOGISTICS

–

Pg199

Logistics activity muted

in 2Q amid softness in

consumption demand

METALS

–

Pg204

Lower metal prices to

keep EBITDA under

pressure

OIL & GAS

–

Pg216

Strong marketing margin

aids OMCs; CGD

profitability flat QoQ

UTILITIES - Pg268

Strong power demand,

commissioning of new

capacity to drive

profitability

REAL ESTATE

–

Pg230

Expect sequential

moderation due to lack

of launches

RETAIL

–

Pg240

Recovery expected to

kick in

TECHNOLOGY - Pg249

A slow but certain revival

TELECOM - Pg260

Strong quarter on tariff

hike flow-through

Others - Pg275

India Strategy

BSE Sensex: 81,688

Nifty 50: 25,014

India Strategy | 2QFY25 Preview

The Tug-of-War

Mastering the game!

The Tug-of-War

A breather following a relentless rise….

In recent years, the saga of Indian equities has been nothing short of a meteoric

ascent, soaring higher and higher without a pause. This remarkable journey can be

attributed to a trifecta of factors: robust corporate earnings, with a staggering 24%

Nifty earnings CAGR over FY20-FY24; a surge in domestic flows into equities, amassing

an impressive USD107b during CY21-CY24YTD; and a remarkably resilient macro

landscape that has weathered the storms. Nifty/Nifty Midcap 100/Nifty Smallcap 100

indices have rallied 31%/48%/50% and 14%/26%/21% over the last 12 and 36 months,

respectively. The markets have negotiated critical events such as the General Elections

and the Budget with minimal volatility, as every minor dip has been met with robust

buying activity. However, as we gaze into the horizon, it appears the waters may get a

bit turbulent for Indian equities in the short term. The recent escalation in the Israel-

Iran conflict only adds fuel to the fire of the already simmering geopolitical tensions

from the ongoing Russia-Ukraine and Israel-Palestine conflicts.

The monetary stimulus unleashed by China has sparked a wave of tactical FII outflows

from India. Corporate earnings, after four consecutive years of healthy double-digit

growth, are moderating due to pressures from commodities and fading tailwinds from

BFSI asset quality improvements. The earnings revisions have turned adverse with

downgrades of ~6% in the Nifty EPS

since Jul’24.

The recent print from high-frequency

indicators, such as power demand, PMI data, GST collections, and auto numbers, also

indicates a softening in demand. The expensive broader market valuations (NSE

Midcap index at 60% premium to Nifty-50 and market cap at 146% of GDP) and the

narrowing of market breadth further complicate the risk-reward equation. Lastly, the

outcomes of the recent state elections, while not a needle mover, may keep the

markets on edge, as exit polls predict losses for the BJP in both Haryana and Jammu &

Kashmir. Despite the challenges, the ongoing festive season, better-than-expected

monsoon over Jul-Sep’24, and consequent pick-up in rural consumption provide a

near-term catalyst for economic activity. Major global central banks, with the US Fed

at the forefront, have decidedly pivoted towards a monetary easing cycle (not in

response to an extant crisis

–

like Covid or GFC

–

but to normalize rates). This shift

implies a favorable environment for risk assets. Consequently, markets appear to be

experiencing a genuine tug-of-war between the headwinds and tailwinds.

Notwithstanding intermittent hiccups, the Domestic narrative remains intact

Despite the challenging near-term environment, India's medium-term growth

narrative stands out in an extremely volatile global landscape. The Indian markets

have remained vibrant, demonstrating remarkable resilience, and have experienced

the emergence of a genuinely domestic retail equity story in the post-pandemic era.

Strong macro-micro dynamics, healthy corporate and government balance sheets,

buoyant retail participation (domestic equity inflows outnumbered the FII flows by a

wide margin of ~5.5x over the last four years

–

DII inflows of USD107b vs. FII inflows of

USD19b over CY21-CY24YTD

–

and DII flows of USD41b are almost ~2x of the entire

CY23 flows of USD22b in CY24YTD)

have been the fulcrum of India’s outperformance

and rising weights in key global indices. This, coupled with buoyant capital market

October 2024

3

The Tug-of-War

Mastering the game!

activities, with a total fund raise (IPO+QIPs+FPO+OFS) of INR1.65t (USD20b) in

CY24YTD

–

the highest in three years

–

signifies optimism on both the demand and

supply sides of the market.

Recovery in rural consumption and rate cuts may be sentiment boosters

After three years of slowdown, there are some early signs of recovery in rural

consumption. The CY24 monsoon season has concluded with rainfall 8% above the long

period average (LPA). This augurs well for rural income, demand, and food inflation.

Corporate commentary from various sectors indicates that rural demand may be

bottoming out. This, coupled with the potential rate cuts by the RBI could lift the

sentiments in 2HFY25. The US Fed has initiated the monetary easing cycle with a 50bp

rate

cut in Sep’24.

China also embarked upon a significant monetary stimulus to revive

its slowing economy. Our Economy team anticipates that the RBI will cut rates in CY25.

Historically, FIIs have been net buyers of Indian equities during the previous rate-cut

cycles. For example, when the Fed cut rates by 500bp during 2007-08, FIIs were net

buyers into Indian equities to the tune of USD24b during CY07-09. Similarly, in 2019-20,

when the Fed began its easing cycle, FIIs were net buyers by USD41b between CY19

and CY21. Therefore, a combination of reviving rural demand, healthy festive season

sales, and potential easing by the RBI could augment growth in 2HFY25. Given this

intriguing backdrop of

Tug-of-War,

we discuss the earnings outlook for 2QFY25.

Earnings to remain flat in 2Q, at a multi-quarter low; Nifty EPS cut 4.0%/

3.6% for FY25E/26E

We estimate the MOFSL Universe earnings to remain flat (lowest in eight quarters)

and Nifty earnings to grow marginally by 2% YoY in 2QFY25 (lowest in 17 quarters).

Ex-OMCs, we expect the MOFSL Universe and Nifty earnings to grow 7% YoY and 5%

YoY, the lowest in 8 and 17 quarters, respectively. Margin tailwinds are likely to ebb

due to a high base. The EBITDA margin (ex-Financials) is likely to contract 150bp YoY

for the MOFSL Universe, reaching 16.4%, mainly dragged down by OMCs.

Meanwhile, the margin is projected to contract 40bp for the Nifty-50 at 20%. The

overall earnings growth is anticipated to be primarily driven, once again, by BFSI

(+11% YoY), along with Healthcare (15% YoY), Utilities (+24% YoY), and the improved

contribution of Telecom YoY (loss notably reducing to INR4b in Sep’24 from INR43b

in Sep’23). Conversely, earnings growth is likely to be weighed down by global

cyclicals, such as O&G (led by OMCs), which are anticipated to decline 33% YoY,

along with Metals (+2% YoY), Cement (-41% YoY), and Auto (+7% YoY). Meanwhile,

Real Estate (+44% YoY), and Retail (+17% YoY) are expected to deliver strong

growth, while Capital goods (+13% YoY), Auto (+7% YoY) and Consumers (+4% YoY)

are anticipated to post moderate earnings growth. We have cut our FY25E and

FY26E Nifty EPS by 4.0% and 3.6% to INR1,072 and INR1,269, respectively. Metals

and O&G have driven 80% of the 4% cut in FY25 earnings. We estimate the Nifty EPS

to grow 7%/18% in FY25/FY26.

October 2024

4

The Tug-of-War

Mastering the game!

Annual earnings trend: FY25 to normalize as earnings converge with

revenue growth

The past two financial years experienced an interesting interplay of revenue and

earnings growth, driven by global macros. In FY23, the MOFSL Universe experienced

a sharp drag on margins as commodity prices surged during the Russia-Ukraine war.

This resulted in just 11% earnings growth for MOFSL Universe, despite 24% revenue

growth. FY24 saw a reversal of this trend, as commodity prices moderated and

margins sharply rebounded. Thus, the MOFSL Universe delivered 30% earnings

growth despite just 4% revenue growth. For FY25, we expect earnings to normalize

and track the revenue trend. For FY25, we anticipate the MOFSL Universe to deliver

7% revenue growth and EBITDA/PAT growth of 8% YoY each. The Nifty-50 is likely to

deliver 7% earnings growth in FY25 over a high base of FY24 (+26% YoY).

