Where To Invest In 2020
The equity markets in 2018 and 2019 witnessed a narrow market rally. Will 2020 be a repeat of 2018 and 2019? Maybe not. Yogesh Supekar explains why 2020 could be a better year for investors while the DSIJ Research Team share their top 10 stock ideas for the upcoming year.
After a difficult phase in 2018 and 2019, equity markets for India investors are now gearing up for a much better 2020. Hopes are on the expansionary government policies, US markets’ performance in 2020, earnings upgrades, lower interest rate environment globally and in India, recovery in GDP growth rate, stable liquidity, benign inflation environment and how well the beleaguered sectors recover in the coming year! It does look like a tall order from the markets.
However, the odds are in favour of markets doing better in 2020 as compared to 2019 and 2018. Next year is an election year in US markets and the US markets traditionally have been setting the tone for the global equities. The US markets have shown a strike rate of 90 per cent of delivering positive returns in election year and the average returns for the S&P 500 has been 12 per cent if we consider only the election years. So, going by the historical data, we can expect the US markets to remain positive in 2020. Most analysts expect S&P 500 to deliver returns in the range of 8 to 10 per cent in CY20. The government, after realising the implication of economic slowdown is finally getting its act together. One can expect several expansionary measures to be adopted in order to push the economic growth higher. The nagging issue has been the consumption and the demand which somehow had been missing throughout 2019. Investors are expecting the government intervention in order to boost consumption in the economy.
FIIs have been positive on Indian markets in 2019 and are expected to be net positive, as despite the slowdown, the economy is expected to be one of the fastest growing economies in the world. In the past five years, FIIs have withdrawn funds only in 2018 from the Indian market. DIIs have been less bullish than FIIs in 2019 till December this year.
DSIJ Portfolio Performance
The year (2019) gone by
The year 2019 belonged to realty stocks, banking stocks and IT stocks as is reflected in the sectoral indexes’ performance.
BSE metal index was the worst performing sectoral index slipping by close to 20 per cent, followed by auto index which was down by nearly 15 per cent.
The broader markets underperformed in 2019 with BSE Mid-cap slipping 4.82 per cent and BSE Small-cap sliding 10.07 per cent on YTD basis with Sensex gaining 10 per cent and Nifty inching up by 8.7 per cent on YTD basis.
The best performing real estate stocks : Godrej properties, Phoenix Mills and Prestige Estate Projects were the three outperforming real estate stocks that pushed the BSE Realty index higher. Godrej properties gained 36.22 per cent followed by Phoenix Mills and Prestige Estate Projects that inched up by 32.15 and 31.83 per, respectively.
The best performing Banking stocks : ICICI Bank, Kotak Mahindra Bank and City Union Bank proved to the best performing banks in 2019 clocking 46.7, 34.74 and 21.42 per cent returns in 2019.
The best performing IT stocks : Tanla solutions, D-Link (India) and NIIT Technologies were amongst the best performing IT stocks gaining 116.78 , 34.74 and 29.20 per cent, respectively.
The worst performing Metal stocks : Nalco, Vedanta and SAIL were amongst the worst performing metal stocks slipping by 35 per cent, 31.44 per cent and 31.36 per cent, respectively.
Sensex @ 2019
Coming to Sensex, we found that out of 30 Sensex stocks, 12 stocks have managed to beat the key benchmark index returns, that is, 10 per cent on YTD basis. Almost 16 stocks out of 30 stocks that constitute Sensex have generated positive returns.
Sensex constituents performance in 2019
Rupen Rajguru
Executive Director, Head - Equity Investment & Strategy, Julius Baer India
❝Healthcare is one sector which seems to be bottoming out and may surprise positively in the coming years. ❞
As per your opinion, how is the Indian market placed in emerging market space?
India's main attraction is its large and youthful population, which will convert over the long-term into a huge growth in the consumer, healthcare, financial sectors among others. There are other countries that have the same positive demographic story, but their financial markets are too small, illiquid or difficult to access to attract substantial foreign interest (Vietnam, Philippines, Pakistan, Bangladesh and so on). The second attraction is a corollary of the first: because of its large and youthful population, the country has an economy that is relatively divorced from the vagaries of global growth (i.e. the health of other countries' economy, the trade war). What goes against India is its valuation. At 22.5x forward P/E, it is much more expensive than any other emerging market. China for example is 14.0.x. While India has always traded at a premium among other emerging market peers, this is the top of the range! Therefore, it should not be expected to outperform its peers in the short-term, but can be expected to do so in the long-term.
In your view, which sector may surprise positively and which ones may surprise negatively in 2020?
Healthcare is one sector which seems to be bottoming out and may surprise positively in the coming years. The sector has been under a lot of pain since the last few years, primarily due to U.S. generic price erosion and the heightened level of U.S. Food and Drug Administration (USFDA) activity for the various manufacturing facilities. Though the price erosion scenario seems to have bottomed, the resolution of the USFDA observations continues to be a work-in-progress. However, successful resolutions, combined with the benefits from the R&D efforts of the last few years (new launches, especially in niche/specialty products, biosimilars, etc) could result in better growth visibility.