Mid- and small-cap outperform

Nifty-50 by a wide margin

Nifty50

Nifty Midcap 100

Nifty Smallcap 100

48 50

Earnings highlights

–

2QFY25E | BFSI to drive modest earnings growth aided

by Healthcare, Utilities, and Telecom; Commodities to drag





30 28

18

31

YoY

5yr CAGR

















We predict

MOFSL earnings to remain flat, while those of Nifty

would grow 2%

YoY in 2QFY25. Excluding global commodities (i.e., Metals and O&G), the MOFSL

Universe and Nifty are likely to report 11% YoY and 10% YoY earnings growth,

respectively, for the quarter

.

The modest earnings growth is likely to be driven once again by

BFSI,

with

positive contributions from Technology, Utilities and Healthcare. Banks (Private +

PSB) would

mainly lead BFSI’s earnings, with 10%

YoY growth. The earnings

growth of Private and PSU banks, at 5% and 17% YoY, respectively, while healthy,

is the lowest for Private banks in 12 quarters. The

Auto

sector’s earnings are

likely to rise 7% YoY, the lowest in ten quarters.

Sales and EBITDA of the MOFSL Universe are likely to grow 7% and 2% YoY;

while for Nifty, we expect sales and EBITDA to improve 4% and 5% YoY,

respectively. Ex-OMC’s,

EBITDA of the MOFSL Universe/Nifty is likely to grow 7%

YoY each.

The

Healthcare

universe is likely to report strong 15% YoY earnings growth; its

sixth consecutive quarter of robust earnings growth.

The

Metals

universe is projected to report modest 2% YoY earnings growth on a

high 2QFY24 base.

The

Capital Goods

sector is projected to report earnings growth of 13% YoY for

the quarter (however, the lowest in ten quarters), dragged down by L&T. Ex-L&T,

the MOFSL Capital Goods Universe is likely to post 29% YoY growth.

The

Cement

universe is expected to report a 41% YoY earnings decline. The

sector is likely to clock the second consecutive quarter of sharp earnings decline

driven by low pricing and a high base of margins YoY.

The

Specialty Chemicals

sector is likely to report a 5% YoY earnings decline;

sixth consecutive quarter of decline.

We expect EBITDA margin (ex-Financials and OMCs) for the MOFSL Universe to

remain flat YoY at 19.4% in 2QFY25. However, EBITDA margin (ex-Financials) is

projected to contract 150bp YoY for the MOFSL Universe to 16.4%. Conversely,

for Nifty-50, excluding Financials, margin is likely to contract 40bp YoY to 20.0%

during the quarter.

The MOFSL Largecap Universe is likely to register a sales/EBITDA/PAT growth of

7%/2%/flat YoY during the quarter. The MOFSL Midcap Universe is estimated to

report 8%/1%/2% YoY growth in sales/EBITDA/PAT. Conversely, the MOFSL

5

October 2024

The Tug-of-War

Mastering the game!

Smallcap Universe is estimated to clock a sales/EBITDA growth of 9%/7% YoY.

However, it expects to post a 4% YoY decline in PAT for 2QFY25.



Sales/EBITDA/PAT of the MOFSL Universe

are expected to report a two-year

CAGR of 5%/ 15%/20% over Sep’22-Sep’24.



FY25E earnings highlights:

The MOFSL Universe is likely to deliver a sales/EBITDA/

PAT growth of 7%/8%/8% YoY. Financials, Healthcare, Capital Goods and Metals

are likely to be the key earning drivers, with 14%, 24%, 24%, and 23% YoY growth,

respectively. These three sectors are anticipated to contribute 100% of the

incremental earnings for MOFSL Universe in FY25.

Nifty EPS cut for FY25E/26E:

We have reduced our FY25E and FY26E Nifty EPS

estimates by 4%/3.6% to INR1,072 and INR1,269, respectively. Metals and O&G

have driven 80% of the 4% cut in FY25E Nifty earnings. We estimate the Nifty EPS to

grow 7%/18% in FY25/FY26.

MOFSL TOP IDEAS: Largecaps

–

ICICI Bank, HDFC Bank, L&T, HCL Tech, HUL, M&M,

Power Grid, Titan, Bharti Airtel and Mankind Pharma; Midcaps and Smallcaps:

Indian Hotels, Angel One, Godrej Properties, Persistent Systems, Metro Brands, PNB

Housing, Global Health, Cello World, Dixon Tech, and Five Star Business Finance.

Model portfolio: Key changes

Developing a model portfolio amidst a backdrop of moderating earnings growth,

expensive valuations, and mounting geopolitical headwinds presents a distinct

challenge than what we have encountered in the recent past. As always, we have

made several adjustments to our model portfolio and sectoral stance. We have

reduced the number of stocks in our portfolio while simultaneously increasing the

weights of our high-conviction names. Overall, with broader markets trading at

significant premiums vs. their own LPA and Nifty, we remain biased towards

Largecaps with 75% allocation, while Midcaps and SmallCaps occupy the rest. We

discuss the key changes in the model portfolio below:



Key changes to our sectoral stance:

In 1QFY25, we had raised Technology to

OW. Now, we are further raising our weights in IT and making it a bigger OW.

We are also shifting BFSI from Neutral to OW within which we are raising Private

banks from UW to OW and Diversified Financials from Neutral to OW. We cut

weights in Consumption after its recent outperformance, while further raising

weights in Healthcare and Industrials.



In summary, we are OW on BFSI, IT, Industrials, Healthcare, and Real Estate,

while we are UW on Oil & Gas, Cement, Automobiles, and Metals. We have also

made several additions from a bottom-up viewpoint across sectors.



FINANCIALS:

We are raising our stance on Pvt Banks to OW as we believe that

the large banks are positioned well to navigate through current uncertainties and

deliver healthy growth and profitability. Sector valuations remain undemanding,

and with growth visibility improving over the coming quarters, we expect the

sector to rerate. We have raised weights in HDFC Bank and ICICI Bank. We are

introducing Kotak Mahindra Bank to our model portfolio. We estimate the bank

to continue delivering industry-leading RoA at ~2.3% while the stock is trading at

reasonable valuations of 2x FY26E ABV. We have raised weights in Angel One

given the attractive valuations. We are introducing HDFC Life and Five Star

Business

Finance in the model portfolio. HDFC Life should gain from HDFC Bank’s

aggressive branch expansion strategy, especially in the lower-tier cities.

October 2024

6

The Tug-of-War

Mastering the game!

Considering the conservative persistency assumptions, VNB margin hit on

implementation of new surrender charges to be restricted to 100bp without any

action. We estimate FIVESTAR to deliver a 30%/24% AUM/PAT CAGR over FY24-

FY27, along with an RoA/RoE of 7.6%/19% in FY26.

We believe that FIVESTAR’s

premium valuations will remain intact, given its niche market position, strong

growth potential, superior underwriting practices, resilient asset quality, and high

return metrics.



TECHNOLOGY:

We reiterate our OW stance on IT and add further weights

–

100bp each in Infosys and HCL Tech

–

as well as raise the overall IT weight to 15%

from 11% in 1QFY25. We continue to hold Persistent and now also add Coforge

to the model portfolio.

We believe the company’s healthy executable order

book and a rebound in BFS client spending bode well for its organic business.

Cigniti could prove to be an effective long-term asset.



CONSUMPTION:

We trim our weights in Consumption given its recent

outperformance but continue to prefer Discretionary Consumption over Staples.

We continue to hold Titan, Zomato, and Indian Hotels while double our weights

in Metro Brands and Cello World given the expected acceleration in discretionary

demand around the festival season. Hindustan Unilever remains our singular bet

in Staples, where we expect the benefit of pickup in rural consumption demand

to manifest in 2HFY25.



AUTOMOBILES:

We maintain our UW stance on Automobiles and continue to

hold

M&M

as our preferred idea. We are also adding

TVS Motors

given

TVSL’s

strong earnings growth potential and proactive stance in the EV business. TVS is

one of the rare names in our MOFSL Coverage Universe to have delivered 10

consecutive quarters of 20%+ earnings growth.



INDUSTRIALS:

Industrials remain our favorite theme. We add further weights in

L&T given the attractive risk-reward on valuations. We are also introducing

Dixon Tech to our model portfolio. We anticipate the mobile and EMS divisions

to benefit from improved volumes from existing customers as well as Ismartu

integration. The company is also constantly eyeing increasing wallet and market

share in other segments beyond mobile as well as focusing on backward

integration.



HEALTHCARE:

We maintain our OW stance on Healthcare and raise weights

further in Mankind Pharma. Moreover, given the sharp price correction in

Global Health (Medanta), we are reintroducing it in our model portfolio.

Note: Exhibit data is sourced from Bloomberg, Companies, and MOFSL research database

October 2024

7

Corporate earnings at a glance: BFSI and Defensives to drive earning

The Tug-of-War

growth

Mastering the game!

Banks, Utilities, Technology, and Healthcare would lead the charge; excluding Metals and O&G, profits would grow 11%

and 10% YoY for the MOFSL Universe and Nifty, respectively.

BFSI and Auto would continue to lead, while contributions from Healthcare and Cement to improve

PAT expected to remain flat YoY for

PAT likely to decline 5% YoY for the

PAT to grow 11% YoY for the MOFSL

the MOFSL Universe

MOFSL Universe, excluding Financials

Universe, sans Metals and O&G

MOFSL Universe

54

46

23 19

51 45

28

17

10

1

MOFSL Ex Financials

MOFSL Ex Metals and O&G

52

46

51

31

10

4

-11

-22

5

4

-5

24

37

25

13

22

15

15

3

-6

28 30

30

22

17

14

11

0

-5

PAT growth for the Nifty Universe

likely to be only 2% YoY

Nifty Universe

39

26

21 24

10

11

PAT to remain flat YoY for the Nifty

Universe, barring Financials

Nifty Ex Financials

41

30

20

8

0

-2

PAT to grow 10% YoY for the

Nifty Universe, sans Metals and O&G

Nifty Ex Metals and O&G

51

35 32 30

15

18

11

24

35

29

22

19

12

4

15

26

21

9

0

17

23

16 17

2

12

10

-1

Performance of the MOFSL Universe to be driven by Banks, Utilities, Technology, and Healthcare in 2QFY25E

51

39

17

15 11

20 20 20

8

7

6

5

4

4

3

3

3 2

1

0

1

3

12

17 204

2,679

2,681

October 2024

8

Corporate earnings

at a glance: BFSI’s

contribution likely to remain stable

Tug-of-War

The

Mastering the game!

Financials’ contribution

likely to remain stable and account for over one-third of the overall profit pool

BFSI PAT (INRb)

BFSI contribution to MOFSL universe PAT (%)

35

29

25

22

25

34

31

31

32

33

34

35

35

O&G’s PAT contribution to the MOFSL Universe

shows some signs of sequential recovery in 2QFY25

MOFSL (ex-OMC)’s PAT share (%): Domestic cyclicals to drive earnings

while defensives’ contribution to improve;

Global

cyclicals to drag!

33

31

DEFENSIVES

34

41

58

24

-1

43

42

29

25

30

26

26

25

24

28

23

26

23

24

26

24

25

24

24

23

26

23 25

24

24

26

22

26

24

23

44

30

38

37

GLOBAL CYCLICALS

34

36

35

35

DOMESTIC CYCLICALS

40

40

40

40

41

37

41

37

49

51

50

51

52

51

53

52

52

34

October 2024

9

The Tug-of-War

Mastering the game!

MOFSL: MODEL PORTFOLIO

SECTOR WEIGHT /

PORTFOLIO PICKS

Financials

Private Banks

ICICI Bank

HDFC Bank

Kotak Mahindra Bank

PSU Bank

SBI

Diversified Financials

Angel One

HDFC Life Ins.

Five-Star Business

PNB Hsg Fin

Technology

Infosys

HCL Technologies

Persistent Systems

Coforge

Consumption / Retail

Titan Company

HUL

Zomato

Indian Hotels

Cello World

Metro Brands

Cap Goods, Infra & Cement

Larsen & Toubro

ABB India

Dixon Tech.

Energy/Telecom

Reliance Industries

Bharti Airtel

Healthcare

Mankind Pharma

Global Health

Auto

Mahindra & Mahindra

TVS Motor

Metals / Utilities

Power Grid Corp.

Tata Steel

Real Estate

Godrej Properties

Sunteck Realty

Others

TOTAL

LP: Loss to Profit

BSE 100

30.7

21.4

6.3

9.0

1.9

3.0

2.2

6.3

0.0

0.5

0.0

0.0

11.5

5.0

1.3

0.4

0.0

14.7

1.1

1.8

1.3

0.4

0.0

0.0

8.8

2.9

0.0

0.0

12.1

6.7

3.2

4.6

0.0

0.0

7.9

2.1

0.4

7.0

1.1

1.0

0.0

0.0

0.0

2.8

100

MOST

WEIGHT

35.0

22.0

9.0

9.0

4.0

4.0

4.0

9.0

3.0

2.0

2.0

2.0

15.0

6.0

4.0

3.0

2.0

14.0

3.0

3.0

2.0

2.0

2.0

2.0

9.0

5.0

2.0

2.0

9.0

5.0

4.0

6.0

4.0

2.0

5.0

3.0

2.0

4.0

2.0

2.0

3.0

2.0

1.0

0.0

100

WEIGHT

EFFECTIVE

RELATIVE TO

SECTOR STANCE

BSE100

4.3

0.6

2.7

0.0

2.1

1.0

1.8

2.7

3.0

1.5

2.0

2.0

3.5

1.0

2.7

2.6

2.0

-0.7

1.9

1.2

0.7

1.6

2.0

2.0

0.2

2.1

2.0

2.0

-3.1

-1.7

0.8

1.4

4.0

2.0

-2.9

0.9

1.6

-3.0

0.9

1.0

3.0

2.0

1.0

-2.8

Overweight

Overweight

Buy

Buy

Neutral

Overweight

Buy

Overweight

Buy

Buy

Buy

Buy

Overweight

Buy

Buy

Buy

Buy

Neutral

Buy

Buy

Buy

Buy

Buy

Buy

Neutral

Buy

Buy

Buy

Underweight

Buy

Buy

Overweight

Buy

Buy

Underweight

Buy

Neutral

Underweight

Buy

Neutral

Overweight

Buy

Buy

Underweight

PAT YoY / CAGR (%)

FY24 FY25E FY26E FY27E

FY24-

FY26

28

38

22

21

26

15

39

44

1

6

19

2

7

1

LP

26

24

-5

25

82

44

4

39

38

47

34

44

1

-61

20

4700

16

9

12

3

17

36

16

29

21

9

9

26

16

16

6

150

27

17

16

14

65

85

0

57

14

8

16

20

10

119

93

235

13

13

13

17

15

16

12

21

26

13

13

29

29

24

13

220

28

26

22

26

18

48

31

59

15

29

19

29

5

109

-34

43

21

19

14

23

18

27

19

22

22

12

11

16

18

18

10

114

13

24

26

16

17

31

12

31

19

17

19

21

5

45

57

-55

17

11

12

10

16

26

14

24

24

11

11

28

23

20

9

183

27

22

19

20

39

65

14

58

14

18

18

24

7

114

13

119

17

October 2024

10

The Tug-of-War

Mastering the game!

MARKETS

New highs are the new normal…

…fueled

by continued DII flows and rising FII flows with the onset of Fed

rate cuts!













India markets hit an all-time high:

India markets continue to scale a new peak

backed by buoyant domestic flows, retail participation, and a pickup in FII

participation following the announcement of Fed rate cuts. The Nifty-50 briefly

surpassed the milestone of 26K. In addition, the BSE Sensex nearly scaled the 86K

mark, reaching an all-time high, before correcting ~5% due to geopolitical

headwinds in Oct’24.