Some of the stocks from the quality basket which are trading at a very premium valuations (such as Consumer Staples, Paint companies, some Financial companies, etc) can probably disappoint as the margin of error is low and any shortfall in performance v/s expectations could lead to some derating.
What strategy are you recommending your clients for 2020?
Overall, we remain constructive of the Indian equity markets and are recommending clients to gradually build up on their equity investments over the next two quarters. Considering the overall divergence in the valuation of 'High quality growth' and 'Value' stocks, we are recommending a 'barbell strategy' i.e, have 'high quality growth' stocks on one side and beaten-down 'relative value' or 'mean reversion' plays like Corporate Banks, Pharma and Utilities on the other side. We are also recommending clients to build exposure towards mid and small-cap stocks.
We would focus on those mid and small-cap names which exhibit the following characteristics:
A) The company is a leader in its segment or has a niche positioning.
B) It is trading at a valuation which is close to multiple-year lows/significantly below the long-term average.
C) There is an expectation of earnings rebound.
India until now has been riding on one engine of consumption and even the investment cycle has not been picked up for many years now. So, looking at the current situation in India, do you think that the economic pain is here to stay? What's your broad outlook for 2020?
Over the last few years, the consumption growth in the country has been quite healthy, which has been a key support for the economy at a time when investments have been completely lacking, especially the private-sector investments. However, with income levels probably not rising commensurately, it has led to an increase in leverage at individual household level front (which now seems to be getting improved). The weakness in private investments has been on account of a combination of several factors: Weakened balance sheet of the corporates (who have of late been focussing on de-leveraging), low-capacity utilisation levels, uncertain growth outlook, liquidity stress, etc. Unfortunately, the fiscal stress has also restrained the Government from aggressive investments. However, the capacity utilisation levels are gradually trending up and once the demand level starts improving, providing some better growth visibility, it is expected to trigger the next round of capex cycle (although it could take another 12-18 months and may not be of similar magnitude as the last cycle).
Economy-wise, although the overall growth momentum has slowed down, yet India is still expected to rank amongst one of the fastest growing economies globally. The growth momentum seems to be bottoming out and several macrofactors (such as CAD/BOP, Fx, Liquidity, Interest rates, etc.)
are showing signs of improvement, which could lead to a revival in demand. The performance of India Equity market indicates some sort of deviation to the economic environment, wherein, despite the weak economic activity, the markets are trading at its all-time high levels. However, there has been some sort of polarisation in the markets, wherein some of the quality index-heavy weights have started trading at premium valuations (because of growth visibility and flight to quality due to the prevailing uncertainty), thereby influencing the headline index number. Moreover, the valuations may also seem high due to the significant push back of earnings that we have seen over the last couple of years due to varying factors at different points of time (Sensex earnings have grown at a muted 5-6 per cent CAGR over the last 4-5 years. The domestic liquidity scenario remains supportive for Equities (with a lack of alternate investment opportunities), while the FII activity has also started picking up, especially after the corporate tax cuts by the Government. There remains a hope that the broader economic environment will start picking up once the sentiment starts improving. The government's (and also RBI's) focus is on providing support to kick-start the economy, which is expected to bear fruits in the coming period. Overall, India remains an attractive investment destination with its favourable demographics and healthy growth opportunities.
In terms of reforms and government's effort to support the credit cycle, do you think there seems to be an acknowledgement and an attempt to fix the economy?
Over the last couple of years, there has been a major economy reset exercise aimed at
1) Getting more transparency and formalisation (GST and Demonetisation)
2) Cleaning up of banking system (IBC).
This has weighed heavily on the economic growth and to make things worse, the collapse of IL&FS has led to a major risk aversion and liquidity tightness in the credit market. To counter the economic slowdown, over the last couple of months, the Finance Minister (FM) initially announced a series of 'feel good-sentiment booster' for various sectors like Financials, Autos, Real Estate and Exports. It also reversed the surcharge on FPI taxation. Finally, the FM veered off the tight rope walk on the fiscal front, and gave the economy a muchneeded boost, by announcing a cut in the corporate tax rate.
The Government's voice and action has definitely turned positive/pro-growth. They (along with RBI) have been taking various measures to provide a more conducive environment to support growth-Liquidity easing, efforts on monetary transmission, corporate tax cuts and farm support. There are expectations that there could be more measures from the Government to further support growth. Hence overall, it seems that the Government's focus is definitely to fix the economy, which is good news!
The surprise of the pack has been the performance of Bharti Airtel on bourses. Who could have thought that a telecom player can be the best performing Sensex stock in 2019! In fact, Bharti Airtel has been the world’s 3rd Best Telecom stock in 2019. Ubiquiti with 93.70 per cent and ZTE with 63.76 per cent are the second and third best telecom stocks globally. The Bloomberg World Telecom Index was up by 6.72 per cent.
The market story of the year 2019 has been the resilience shown by the Sensex and the narrow rally. The rally can be said to be narrow when more than half of the index constituents reflect negative returns in a given year. Sensex showed remarkable resilience in the midst of economic slowdown and earnings downgrade. The million dollar question is whether Sensex will manage to repeat its performance in 2020 and come up with yet another positive year for the investors? Also, most investors must be speculating if 2020 will be a hattrick year in the sense where only a handful of stocks will pull the market performance higher. And even more important question that needs attention is whether the same set of stocks that did well in 2019 will drive the Sensex performance in 2020?
Same goes for Nifty! Almost 31 stocks are seen underperforming Nifty 50 which means that the current year’s rally has been narrower than 2018. In 2018, Nifty was up by 3.2 per cent and 22 out of 50 stocks closed in positive territory while Nifty is up by nearly 9 per cent on YTD basis as on December 10, 2019 and 23 stocks are in positive with only 19 stocks managing to beat the benchmark returns.
Performance of Indian markets vs global markets
The Indian markets were seen underperforming in 2019 in comparison to most of the major global indices. With Sensex returning close to 12 per cent and Nifty nearly 10 per cent, the key Indian benchmark indices not only struggled to repeat its world beating performance but did not even manage to beat its emerging market peers. NASDAQ was the best performing index with close to 30 per cent returns followed by Brasil’s Bovespa delivering 26.27 per cent returns. US markets, European indices and emerging markets all were seen inching up in 2019 from anywhere between 16.96 per cent to close to 30 per cent returns.
George Heber Joseph
CEO & CIO, ITI Mutual Fund
Do you think equity will outperform other asset classes in 2020?
We are very constructive on equity markets in a mediumterm point of view. Our view is that Indian economy is close to bottom of the economic cycle with a low GDP and credit growth rates and multi-year low in corporate profitability to GDP. Many sectors are showing cyclically low earnings. We believe all these low indicators will rebound. The sentiment towards equity remains quite pessimistic. Many sectors and stocks are trading at attractive valuations and with this; we feel it’s the right time to buy equities for handsome gains over the next three to five years.
What is your take on the NBFC sector in India?
The NBFC sector has always played a key role in providing credit to those where the banking sector could not lend a helping hand. They have been playing the role of financial inclusion much before this term became popular.
Thus, they will continue to play an important role in the economy in a profitable manner. Many NBFCs in sectors such as auto financing, MFI lending, SME lending, retail housing loans will continue to perform well. Some NBFCs who followed more aggressive practices with respect to lending standards or asset liability matching are under stress currently and this is part of the normal business cycle.
The BSE IPO index has been one of the best performing indices on Indian bourses. The one-year return for the BSE IPO index is 42 per cent and on YTD basis, the index that measures how well the IPOs performed, delivered 33.32 per cent returns.
Gold Outlook:-
Gold prices have been trending up since 2015, however in choppy fashion. The bullion may inch up by 8 to 10 per cent, however, may not outperform equities in 2020, even though a temporary outperformance by gold is not ruled out. With US economy expected to grow in 2020 and recessionary fear at minimum, we can expect the gold prices to be in check in 2020. If the GDP growth happens as expected in US and UK while economic expansion happens in Asia, gold will be under pressure.
IPOs in 2019: -
The year 2019 has been extremely profitable for IPO investors. Even though the number of mainboard IPOs issues was less in 2019 when compared to 2018, the performance of the newlylisted stocks has definitely raised hopes for IPO investors.
For the 15 IPOs on main board that have been listed in 2019, we find that the average listing gains is 19 per cent while the average post listing gains for the 15 IPOs is 21 per cent. Nearly Rs 16,937.32 crore has already been raised through primary markets in 2019 up till December 10.
The returns are definitely beating the markets and this kind of performance of IPOs in 2019 for sure augurs well for the IPO investors looking for opportunities in 2020. The IRCTC was the best performing IPO in 2019 while the Sterling and Wilson Solar Ltd. was the worst performing IPO.
Mutual Funds in 2019
The importance of choosing the right mutual fund scheme was highlighted in 2019 as indicated by the gap between the top performing funds in any category versus the bottom performing fund in the category. For example, if we consider the mutual fund schemes that primarily invest in finance sector stocks, we would see that the returns gap between the best performing fund in the category and the worst performing fund in the category is 13.73 per cent in 2019. The following table highlights the gap or difference between the best and the worst performing mutual fund scheme in each category.
Category wise, it was the mutual fund schemes invested in financial stocks that did the best in 2019 by delivering on an average of 21.4 per cent returns. The International funds as a category followed by large-cap funds and multi-cap funds were the top performers with average returns for the category being 14.17 per cent, 12.63 per cent and 11.25 per cent, respectively.
"The risk remains in the market if the GDP further slows down. However, the market has not discounted a further slowdown, instead expecting a recovery. The 13-months consecutive drop in auto sales may finally stop and take a U-turn in 2020. Expect some recovery in the auto stocks! Today, the economic growth is two-standard deviation below the normal growth. It may take 3 to 4 quarters to inch back to normal levels. The GDP deficit reaching 3.8 per cent may have a crowding out effect. The bond yield may harden, and the earnings may get downgraded for few sector stocks."