The Nifty-50 continued its upward journey since the last six

consecutive quarters (rising ~50% since Mar’23). Further, MSCI India

outperformed global markets by a wide margin in the past 12 months; however,

MSCI made a strong recovery following the announcement of rate cuts and

stimulus measures by its Central bank in Sep’24. The market cap of the Indian

listed universe surpassed USD5.7t, accounting for 4.6% of the global market cap.

Showcasing strong resilience:

Despite a high base and strong run-up in the last

one year, the Indian markets continued to display their resilience and

outperformed other emerging markets handsomely. Markets continued to shrug

off heightened volatility led by domestic events such as unexpected Lok Sabha

election outcome, increase in capital gains tax in the budget announcements, and

concerns of slow global growth along with geopolitical tensions. While weak

global macros and geopolitical uncertainties continue to keep markets volatile

and jittery, the onset of the interest rate cut cycle is a big sigh of relief.

Global markets post healthy gains in CY24YTD:

Among key global markets, the

US S&P500 (+21%), followed by Taiwan (+20%), and India (+18%) stands at the

top of the returns table in CY24YTD. China (+13%) recovered sharply (up 20% in

a month) from the lows

on the back of monetary stimulus in Sep’24

and turned

positive during the year, outperforming the remaining key global markets in USD

terms. Further, MSCI India (+25%) and MSCI China (+26%) outperformed MSCI

EM (+14%) by a wide margin in CY24YTD.

India’s

outperformance vs. the global market continues:

As the global markets

recover from their lows in CY23,

India’s outperformance

slips from the highs in

CY24. However, despite relative moderation, India remains the third-best

performer both in local currency and in USD terms (only after the US and

Taiwan) in the last 10 years. The Nifty-50 posted a CAGR of 14%/18%/12% (in

local currency terms) and a CAGR of 8%/13%/9% (in USD terms) during the

three-year/five-year/ten-year periods ended Sep’24.

DII flows in 9MCY24 exceed CY23 flows:

Backed by strong retail participation

and monthly SIP flows of +USD2.5 (scaling a new high), DII inflows continue to

remain strong. DII inflows over the past nine months at USD40.8b have

exceeded that of the entire CY23 (USD22.3b) by 83%. In addition, FII flows also

garnered strength in Sep’24 with Fed rate cuts and global central banks starting

to cut interest rates. As global interest rates are further expected to cool down

and retail participation remaining resilient, institutional flows would continue to

remain strong going forward. However, the recent monetary stimulus in China

and geopolitical turmoil in Israel-Iran have resulted in a fresh bout of FII selling.

Midcaps and smallcaps’ outperformance tapers:

Following more than a year of

broad-based growth, with all the indices and sectors delivering positive returns,

the outperformance trend of midcaps and smallcaps to largecaps moderated in

2QFY25 (Jun’24 to Sep’24). While the Nifty Midcap 100’s (+8% YoY) performance

was marginally better, the Nifty Smallcap 100 (+5% YoY) underperformed Nifty-50

11

October 2024

The Tug-of-War

Mastering the game!

(+7.5%) by 2.5pp. Outperformance of leading sectors of the past one year, i.e.

Real Estate, Capital Goods, PSUs, Industrials, Defense, and Energy, moderated

while the Defensive sectors, such as FMCG, IT, and Healthcare improved.

Exhibit 1:

World equity indices in USD terms (%)

21

20

Exhibit 2:

World equity indices in local currency terms (%)

24

CY24YTD Chg (%) - In local currency

21

18

CY24YTD Chg (%) - In USD

14

13

12

12

19

14

13

12

5

-4

-12

-15

7

4

-2

-2

-11

Exhibit 3:

Over the last 12 months, India’s market cap has surged ~55% to reach USD5.7t, while the global

market cap has

increased ~22% (by USD22.4t)

5.7

2.5

59.9

0.8

3.4

6.7

0.6

1.8

10.2

0.8

55

39

31

25

16

Mkt cap chg 12M (%)

Curr Mcap (USD Tr)

15

8

8

Korea

7

China

1

Brazil

India

Taiwan

US

Indonesia

UK

Japan

Russia

Exhibit 4:

Trend in India’s contribution to the global market cap (%) –

at an all-time high

India's Contribution to World Mcap (%)

4.5

3.5

2.5

1.5

4.6

3.3

Average: 2.7%

1.6

Exhibit 5:

FII flows remain positive during the year…

Net FII (USD b)

14.2

7.7

3.8

23.4

21.4

11.0

Exhibit 6:

…while

DII inflows continue to break records

Net DII (USD b)

40.8

32.2

22.3

14.0

15.9

6.0

12.1

-4.6

-17.0

-5.0

October 2024

12

The Tug-of-War

Mastering the game!

Exhibit 7:

FII flows gather steam

in Sep’24

Net FII (USD b)

4.7

1.0

6.7

5.0

4.1

1.81.9

1.7

7.0

4.0

2.3

0.5

-0.2 -0.6

-3.7

-2.3

-2.7

-3.1

5.9

3.13.3

1.4

1.7

1.1

4.1 3.7

2.9

2.3

0.3 0.5

Exhibit 8:

DII flows have been robust since the last 14 months

Net DII (USD b)

6.8 6.7

5.3

3.23.1

3.02.43.4

1.71.6

5.8

3.8

3.4

2.8

-1.6

-1.1

-3.0

-0.8

-0.4 -0.3

Exhibit 9:

Nifty Midcap and Nifty Smallcap indices have outperformed Nifty-50 in past one year (indices rebased to Nifty-50)

Nifty50

30,000

12 month performance

Nifty-50 up 31%,

Midcap up 48%,

Small

cap index up 50%

26,000

25,811

22,000

18,000

19,638

Nifty Midcap 100

Nifty Smallcap 100

(rebased to Nifty50)

29,545

29,142

Valuations above the LPA for Nifty-50, while rich for broader markets





Nifty is trading at a 12-month forward P/E of 21.5x, 5% above its own LPA.

Notably, Nifty-50’s

EPS CAGR of 16% (to INR1,006 in FY24) has converged with

the index CAGR of ~18% during the last five years (ended Sep’24).

We

expect

FY25/FY26 EPS to grow 7%/18% to INR1,072/INR1,269.

India’s market capitalization-to-GDP

ratio has been volatile, plummeting to 57%

(of FY20 GDP) in Mar’20 from 80% in FY19 and then sharply reviving to 112%

in

FY22; the ratio moderated to 96% in FY23 though. The ratio is now at 146% (of

FY24E GDP), above its long-term average of 85%. We expect the nominal GDP to

increase 10.8% YoY in FY25.

Nifty Index

Nifty P/E (x)

25,811

29.0

25.0

21.5

21.0

Exhibit 10:

Markets continue to scale new heights; valuations above the LPA

28,000

22,000

16,000

Sep'14-24:

Nifty CAGR: 12%

Avg P/E: 20.4x

19.6

10,000

7,965

4,000

13.0

17.0

October 2024

13

The Tug-of-War

Mastering the game!

Exhibit 11: 12-month forward Nifty P/B (x)

4.2

3.6

Exhibit 12: 12-month forward Nifty RoE (%)

17

16.4

14.2

10 Year Avg: 13.9%

3.5

10-year average: 2.8x

16

14

13

11

3.0

2.4

1.8

Exhibit 13:

Broader markets trade at a significant premium to largecaps

38

30

22

14

6

Nifty Midcap PE (x)

Nifty Smallcap PE (x)

Nifty PE (x)

34.2

24.1

21.5

Period of mixed outperformance among indices

Period of significant outperformance of

Midcaps vs Large and Smallcap indices

Exhibit 14:

Trend in India’s market-cap-to-GDP

ratio (%)

GFC: Peak of 149% in Dec’07

Lowest since

the GFC

84

71

56

80

Nominal GDP growth in

FY24/FY25E: 9.6%/10.8%

132

146

105

84

84

97

Average of 85% for the period

90

103

113

96

82

64

66

79

69

57

October 2024

14

The Tug-of-War

Mastering the game!

2QFY25 PREVIEW

Another flat quarter; commodities drag

MOFSL (ex-OMCs) earnings likely to grow 7% YoY



Expect BFSI

to lead the

incremental profit

growth

in 2QFY25



Of the 18 major

sectors under

MOFSL Coverage,

11 sectors would

witness an

expansion in

EBITDA margin

YoY







Auto

sector’s earnings are

likely to rise 7% YoY during the quarter. Revenue and

EBITDA for our OEM coverage universe (ex-JLR) are expected to grow ~2% and 4%

YoY during the quarter, respectively, while PAT is likely to remain flat. EBITDA

margin is anticipated to improve 30bp YoY at 13.0%, driven largely by moderate

commodity costs and favorable product mix. Commodity costs have turned

favorable in 2QFY25, with steel, aluminum, copper, and lead prices declining 5-6%

QoQ. Given the moderation in demand across various segments and a challenging

outlook for exports, the majority of our coverage companies experienced earnings

downgrades.

BFSI:

We expect an 11% YoY earnings growth for our BFSI universe, which is

driven by PSBs (+17%), Private Banks (up 5%), Insurance (up 17%), and NBFC-

Lending (up 9%).

Banks

We estimate NII for our banking coverage universe to

grow ~8.6% YoY in 2QFY25, while controlled opex to result in PPoP of 13.2%

YoY/ 0.9% QoQ. For our

private bank

coverage universe, we estimate a PPoP

growth of 12% YoY/1% QoQ and a PAT growth of 5% YoY/0.6% QoQ in 2QFY25.

PSBs

are expected to report moderate earnings growth of 17% YoY/a decline of

0.6% QoQ in 2QFY25. NII growth is also likely to remain moderate at ~6% YoY as

margins maintain a marginal downward bias. We also estimate the earnings of

the MOFSL Banking Universe to grow 10.1%/13.2%/13.9% YoY over

2QFY25/FY25/FY26.

NBFCs:

We estimate ~19%/18%/9% YoY growth in

NII/PPoP/PAT in 2QFY25 for our NBFC coverage universe. Excluding NBFCMFIs,

we estimate ~15% YoY growth in PAT for our coverage.

The Technology

sector’s (IT services companies) 2QFY25 revenue growth

is

likely to be decent but could disappoint elevated expectations. The most

important catalyst for the sector now would emerge after 3Q, when client

budgets for CY25 would be finalized and the magnitude of changes in client

behavior would become clearer. We expect aggregate revenue/EBIT/PAT to

grow 5.1%/4.4%/7.0% YoY (all in INR terms) for our coverage universe.

The Capital Goods sector’s

earnings are projected to rise 13% YoY during the

quarter. After better-than-expected ordering in 1QFY25, we expect 2QFY25

ordering to improve for selective segments. Delayed decision-making in

government projects and delays in the finalization of the private sector inquiry

pipeline can impact companies focused on EPC and private capex. However,

other fast-growing segments, such as data centers, transmission, electronics,

and renewables, continue to boost inflows for companies. We expect 12% YoY

growth in execution in 2QFY25. Margins should be in a stable range given benign

commodity prices, cost-saving measures, and an improved product mix. As a

result, we expect a ~50bp YoY expansion in EBITDA margin for our coverage

universe.

For the MOFSL

Consumer

coverage universe (excluding QSR and Jewelry),

revenue/EBITDA/PAT are expected to clock 6%/3%/4% YoY growth in 2QFY25.

We anticipate the FMCG/Jewelry verticals to sustain/outperform their growth

trajectories in 2QFY25, whereas QSR, Paints, and Liquor verticals are likely to

experience weakness in growth and profitability. For Staples companies,

demand trends remained stable QoQ in 2QFY25, with rural markets

outperforming urban areas for the third consecutive quarter.

15

October 2024

The Tug-of-War

Mastering the game!

Sectoral Sales growth for the quarter-

ended

Sep’24

(YoY %)

EMS

NBFC - Non Lending

Real Estate

NBFC - Lending

Retail

Insurance

Cons. Durables

Staffing

Cap. Goods

Banks-PVT

Logistics

Oil & Gas

Chemicals-Spec

Telecom

Healthcare

Utilities

MOFSL Univ.

Banks-PSU

Consumer

Technology

Auto

Infra

Metals

-1

Cement

-3

Media

-17



74

59

31

18

18

17

14

13

12

11

11

10

10

9

9

7

7

6

6

5

4

2





Sectoral PAT growth for the quarter-

ended

Sep’24

(YoY %)

NBFC - Non Lending

EMS

Real Estate

Staffing

Cons. Durables

Utilities

Retail

Insurance

Banks-PSU

Healthcare

Logistics

Cap. Goods

NBFC - Lending

Auto

Technology

Banks-PVT

Consumer

Metals

Infra

MOFSL Univ.

Chemicals-Spec

-5

Media

-31

Oil & Gas

-33

Cement

-41

Telecom

Loss



85

76

44

42

29

24

17

17

17

15

14

13

9

7

7

5

4

2

1







0



The

Healthcare

companies under our coverage are expected to report a healthy

YoY earnings growth of 15% in 2QFY25. The pharma companies under our

coverage universe are expected to report healthy 13.3% YoY earnings growth in

2QFY25. We expect aggregate sales to grow 8.6% YoY to INR773b, aided by

strong traction in domestic formulation (DF) sales and a healthy performance in

the US segment. EBITDA is likely to exhibit 14% YoY growth to INR187b, fueled

by a higher share of niche launches in the US generics. PAT is likely to grow

13.3% YoY to INR118b. For hospitals, we expect profitability to improve due to

addition of beds, increase in occupancy, and optimization of case mix/payor mix.

Metal

companies within our coverage universe are likely to post a sequential

decline in 2QFY25E (revenue -3%, EBITDA -15%, and APAT -27%), due to weak

metal pricing and soft volumes during the quarter. Given the seasonal monsoon

impact, cheaper imports from China, and muted exports, domestic prices have

been under pressure. Lower coal prices will partially offset the impact. In

addition, the mining companies are expected to report sequential de-growth

due to weak volumes led by heavy monsoons and lower iron ore prices. We

expect the steel sector to report muted performance driven by weak pricing and

volumes, with softened input costs providing some cushion against the fall. Non-

ferrous companies under our coverage are anticipated to post better revenue,

EBITDA and PAT on a QoQ basis as compared to the ferrous companies.

The Cement sector’s

earnings are projected to decline 41% YoY as the cement

price remained weak during the quarter. We estimate our cement coverage

universe to report a volume growth of ~1% YoY (three-year CAGR of ~7%) in

2QFY25. We estimate the average EBITDA/t to decline ~27%/22% YoY/QoQ to

INR674 due to weak realization. The aggregate EBITDA of our coverage universe

is estimated to decline 27% YoY and OPM to contract 3.6pp YoY to 13.9%.

The O&G sector is expected

to report sales growth of 10% YoY, while

EBITDA/PAT will decline 22%/33% YoY, mainly led by OMCs. Brent crude price

averaged USD79.8/bbl in 2QFY25 (vs. USD84.6/bbl in 1QFY25). The weakness in

oil prices in the past few months was due to fears of the reversal of voluntary

cuts by OPEC+, alongside demand worries amid the contraction in Chinese

consumption and seasonality.

The Utility sector

is projected to report sales/EBITDA/adj. PAT growth of

7%/9%/24% YoY in 2QFY25. JSWE, PWGR, TPWR, and NTPC are likely to report

robust 2QFY25 results, aided by the commissioning of new capacity, which will

lead to a rise in regulated equity (PWGR and NTPC), and strong PLFs given

robust power demand. IEX volumes in 2QFY25 are expected to be robust (+38%

YoY) given elevated peak demand and adequate availability of power.

Specialty Chemicals

is projected to report an earnings decline (down 5% YoY)

for the sixth consecutive quarter.

2QFY25 snapshot:

We expect EBITDA/PBT/PAT to be +2%/flat/flat YoY in

2QFY25 for the MOFSL Universe. Excluding Metals and O&G, EBITDA/PBT/PAT

for the MOFSL Universe would grow 10%/10%/11% YoY. The 2QFY25 earnings

performance for the MOFSL Universe will be the lowest in eight quarters, while

for MOFSL (ex-Metals and O&G), it will be the lowest in 17 quarters.