Global market outlook:-
The average annual GDP growth is likely to rise to 3.4 per cent in 2020 from 3.1 per cent in 2019 for the world economy. Despite several headwinds, the global equity markets as represented by MSCI world index delivered 20 per cent + returns in the first 10 months of 2019, which is easily above the average returns displayed by the index. While 2020 may struggle in comparison to 2019, the most important equity markets are expected to deliver positive returns closer to 10 per cent. Emerging markets however, are expected to show recovery.
The interest rates are at their all-time low levels and may not go further down from the current levels globally even though emerging markets are expected to witness some rate cuts in 2020. The inflation levels are expected to pick up in US markets while the inflation levels in Europe and Japan is expected to be around 2 per cent.
The global earnings are expected to grow by 7 per cent unless the situations on global trade do not worsen.
Indian Equity Market Outlook
Many investors sat on sidelines in 2019 owing to constant negative news and developments in the global markets. However, equity markets surpised investors with its performance in 2019. The year 2020 again seems full of challenges and hence, it may not be a smooth ride for investors next year as well. Market timing may continue to be a futile exercise and the best way any investor can help himself is to remain invested in equities throughout the year. A lower doubledigit return is expected from the key benchmark indices i.e Sensex, while there is a higher probability of broader markets beating the key benchmark indices such as Sensex in 2020.
As of now the fiscal stimulus and easy monetary policy is not able to reverse the economic slowdown. Steady global capital flows and improvement in demand is what the bulls are betting on for 2020. Basically, we are at the bottom of everything including GDP growth, unemployment and consumption which suggests there is limited downside on the economic fundamentals. However it also means that it may take time for earnings to be robust. Stretched valuation in the index stocks and especially those stocks which have pulled the markets to all-time highs indicate that there might be a correction in select counters, thus limiting the upside for the key benchmark indices. One must be prepared to face correction in stocks that have taken the markets to all-time highs.
Having said that global brokerages such as Morgan Stanley and Credit Suisse have changed their stance from 'underweight' to 'overweight' on India. According to credit Suisse the global emerging market (GEM) equities will outperform the developed markets and one of the key drivers for the GEM equities will be the currency. USD surge may halt in 2020. India remains one of the high conviction markets for Credit suisse. CLSA however has a neutral stance on India while it is bullish on the EM pack.
Not only does Indian market feature in the high conviction list of foreign brokerages but also the earnings growth estimate for the domestic market is one of the highest in the emerging market (EM) pack. This expectation is despite the rough patch Indian economy is going through. The consensus earnings per share (EPS) growth estimate in 2020 for the EM pack is 14.1 per cent while that for the Indian market is 20.3 per cent. With EM pack expected to dominate the markets in 2020 and Indian markets on top of list along with South Korea in terms of earnings growth expectation, investors in Indian equities have a lot to cheer for in coming year.
Sectoral outlook
Banks : - The growth outlook for banks and non-bank lenders is moderate. The loan growth may remain muted throughout 2020. Those banks with a strong franchise, higher profitability and higher capital adequacy may gain market share in 2020 and hence, can be expected to outperform in 2020 as they did in 2019.
Cement :- A good earnings momentum may continue in 2020 for cement stocks. The cement prices are expected to remain sturdy in 2010 as was the case in 2019. The earnings momentum will remain strong for cement stocks.
FMCG :- The revival in consumer demand is on card. H2 can be better than H1 for FMCG sector. The trend of deeper penetration of products and increasing organised market size will help FMCG sector grow in 2020.
Defence :- The year 2020 could be exciting for defence players as the prospects remain strong for huge orders. The growth visibility exists due to strong order book. Also, several companies in the sector have strong balance sheets and are cash-rich.
Infrastructure :- A strong order book brings in growth visibility for the sector stocks just like in defence hence, the sector will see more action in 2020 than compared to 2019.
Amar Ambani
Senior President and Research Head,
Institutional Equities, YES SECURITIES
"In the present context, our Nifty target for the year 2020 is 12900, but with rising risk of a sudden deep correction. Having said that, 2020 will be a year to firm up positions in equities, as we believe that 2021 will bring a start of a secular rally. I would therefore advocate at least a 65% asset allocation to equities if you have 3-4 year time horizon."
Telecom outlook:
❝The recent prepaid tariff hikes will not be adequate for sustainability of the telecom sector. Key players will require an additional equity or asset monetisation of Rs 50,000 crore for the rollout of 5G. The revision in prepaid tariffs may improve the EBITDA levels on an average by 20 per cent-25 per cent for the existing players. Debt to EBITDA levels for the sector, nonetheless, will still continue to be elevated between 3x-6x levels. The sector will continuously require capital investments for not only rolling out 5G services over the medium-term but also for the regular upgradation of networks. The 5G roll out is likely to get delayed beyond 2022 given the inadequate capacity of the incumbent players to bid in fresh spectrum auctions. Therefore, rationalisation of tariffs has to be also supported by additional equity infusion, strategic divestments and asset monetisation. ❞
-- Acuité Ratings and Research
Housing Finance Sector Outlook :
❝Mortgage lenders have been the toast of local investors for more than four years, due to the simplicity and safety of their business models. Since last September, however, they have virtually been toasted to a crisp. Even though many of these lenders are trading at multi-year lows, the fault lines in their financial engineering and opacity of the real estate market have made them rather unattractive for serious investors.