EBITDA margins for Telecom, Metals, Real Estate, Healthcare, Consumer

Durables, Utilities, Capital Goods, Infrastructure, Logistics, Automobiles, and

Retail should expand, while margins for Media, O&G, Cement, Spec. Chemicals,

Consumer, EMS, and Technology are likely to contract on a YoY basis.

16

October 2024

The Tug-of-War

Mastering the game!





Nifty earnings to grow 2% YoY in 2QFY25;

lowest since June’20:

Ex-OMCs, the

Nifty earnings are anticipated to rise ~5% YoY (lowest in 17 quarters). State

Bank, Bharti Airtel, NTPC, TCS, and Hindalco are likely to drive Nifty earnings,

while BPCL, JSW Steel, Reliance, ONGC, and TATA Steel are projected to drag the

same. Nifty earnings, ex Metals/O&G, are likely to increase 10% YoY in 2QFY25,

again weakest since

June’20.

FY25E snapshot:

The MOFSL Universe and Nifty are likely to record 8% YoY and

7% YoY earnings growth, respectively, in FY25E. Excluding Metals and O&G, the

MOFSL Universe/Nifty should post 15%/11% YoY earnings growth.

The Private banks

coverage universe

is estimated to report a PPoP growth of

12% YoY/1% QoQ and a PAT growth of 5% YoY/0.6% QoQ in 2QFY25. We also

estimate a 12.4% CAGR in earnings over FY24-26. We estimate NII to grow

11.3% YoY in 2QFY25. Opex is likely to follow a normalized trend. Slippages

broadly remain under control, which should drive stability/further improvement

in asset quality ratios. However, we remain cautious amid rising delinquencies in

unsecured lending and MFI, which could result in some rise in credit costs in the

unsecured segments, primarily MFI.

The PSU banks

to report earnings growth of 17.2% YoY/ a decline of 0.6% QoQ

in 2QFY25. NII growth is also likely to remain moderate at ~6% YoY as margins

maintain a marginal downward

bias. Accordingly, we estimate PSBs’ earnings to

clock a 15% CAGR over FY24-26. Opex to be under control as wage-related

provisions are largely accounted for in FY24.

The MOFSL

NBFC-Lending

Coverage Universe is likely to report a sales/PAT growth

of 18%/9% YoY. For our coverage universe, we estimate loan growth of ~18%

YoY/~4% QoQ in 2QFY25. We expect ~8% YoY growth in AUM in 2QFY25 for our

HFC coverage universe, including both affordable and other HFCs. Vehicle

financers are projected to report ~24% YoY AUM growth. Gold lenders

(including non-gold products) are likely to record ~24% YoY growth. NBFC-MFIs

are likely to post ~13% YoY growth, while diversified lenders are expected to

deliver ~22% YoY growth in AUM.

Auto

OEMs are projected to deliver ~9% YoY volume growth in 2QFY25, mainly

driven by a robust performance in the 2W segment. The 2W segment is likely to

have grown ~12% YoY, with domestic volumes growing ~11% YoY and exports

growing 13% YoY. On the other hand, PV growth momentum has slowed, with

overall volumes remaining flat YoY. The CV segment continues to face

challenges, with overall volumes likely to decline ~10% YoY. Revenue and

EBITDA for our OEM coverage universe (ex-JLR) are expected to grow ~2% and

4% YoY during the quarter, respectively, while PAT is likely to remain flat.

EBITDA margin is anticipated to improve 30bp YoY at 13.0%,

The MOFSL

Consumer

universe (excluding QSR and Jewelry), is expected to

deliver revenue/EBITDA/PAT growth of 5.5%/3.2%/3.8% in 2QFY25. We expect

the FMCG/Jewelry verticals to sustain/outperform their growth trajectories in

2QFY25, whereas QSR, Paints, and Liquor verticals are likely to experience a

weakness in growth and profitability. For Staples companies, demand trends

remained stable QoQ in 2QFY25, with rural markets outperforming urban areas

for the third consecutive quarter. However, heavy rains and floods in certain

regions have disrupted the supply chain.

17

Key sectoral trends and highlights











October 2024

The Tug-of-War

Mastering the game!





The

Healthcare

Universe is likely to report sales/EBITDA/PAT growth of 9%/

14%/15% YoY in 2QFY25. We expect aggregate sales in the DF segment to grow

12% YoY to INR213b for the companies under our coverage. Compared to IPM

growth of ~8% YoY, our coverage companies are in good stead to perform better

than IPM.

For the MOFSL

Capital Goods

universe, we expect healthy growth of 12%/15%/

13% YoY in sales/EBITDA/PAT in 2QFY25. Ordering activity continued to be

buoyant during the quarter, with healthy traction across sectors such as power

T&D, data centers, renewable energy, real estate, buildings & factories, etc.

We

expect 12% YoY growth in execution in 2QFY25.









Our

Utility

Universe is likely to report sales/EBITDA/PAT growth of 7%/9%/24%

YoY in 2QFY25, aided by the commissioning of new capacities, which will lead to

a rise in regulated equity and strong PLFs given the robust power demand.

The

MOFSL Cement

Universe should report an EBITDA/PBT decline of

27%/40%YoY and a PAT decline of 41% YoY for the quarter. We estimate our

cement coverage universe to report a volume growth of ~1% YoY (three-year

CAGR of ~7%) in 2QFY25. Further, we estimate an average capacity utilization of

~67% vs. ~74%/78% in 2QFY24/1QFY25. We estimate the average EBITDA/t to

decline ~27%/22% YoY/QoQ to INR674 due to weak realization.

The

Metals

Universe is expected to post a QoQ decline during 2QFY25E

(Revenue -3%, EBITDA -15%, and APAT -27%), driven by weak metal pricing and

soft volumes during the quarter. In 2QFY25, average domestic HRC prices

declined by 5-6% QoQ to INR50,300 and the primary rebar prices fell by 10%

QoQ to INR51,250/t. Chinese HRC/TMT/Wire rod prices corrected by 8-10%

QoQ, which trickled down the metal prices in the international market. Prices of

non-ferrous commodities declined QoQ during the quarter. Copper/Aluminum/

Lead prices dipped 5% each, Zinc by 2%, and Nickel by 12% QoQ.

For the

Technology

Universe, we expect aggregate revenue/EBIT/PAT to grow

by 5.1/4.4/7.1% YoY (all in INR terms) for our coverage universe. We expect

revenue growth of Tier-I companies to be in the range of flat to +3.0% QoQ CC.

Revenue growth for Tier-II players is expected to be in the range of flat to +4.5%

QoQ in constant currency (CC) terms.

October 2024

18

The Tug-of-War

Mastering the game!

Exhibit 15:

MOFSL and Nifty Universe to post flat and 2% YoY earnings growth, respectively, in 2QFY25 (INR b)

Sector

PAT growth sectors

NBFC - Non Lending (5)

EMS (7)

Real Estate (12)

Staffing (4)

Consumer Durables (5)

Utilities (5)

Retail (19)

Insurance (6)

Banks-PSU (6)

Healthcare (24)

Med/Low growth sectors

Logistics (8)

Capital Goods (12)

NBFC - Lending (20)

Automobiles (25)

Technology (12)

Banks-Private (13)

Consumer (19)

Metals (10)

Infrastructure (3)

PAT de-growth sectors

Chemicals-Specialty (12)

Media (3)

Oil & Gas (15)

Cement (11)

Others (17)

Telecom (4)

MOFSL Universe (277)

Nifty (49)

Sensex (30)

Sales

Sep-24

4,297

30

132

134

121

159

749

534

694

890

856

10,729

160

886

330

2,870

1,923

925

862

2,729

43

9,853

170

45

7,966

504

515

653

24,879

14,100

10,375

Gr. (%)

YoY

QoQ

13

6

59

10

74

17

31

11

13

6

14

-18

7

0

18

4

17

39

6

1

9

2

5

0

11

8

12

6

18

4

4

-1

5

2

11

1

6

-1

-1

-3

2

-5

8

2

10

4

-17

-1

10

3

-3

-11

1

-3

9

5

7

2

4

0

3

0

EBITDA

Sep-24

1,254

16

7

39

4

17

264

60

36

609

202

2,592

59

106

247

388

426

694

208

453

12

1,377

31

10

901

58

61

316

5,222

3,474

2,798

Gr. (%)

YoY

QoQ

15

3

82

20

64

15

36

16

20

15

23

-10

9

1

19

6

18

63

15

1

14

-1

8

-3

11

6

15

12

17

4

4

-6

4

2

12

1

3

-4

7

-15

2

-5

-15

2

2

5

-34

3

-22

6

-27

-30

-8

-31

12

7

2

0

5

0

7

0

PAT

Sep-24

680

12

4

27

3

12

103

24

22

345

127

1,530

35

65

131

221

297

436

148

194

3

472

18

6

420

25

7

-4

2,681

1,886

1,470

Gr. (%)

YoY

QoQ

20

0

85

22

76

21

44

-5

42

42

29

-12

24

-2

17

11

17

-4

17

-1

15

0

6

-4

14

3

13

16

9

-1

7

-1

7

2

5

1

4

-2

2

-27

1

-24

-30

8

-5

8

-31

4

-33

14

-41

-26

-62

-79

Loss

Loss

0

-1

2

1

5

1

PAT Delta PAT

INR b Share (%)

113

25

6

0

2

0

8

1

1

0

3

0

20

4

4

1

3

1

51

13

17

5

86

57

4

1

7

2

11

5

15

8

20

11

20

16

5

6

3

7

0

0

-198

18

-1

1

-3

0

-204

16

-17

1

-12

0

39

0

2

100

44

64

October 2024

19

The Tug-of-War

Mastering the game!

Exhibit 16:

Expect a two-year PBT/PAT CAGR of 20% each for the MOFSL Universe (INR b)

PBT (INR b)

Sector

Automobiles (25)

Capital Goods (12)

Cement (11)

Chemicals-Specialty (12)

Consumer (19)

Consumer Durables (5)

EMS (7)

Financials (50)

Banks-Private (13)

Banks-PSU (6)

Insurance (6)

NBFC - Lending (20)

NBFC - Non Lending (5)

Healthcare (24)

Infrastructure (3)

Logistics (8)

Media (3)

Metals (10)

Oil & Gas (15)

Oil Ex OMCs (12)

Real Estate (12)

Retail (19)

Staffing (4)

Technology (12)

Telecom (4)

Utilities (5)

Others (17)

MOFSL Universe (277)

MOFSL Ex Metals and O&G (252)

MOFSL Ex OMCs (274)

Nifty (49)

Sensex (30)

Sep-22 Sep-23 Jun-24 Sep-24

127

64

27

29

166

8

2

860

409

305

16

122

8

127

6

31

7

221

378

413

13

29

2

355

-16

90

9

2,535

1,936

2,570

1,961

1,526

280

84

58

24

192

13

3

1,135

535

411

19

160

9

143

6

35

12

255

862

510

23

28

2

374

-4

118

24

3,667

2,550

3,315

2,527

1,954

304

85

46

22

204

19

4

1,271

575

480

25

177

14

169

7

40

8

380

524

444

36

30

2

397

18

130

39

3,734

2,831

3,655

2,606

2,057

289

96

35

24

198

16

5

1,271

581

476

24

175

16

166

5

42

8

284

593

457

32

33

3

399

27

133

15

3,674

2,797

3,537

2,589

2,041

Growth (%)

PAT (INR b)

Two-year

YoY

QoQ Sep-22 Sep-23 Jun-24

CAGR

3

51

-5

97

205

223

14

22

13

41

58

56

-40

14

-25

20

42

34

-1

-10

9

24

18

16

3

9

-3

126

143

151

25

39

-12

7

9

14

90

57

27

2

2

3

12

22

0

643

856

946

9

19

1

306

415

433

16

25

-1

226

294

347

26

20

-4

15

19

23

9

20

-1

90

120

132

81

45

13

6

7

10

16

14

-2

97

110

127

-3

-2

-18

4

3

4

19

16

5

26

30

34

-35

5

1

5

8

6

11

13

-25

139

191

267

-31

25

13

276

624

369

-10

5

3

303

358

309

37

53

-13

15

19

28

18

7

12

22

21

22

45

38

36

2

2

2

7

6

1

264

277

292

LP

LP

49

-42

-43

-22

12

22

2

84

83

106

-35

29

-61

2

19

35

0

20

-2

1,853 2,679 2,712

10

20

-1

1,438 1,864 2,076

7

17

-3

1,880 2,413 2,652

2

15

-1

1,433 1,842 1,875

4

16

-1

1,100 1,406 1,463

Sep-24

221

65

25

18

148

12

4

946

436

345

22

131

12

127

3

35

6

194

420

318

27

24

3

297

-4

103

7

2,681

2,067

2,579

1,886

1,470

Growth (%)

Two-year

YoY

QoQ

CAGR

7

51

-1

13

26

16

-41

11

-26

-5

-14

8

4

8

-2

29

31

-12

76

52

21

11

21

0

5

19

1

17

24

-1

17

20

-4

9

21

-1

85

48

22

15

14

0

1

-5

-24

14

15

3

-31

11

4

2

18

-27

-33

23

14

-11

2

3

44

34

-5

17

6

11

42

30

42

7

6

2

Loss Loss Loss

24

11

-2

-62

112

-79

0

20

-1

11

20

0

7

17

-3

2

15

1

5

16

1

Sales/PAT for the MOFSL Universe to grow 7%/remain flat YoY in 2QFY25

Exhibit 17:

Expect sales for the MOFSL Universe to grow 7%

YoY in 2QFY25

Exhibit 18: Expect MOFSL Universe earnings to remain flat

YoY in

2QFY25

3

October 2024

20

The Tug-of-War

Mastering the game!

Exhibit 19: Expect EBITDA margin (ex-Financials and O&G)

to remain flat YoY at 19.4% in 2QFY25

Average: 20.1%

Exhibit 20: Expect PAT margin to also remain flat YoY at

9.3%

Average: 9.3%

Source: MOFSL, excluding Financials and OMCs

Source: MOFSL, excluding Financials and OMCs

Exhibit 21:

Banks, Utilities, Technology, and Healthcare to lead; while O&G and Cement, and Spec Chem. to drag earnings in

2QFY25

51 39

20 20 20 17 15 11

8

7

6

5

4

4

3

3

3 2

1

0

1

3

12 17 204

2,679

2,681

Exhibit 22:

Sectoral quarterly PAT trend (INR b)

–

MOFSL Universe to report a flat YoY growth in PAT in 2QFY25

Sector

Sep-21 Dec-21 Mar-22 Jun-22

Automobiles

31

59

86

13

Banks-Private

190

262

295

272

Banks-PSU

148

150

152

133

Insurance

13

8

16

14

NBFC - Lending

71

81

91

82

NBFC - Non Lending

4

5

5

5

Capital Goods

34

38

63

32

Cement

47

33

43

43

Chemicals-Specialty

16

18

22

25

Consumer

109

118

115

123

Consumer Durables

7

7

10

7

EMS

1

1

2

1

Healthcare

94

87

79

78

Infrastructure

3

3

6

8

Logistics

20

23

22

29

Media

5

8

7

8

Metals

416

353

414

333

Oil & Gas

385

418

449

244

Real Estate

15

20

25

15

Retail

16

28

18

25

Staffing

2

2

2

2

Technology

247

256

263

242

Telecom

-46

-45

-25

-48

Utilities

73

84

117

84

Others

77

15

1

4

MOFSL Universe

1,979 2,032 2,278 1,774

Sep-22

97

306

226

15

90

6

41

20

24

126

7

2

97

4

26

5

139

276

15

22

2

264

-42

84

2

1,853

Dec-22 Mar-23 Jun-23

142

186

174

343

375

369

252

300

307

16

20

18

101

111

118

5

6

6

46

69

46

24

38

44

22

25

20

131

133

147

9

11

10

2

4

2

88

81

98

4

5

5

23

29

27

6

3

6

133

242

227

337

536

632

19

31

17

27

16

21

2

2

2

284

286

271

-59

-21

-32

91

102

93

37

35

48

2,083 2,624 2,674

Sep-23

205

415

294

19

120

7

58

42

18

143

9

2

110

3

30

8

191

624

19

21

2

277

-43

83

19

2,679

Dec-23 Mar-24 Jun-24

227

244

223

420

443

433

306

379

347

18

20

23

128

134

132

6

9

10

57

88

56

50

51

34

15

15

16

147

144

151

9

13

14

2

4

3

105

116

127

4

5

4

32

32

34

6

4

6

241

212

267

467

498

369

21

37

28

28

18

22

2

1

2

284

291

292

-35

-25

-22

93

106

106

40

37

35

2,672 2,876

2,712

Sep-24E

221

436

345

22

131

12

65

25

18

148

12

4

127

3

35

6

194

420

27

24

3

297

-4

103

7

2,681

October 2024

21

The Tug-of-War

Mastering the game!