The housing finance sector growth has slowed down in the last one year due to liquidity crunch. Housing finance companies (HFC) lowered their disbursements and raised portfolio sale through securitisation for repayment of debt obligations. The market has started to differentiate between strong and not-so-strong HFCs. There is no constraint whatsoever as far as liquidity is concerned for strong HFCs. There is plenty of liquidity. There is a complete eagerness from banks, mutual funds, insurance companies to lend stronger HFCs. The not-so-strong HFCs are facing liquidity issues. On the liability side, as long as risk aversion continues, the small, mid-sized HFCs will have to look at co-originating loans and selling loans, keeping spread in the middle.
The Centre and the Reserve Bank of India (RBI) have taken several steps to ease liquidity. The RBI has relaxed the minimum holding period for which the asset needs to stay on the book before it is eligible for securitisation. Due to this change, additional assets worth Rs 40,000 crore have become eligible for selling down.❞
-- Venkatesh Kannappan
Managing Director & CEO, Aham Housing Finance.
Real estate Outlook :
❝India's faltering GDP growth rate q-o-q prompted the government to dole out innumerable measures after taking charge in its second term. From creation of AIF of Rs 25,000 crore for last-mile funding of stalled realty projects to deep cuts in corporate taxes to further relaxation in FDI norms for single-brand retail, the government has been on a roll. Despite this, 2019 failed to see a perceptible positive impact of these announced measures. At the most, it boosted the confidence of India Inc. and the affected sectors. However, 2020 looks promising; especially the second-half! ❞
-- Anuj Puri
Chairman, Anarock Consultancy
NBFC :
❝The trifecta of constrained funding access with rising borrowing costs, re-calibration and de-risking of loan book and a slowing economy is set to beat down growth in assets under management (AUM) of non-banks, comprising non-banking finance companies and housing finance companies to a decadal low of 6-8 per cent this fiscal, as compared to ~15 per cent last fiscal. ❞
--- CRISIL
Conclusion
The equity markets have climbed the wall of worries in the past and it seems most likely that they will do so in 2020 with flair. The current valuation is on the higher side of its historical average and it does look like there is a little room for error for corporate India this season. Higher valuations and a lack of support from the GDP data indicate markets may face some headwinds in 2020. However, we firmly believe that the expansionary measures taken by the government will usher in higher growth trajectory in the coming quarters and that may augur well for several sectors thus, creating demand for stocks from various sectors.
The impact of the economic slowdown has been much broader than expected while the sectors and stocks that have done well have become narrower. We may be at the bottom of economic cycle and believe most of the negatives are factored in by the markets.
While the Sensex may remain resilient in 2020, there is a very good probability that markets may witness mid-caps and small-caps rallying better than the large-caps. The focus for investors should be on mid-caps and small-caps, as one may find maximum compounders from this space in 2020. A lot of leveraged positions in the mid-cap and small-cap space have been unwound. While the choppiness in mid-caps and small-caps cannot be ruled out, there is a good probability that the smart money will flow into mid-caps and small-caps in 2020.
PSU stocks will remain in limelight throughout 2020 due to divestment process. The impressive performance of IPOs in 2019 may continue in 2020, so investors should not miss the opportunity to participate in quality issues. With earning expected to show an uptick, we think the Sensex should reach 46,000 by December 31, 2020!
Based on our positive biew on the markets we have identified a portfolio of stocks that we believe should outperform markets. Please refer next page to view our preferred stocks for 2020.
Bajaj Finance Limited which is a Non-Banking Finance Company (NBFC) is a subsidiary of Bajaj Finserv. It is primarily engaged in lending and allied activities focussing on consumer lending.
Overall for the NBFC sector, Q2FY20 seemed to be rather slower. With the company’s strategy to create a balance mix of wholesale and retail borrowings, its consolidated borrowings were around Rs.1,19,539 crore in a mix of 38:47:15 between banks, money markets and deposits as of September 30, 2019. For Q2FY20, Assets under Management (AUM) grew by 38 per cent YoY to Rs.1,35,533 crore from Rs.98,013 for Q2FY19. Subsequently, the Net Interest Income (NII) increased by 48 per cent and was reported at Rs.3,999 in Q2FY20 as compared to Rs.2,708 in Q2FY19. On consolidated basis, in Q2FY20, Bajaj Finance gained a net profit of Rs.1,506 crore, clocking a growth of 63 per cent as compared to the net profit of Rs.923 crore gained in Q2FY19. On the annual basis, in FY19, AUM grew by 41 per cent to Rs.1,15,888 crore from Rs.82,422 crore. The company reported a 46 per cent increase in NII to be Rs.11,878 crore in FY19 as compared to Rs.8,143 crore in FY18. Bajaj Finance gained a net profit of Rs.3,995 crore in FY19 improving significantly by 60 per cent from Rs.2,496 gained in FY18.
The company continues to focus on its growth, profitability and sustainability. In future, the company strives to strengthen its business model to boost its demand. The AUM growth is expected to be led by rural revival, backed up by the monsoons and latest governmental reforms toward consumption and liquidity. Also, the gains arising from the recently announced and implemented corporate tax rate cuts to end-borrowers, in order to be more competitive in certain segments, will support growth.
Can Fin Homes Ltd. offers a housing loan to individuals, builders or developers and also offers loans against property. As part of the housing loan, it offers loan under various schemes related to construction or purchasing of properties.
During the quarter, the loan book of Can Fin Homes surpassed the mark of Rs.19,600 crore with a clientele base of 1.55 lakh, while the Loan book depicted a growth by 16 per cent YoY which is driven by 13.8 per cent rise in loans to salaried and professional client as well as an increase of 20.8 per cent in the self-employed and non-professional segment. The net interest earned by the bank in Q2FY20 came in at Rs.493.98 crore as against Rs.414.19 crore in Q2FY19, clocking a growth of 19.26 per cent. Even when there is a slowdown in housing credit landscape with a sluggish growth in the company’s key market of Karnataka, the company gained a net profit of Rs.97.62 crore in Q2FY20, thereby increasing 19.71 per cent YoY. On the annual front, the net interest earned by the bank in FY19 came in at Rs.1,699.54 crore as against Rs.1,490.58 crore in FY18, clocking a growth of 14.01 per cent. Disbursement during FY19 amounted to Rs.5,479 crore accompanied with growth in the loan book. Negative impacts from previous period tax expenses and increased CSR expenditure affected the PAT with a comparatively lower growth by 3.68 per cent to Rs.296.73 crore in FY19 from Rs.286.19 crore in FY18.
By March 2022, Can Fin Homes aims to reach the loan book size of Rs.40,000 crore (CAGR of 26 per cent) on the basis of high asset quality, transparency and best-ethical practices as well as prudent risk management practices. With a stable environment in the NBFC sector, the growth outlook for Can Fin Homes looks positive.
Dixon Technologies (India) Limited is a design-focussed products and solutions company engaged in manufacturing products in the consumer durables, lighting and mobile phones markets in India.
On a consolidated basis for Q2FY20, Dixon Technologies posted an increase of 89.75 per cent in the net sales to Rs.1,401.98 crore from Rs.738.85 crore in Q2FY19. In Q2FY20, its PBT grew by 96.07 per cent to Rs.48.35 crore from Rs.24.66 crore in Q2FY19. Net profit jumped by 161.96 per cent in the latest quarter to Rs.43.04 crore compared to Rs.16.43 crore reported in Q2FY19.
On an annual consolidated basis, the company saw a steady growth of 4.59 per cent in net sales to Rs.2,984.45 crore in FY19 from Rs.2,853.39 crore reported in FY18. The PBT reported by the company for the FY19 was Rs.93.81 crore, an increase of 6.34 per cent from Rs.88.22 crore reported in the last fiscal year. Net profit grew by 4.04 per cent in FY19 to Rs.63.35 crore as compared to Rs.60.89 crore reported in the previous fiscal year.
Currently, there has been substantially lower penetration of consumer electronics and appliances in India, compared to other countries. This has led many to believe that the domestic industry will grow at a much faster pace, thus contributing towards the company's growth. Improvement in infrastructure especially electrification in rural regions and massive wave of urbanisation among other factors can also be considered as a growth driver.The company puts strong focus on backward integration manufacturing, capacity expansion across key segments based on a strong order book. Along with this, new customer additions are expected to drive revenue and profit growth going forward.
GMM Pfaudler Ltd (GMMPL), an Indian subsidiary of Pfaudler Inc. of USA is a company that manufactures glass-lined equipment, storage vessels, alloy steel equipment and other special-purpose machinery used by the pharmaceutical companies , fine chemicals, dyes and agricultural chemical industries.
Looking at the quarterly trends on a consolidated basis, GMM reported the net sales of Rs.153.05 crore in Q2FY20, an increase of 27.75 per cent from Rs.119.8 crore reported in Q2FY19. The PBT in the latest fiscal quarter saw a growth of 25.05, growing to Rs.24.76 crore from Rs.19.8 crore in Q2FY19. Net profit jumped by 51.20 per cent in Q2FY20 to Rs.20.79 crore as against Rs.13.75 crore reported in Q2FY19.
On an annual basis, net sales increased by 22.31 per cent in FY19 to Rs.502.64 crore from Rs.410.96 crore reported in the previous fiscal year. PBT for the FY19 was Rs.73.27 crore, up by 20.81 per cent from Rs.60.65 crore reported in the previous fiscal year. Similarly, net profit grew by 18.54 per cent and was reported at Rs.50.58 crore in FY19 as compared to Rs.42.67 crore reported in FY18.
GMM Pfaudler has a competitive edge in the Glass Lining equipment (GL) industry owing to robust order backlog, high entry barriers, market leadership position, strong brand name, and sticky clientele. It has been able to pass on the price increase taken in the GL sector onto the customers owing to the high demand, showcasing its bargaining power in the market.