Expect profits of Nifty constituents to rise 2% YoY in 2QFY25







We expect sales/EBITDA/PBT/PAT for Nifty constituents to improve

4%/5%/2%/2% YoY propelled by Telecom, Utilities, Healthcare, and PSU Banks.

Excluding Metals and O&G, sales/EBITDA/PBT/PAT are likely to grow 7%/11%/

9%/10% YoY for the quarter.

SBI, Bharti Airtel, NTPC, TCS, and Hindalco, are likely to drive Nifty earnings, while

BPCL, JSW Steel, Reliance, ONGC, and Tata Steel are projected to drag the same.

Eight Nifty companies are likely to report a PAT growth of above 20% YoY.

Whereas, 13 Nifty companies are expected to report a YoY decline in PAT.

Exhibit 23:

Sector-wise PAT breakdown for the Nifty constituents in 2QFY25E (YoY %)

51

34

Financials,

Telecom, Utilities

are likely to lead

Nifty earnings in

2QFY25

23

23

16

15

15

14

7

5

5

2

2

2

-11

-17

-17

Exhibit 24:

Expect Nifty’s revenue to

grow 4% YoY in 2QFY25

Exhibit 25:

Expect Nifty’s EBITDA to grow 5% YoY in 2QFY25

Exhibit 26:

Expect Nifty’s PAT to rise marginally by 2% YoY in 2QFY25

October 2024

22

The Tug-of-War

Mastering the game!

Exhibit 27:

Nifty’s earnings snapshot for

2QFY25 (INR b)

Sales

Gr. (%)

EBIDTA

Gr. (%)

PBT

Gr. (%)

PAT

Gr. (%)

Company

Sector

Sep-24 YoY

QoQ Sep-24

YoY

QoQ Sep-24 YoY

QoQ Sep-24 YoY

QoQ

Bajaj Auto

Automobiles

131

21

10

26

22

8

28

19

9

22

17

8

Eicher Motors

Automobiles

44

8

1

12

9

2

13

7

2

11

6

-2

Hero MotoCorp

Automobiles

102

8

1

15

11

1

15

7

0

11

7

0

Mahindra & Mahindra Automobiles

272

12

1

37

20

-8

42

-3

24

34

-2

29

Maruti Suzuki

Automobiles

372

0

5

46

-4

2

48

-1

2

37

-1

1

Tata Motors

Automobiles

1,002

-5

-7

133

-3

-15

58

-5

-33

43

10

-23

Axis Bank

Banks-Private

136

11

1

102

19

1

89

13

10

66

13

10

HDFC Bank

Banks-Private

298

9

0

244

7

2

218

10

2

164

2

1

ICICI Bank

Banks-Private

199

9

2

158

11

-1

145

6

-1

109

6

-1

IndusInd Bank

Banks-Private

55

7

1

40

3

2

28

-6

-5

21

-6

-5

Kotak Mahindra Bank Banks-Private

70

10

2

53

15

1

47

10

0

35

10

0

State Bank

Banks-PSU

416

5

1

268

38

1

221

15

-4

164

14

-4

HDFC Life Insur.

Insurance

183

24

46

10

22

36

4

30

-13

4

11

-12

SBI Life Insurance

Insurance

222

10

42

17

13

74

5

36

-1

5

35

-1

Bajaj Finance

NBFC - Lending 89

23

6

72

23

3

54

14

3

40

13

3

Bajaj Finserv

NBFC - Lending 274

27

6

79

24

4

62

16

3

23

21

9

Shriram Finance

NBFC - Lending 55

19

5

42

19

8

28

18

4

21

18

4

Bharat Electronics

Capital Goods

47

18

13

11

10

18

12

14

18

9

14

19

Larsen & Toubro

Capital Goods

568

11

3

60

7

7

51

3

10

32

-1

15

Grasim Industries

Cement

76

17

10

4

-34

21

11

19

LP

9

16

LP

Ultratech Cement

Cement

156

-2

-14

22

-15

-29

12

-26

-41

9

-27

-44

Asian Paints

Consumer

85

1

-5

15

-12

-11

14

-14

-11

11

-13

-9

Britannia

Consumer

47

7

11

9

7

24

9

9

24

7

11

23

Hind. Unilever

Consumer

160

2

2

38

-1

1

36

0

1

27

1

2

ITC

Consumer

188

6

2

67

4

0

69

4

0

51

5

1

Nestle

Consumer

53

6

11

13

8

20

12

8

21

9

12

22

Tata Consumer

Consumer

42

14

-3

6

9

-12

5

-9

-1

3

-4

11

Apollo Hospitals

Healthcare

54

11

6

8

21

12

5

35

21

4

56

18

Cipla

Healthcare

70

5

5

19

7

8

17

5

7

12

5

4

Dr Reddy’ s Labs

Healthcare

78

14

2

22

9

2

19

9

-1

14

7

2

Sun Pharma

Healthcare

130

8

3

35

16

-1

34

19

-3

29

19

0

Adani Ports

Logistics

73

10

5

43

11

2

31

22

-1

26

15

-3

Coal India

Metals

317

-3

-13

99

11

-14

106

3

-25

81

0

-26

Hindalco

Metals

569

5

0

66

17

-13

42

30

-20

31

45

-8

JSW Steel

Metals

414

-7

-4

45

-42

-18

6

-84

-53

5

-85

-46

Tata Steel

Metals

520

-7

-5

47

10

-30

6

1,044

-75

0

PL

PL

BPCL

Oil & Gas

1,071

4

-5

78

-40

38

62

-45

54

47

-45

54

ONGC

Oil & Gas

352

0

0

184

0

-1

124

-8

3

92

-9

3

Reliance Inds.

Oil & Gas

2,307

-1

0

397

-3

2

244

-8

5

160

-8

5

Titan Company

Retail

144

15

9

16

16

32

14

15

47

11

18

51

Trent

Retail

43

48

7

7

51

14

5

42

18

4

37

16

HCL Technologies

Technology

283

6

1

59

0

3

53

3

-8

39

2

-8

Infosys

Technology

409

5

4

94

-1

0

90

3

0

66

6

3

TCS

Technology

639

7

2

170

8

1

167

9

3

125

10

3

Tech Mahindra

Technology

131

2

1

16

16

5

13

13

7

10

-3

12

Wipro

Technology

221

-2

0

44

3

-2

38

9

-5

29

9

-4

Bharti Airtel

Telecom

410

11

7

216

11

10

68

24

29

45

51

52

NTPC

Utilities

417

2

-6

120

13

-4

63

18

-7

46

41

-5

Power Grid Corp.

Utilities

104

7

4

91

7

5

45

3

6

36

26

6

Nifty Universe

14,100 3.8

0.2

3,474

5.4

0.2

2,589

2.5

-0.6

1,886

2.4

0.6

Note: For Banks: Sales = Net Interest Income, EBITDA = Operating Profits; For Life Insurance: Sales = Net Premium, EBITDA = VNB.

October 2024

23