In the short term, increase in the domestic company's producing API and key materials in-house will help GMM in maintaining strong revenue and profit growth for the future.
Gujarat Gas Limited which was formerly known as GSPC Distribution Networks Limited is engaged in the natural gas business in the state of Gujarat. It mainly carries business operations related to city gas distribution which also includes sale, purchase, supply, distribution, transport and trading in natural gas, Compressed Natural Gas (CNG), Liquefied Natural Gas (LNG), etc.
Looking at the quarterly trends on a consolidated basis, the company reported an increase of 27.58 per cent in net sales to Rs.2,569.25 crore for Q2FY20, as compared to the net sales of Rs.2,013.83 crore in Q2FY19. For Q2FY20, the PBDT doubled to reach Rs.341.55 crore from Rs.130.12 crore of Q2FY19.
Also, in Q2FY20, the company posted a significant rise in the net profit gained of Rs.517.25 crore from Rs.41.07 crore gained in Q2FY19.
Looking at the annual trends, the net sales increased by 25.60 per cent to Rs.7.962.48 crore for FY19 from Rs.6.339.35 crore in FY18. The PBDT of the company increased by 20.05 per cent to Rs.882.14 crore for FY19, as compared to Rs.734.84 crore of FY18. In FY19, the company’s net profit registered a growth by 43.19 per cent to Rs.416.96 crore from Rs.291.19 crore gained in FY18.
The company intends to increase its focus on the growth of CNG and domestic PNG segment. An increase in both the CNG as well as industrial PNG demand will drive the company’s volume growth. Gujarat Gas supplies natural gas to ceramic makers in Morbi thus tile demand revival is expected to positively impact the company’s revenue margins. Also, development of the CNG ecosystem is a growth driver for Gujarat Gas.
KNR Constructions Limited is an India-based holding company. The company is a multi-domain infrastructure project development company that undertakes Engineering, Procurement and Construction (EPC) contracts, as well as Build-Operate-Transfer (BOT) projects across various sectors, such as construction and maintenance of roads, highways, flyovers and bridges.
On a consolidated basis, the quarterly trends show the net sales for Q2FY20 reaching Rs.587.07 crore, a rise of 30.34 per cent from the net sales of Rs.450.42 crore in Q2FY19. The PBT was reported to be Rs.94.69 for Q2FY20, a jump of 163.47 per cent from PBT of Rs.35.94 crore reported in Q2FY19. Similarly, the net profit reported for the most recent quarter was Rs.74.64 crore, an increase of 109.55 per cent from Rs.35.62 crore reported in Q2FY18.
On an annual consolidated basis, net sales saw an increase of 10.72 per cent in FY19 to Rs.2,291.5 crore, from Rs.2,069.59 crore reported in the previous fiscal year. PBT reported for the FY19 was Rs.289.27 crore, increasing 26.78 per cent from Rs.228.16 crore reported in FY18. Net profit for FY19 grew by 14.38 per cent to Rs.261.8 crore as compared to Rs.228.88 crore reported in the previous fiscal year.
The Company is currently focussing more in the states of Maharashtra, Tamil Nadu and Karnataka for new projects. It is expecting an additional order in the second half of FY20, mainly led by at least 1 Hybrid Annuity Model (HAM) project. A strong order book, along with the proven record of healthy execution of existing projects indicates a strong future growth in the company's top line.
Kotak Mahindra Bank Limited (KMB) mainly provide services in treasury and corporate centre, which includes dealing in debt, equity, money market, forex market, derivatives, investments and primary dealership of government securities and Balance Sheet Management Unit (BMU).
On the financial front, the net interest earned by the bank in the Q2FY20 increased by 15.49 per cent to Rs.8,418.75 crore as against Rs.7,289.46 crore in Q2FY19. Total income in Q2FY20 was Rs.12,542.99 crore, an increase by 15.83 per cent from Rs.10,829.08 crore in Q2FY19. The net profit rose by 37.76 per cent to Rs.2,407.25 crore in Q2FY20 as against Rs.1,747.37 crore in Q2FY19. For Q2FY20, the GNPA ratio was 2.17 per cent as compared to 1.91 per cent in Q2FY19. The CRAR ratio in Q2FY20 was 18.15 per cent and in Q2FY19, it was 17.04 per cent.
On the annual front, the net interest earned for FY19 came in at Rs.29,934.76 crore, an increase of 19.11 per cent from Rs.25,131.08 crore in FY18. The total income earned in FY19 was Rs.45,903.36 crore, an increase of 18.54 per cent from Rs.38,723.67 crore earned in FY18. The net profit in FY19 rose by 16.18 per cent to reach Rs.7,204.13 crore as against Rs.6,200.97 in FY18. KMB reported a GNPA ratio of 1.94 per cent for FY19 and 1.95 per cent for FY18. In FY19, the CRAR ratio was 17.45 per cent, whereas in FY18, it was 18.22 per cent.
With KMB’s focus on CASA and retail deposits, its cost of funds is in line with its peers enabling the bank to gain profitable market share while de-risking its balance sheet. The bank has stringent underwriting standards and targets risk-adjusted returns on lending which drives growth. KMB has also demonstrated its ability to initiate timely damage control measures thus, proving its stability.
Power Grid Corporation of India Limited is an electric power transmission company. The company's business segments include transmission, telecom and consultancy. The transmission segment includes Extra High Voltage and High Voltage (EHV/HV) networks and grid management. It also owns EHV Alternating Current (AC) and HV Direct Current (HVDC) sub-stations. The consultancy segment includes the planning, designing, engineering, load dispatching, procurement management, operation and maintenance, financing and project management.
Looking at the quarterly trends on a consolidated basis, Power Grid reported net sales of Rs.9,051.29 crore in Q2FY20, an increase of 6.01 per cent from Rs.8,538.07 crore reported in Q2FY19. The PBT in the latest quarter saw a growth of 16.61 per cent to Rs.3,004.61 crore from Rs.25,76.68 crore reported in Q2FY19. Net profit for Q2FY20 was reported to be Rs.2,571.1 crore, up by 9.49 per cent from Rs.2,348.25 crore reported in the same quarter of the previous fiscal year. On an annual basis, net sales increased by 17.04 per cent in FY19 to Rs.35,059.12 crore from Rs.29,953.62 crore reported in the previous fiscal year.
PBT for the FY19 was 11,674.04 crore, an increase of 14.60 per cent from FY18 when it was reported at Rs.10,186.56 crore. Similarly, net profit increased by 22.60 per cent to Rs.10,033.52 crore in FY19 from Rs.8,204 crore in the previous fiscal year.
The outlook of the company looks promising with continued investment in renewable energy and an increase in power demand driving the need for transmission works. Moreover, PWGR's already robust project pipeline and recent project orders will highlight its competitive position in the market to take on future projects.
The Phoenix Mills Limited is a company engaged in the construction of buildings carried out on own-account basis or on a fee or contract basis. It operates through two segments: Property & Related Services, and Hospitality Services. The company engages in the development and operation of malls and other real estate properties, specialising the ownership, managing and development of retail-led mixed use properties.
On a consolidated basis for Q2FY20, Pheonix mills posted an increase of 2.55 per cent in net sales to Rs.415.06 crore from Rs.404.73 crore in Q2FY19. Operating profit grew by 34.04 per cent in Q2FY20 to Rs.99.27 crore from Rs.74.06 crore reported in Q2FY19. For the second quarter of the current fiscal year, the company posted a net profit of Rs.64.26 crore, up by 14.34 percent from Rs.56.2 crore posted in net profit for Q2FY19. On an annual consolidated front, Phoenix Mill's net sales stood at Rs.1,981.56 crore in FY19, up by 22.33 per cent for a net sale figure of Rs.1,619.85 crore reported in the previous fiscal year. Expanding significantly, it reported an operating profit of Rs.571.56 crore in FY19, up by 98.88 per cent from Rs.287.39 crore reported in FY18. The company's net profit rose by a massive 118.18 per cent to Rs.461.68 crore in FY19, as against Rs.211.6 crore it had reported in the previous fiscal year.
Plans of scaling up its operations are already underway with 5 retail assets with a combined total of 4.90 mn sq.ft and 2 commercial assets aggregating to 0.96mn sq. ft. under construction, which are expected to become operational between FY20 and FY23. Furthermore, continued strong growth in rental revenue of operational malls and growth in office space rentals indicate that the company's revenue and profits should continue their upward trend.
Sonata Software Limited is an Information Technology (IT) servicing and solutions company. It provides solutions for travel, retail and distribution, and software product companies by integrating technologies, such as Omni-channel commerce, mobility, analytics, cloud and enterprise resource planning. Its operations include software development, technical services and product marketing.
On a consolidated basis, Sonata Software's net sales for Q2FY20 stood at Rs.703.07 crore, a hike of 18.55 per cent from the net sales of Rs.593.07 crore reported in Q2FY19. The company's PBT grew by 13.55 per cent in Q2FY20 to Rs.98.62 crore from Rs.86.85 crore reported in Q2FY19. Net profit grew by 16.81 per cent to Rs.72.24 crore in Q2FY20 as compared to Rs.62.18 crore in the same quarter for the previous fiscal year.
Looking at the annual consolidated trends, the net sales were reported at Rs.2,960.9 crore for FY19, an increase of 20.66 per cent from Rs.2453.94 crore reported for FY18. The PBT expanded by 34.23 per cent to Rs.349.49 crore in FY19 from Rs.260.37 crore in FY18. The company reported net profit of Rs.248.88 crore in FY19, increasing 29.54 per cent from Rs.192.13 crore reported in the previous fiscal year.
Sonata Software has differentiated its business model, focussing investment in Intellectual Property (IP) led solutions and enhancing its Microsoft 365 capabilities through selective acquisitions. Intellectual Property (IP) led business along with digital are expected to gain momentum in the coming years led by platform and alliance led strategy and are expected to drive future revenue growth in the company.
