Where to Invest in 2023

The year 2022 was a unique one where both bears and bulls had their chances. With BSE Sensex threatening to close in negative returns for CY22 after several years of delivering positive returns, investors are adopting a cautious stance on markets for CY23. Yogesh Supekar discusses the outlook for the equity markets for 2023 while the DSIJ research team recommends top 10 picks for 2023 that should outperform the markets 

The BSE Sensex has corrected by almost 5 per cent from its all-time high levels. The valuations are definitely more attractive today than they were at the beginning of December when the market hit all-time highs. However, the new development on the corona virus front is something that has triggered a technical correction in the markets. The Indian markets any which ways was seen outperforming the global peers for too long and a minor adjustment was not surprising for most investors. Optimistic investors and traders believe that post price correction and some time correction the markets would be able to deliver a smart sharp recovery. Meanwhile, cautious investors are preparing for a long consolidation phase in the markets. So what lies ahead for market in 2023?  [EasyDNNnews:PaidContentStart]

Equity Market Outlook for 2023

It may sound repetitive but the fact is that India is the fastest growing economy amongst the big-sized economies and in all likelihood it will continue to remain the fastest growing economy in the world. The Indian markets remain in good shape and even if the Indian equities do not outperform the developed markets as they did in 2022, chances are bright that the Indian markets will perform in line with the global markets. There is a remote chance that the BSE Sensex will underperform the global markets in 2023. 

It goes without saying that the equity markets remained volatile in 2022 and inflation was the main concern that impacted the market returns in CY 2022. In 2022 we saw precious metals soar and outperform equities. Gold prices in India have jumped by more than 10 per cent in CY 2022 so far even as silver prices have soared by more than 15 per cent in the similar period. This trend of precious metals outperforming the equity markets may continue in 2023 as well even though the margin may reduce and it may be interesting to see which asset class will deliver better returns in 2023.

Commenting on the current scenario, long-term investor Amol Pokharna says, “The year 2022 was a very good year for the commodity traders. There was good movement in agriculture commodities as well. It was not only the precious metals that did well in 2022. Jeera, for example, in case you have not noticed is up by almost 90 per cent in 2022 alone. I did make some money in the equity markets as well but the trend in commodities was much more clear and less volatile in 2022. I expect some uptrend in precious metals in 2023 given the tough geopolitical environment.” The outlook for the commodity markets, and especially gold, continues to be bullish. The prices of agricultural commodities are also set to inch higher as the demand keeps on improving. 

According to Vikram Kasat, Head (Advisory), Prabhudas Lilladher (P) Ltd., “The Indian rice market is rallying given the current favourable market scenario. This season the total rice procurement was up by 11 per cent. The demand is rising while global production is expected to be lower. Rice prices in the global market have increased by USD 25 a tonne, originating from Thailand and USD 610 for shipments from Vietnam and Pakistan over the past three weeks. Indian rice prices are the most competitive in the global market. The competitiveness is also despite the central government imposing curbs on the grain’s shipments. Due to this environment, stocks like KRBL and LT Foods will be in focus as these companies stand to gain from the rise in prices of rice.” 

Given the robust demand scenario and steep commodity prices, commodity-based stocks may remain in the limelight in 2023. The companies involved in jewellery-making and gold-related businesses may grab investors’ attention in 2023. We have seen Kalyan Jewellers and Titan outperforming the BSE Sensex in 2022. One should not be surprised if a similar trend continues in 2023. As the capex is happening on ground and private expenditure is also picking up, the capital goods sector will be in focus in 2023. Infrastructure and banking sectors have all the required green shoots and hence will remain on investors’ radar. 

Another sector that may catch attention is the rapid financialisation of savings in India. As such, the financial sector and AMCs across the world may see their book size grow in 2023. The investment market in India is set to grow in 2023 after achieving some major milestones in 2022. According to Puneet Maheshwari, Director, Upstox, “The year 2022 has been a significant one for India’s investment market wherein we witnessed some remarkable milestones. A landmark occurrence was the total number of demat accounts in India crossing the 10 crore mark this year, clearly depicting increasing awareness and interest in equity participation.” “A major driver of this trend can be attributed to the new-age investing platforms with strong technology infrastructure that have given investing access to users across the nation. This year India has seen modest growth. In July to September there were six major economies, namely, Malaysia, Greece, the Philippines, Israel, Colombia and Argentina with growth higher than 6.3 per cent which India achieved in the April to September quarter of this fiscal,” he adds. Stock broking companies can be in focus in 2023 due to such growing investment markets. 

DSIJ Portfolio Performance

The DSIJ portfolio of 2022 managed to deliver 3.01 per cent returns since the recommendation while BSE Sensex and BSE 500 indices remained flat on YTD basis. We were able to book early profits in Bharat Electronics and Mahindra & Mahindra. The portfolio performance was impacted negatively by disappointing performance of IT stocks in 2022. HCL technologies and Tech Mahindra, even though quality IT stocks delivered negative performance owing to the downtrend in the IT sector. Infact IT sectoral index is down by 24 per cent on YTD basis and is the worst performing index in 2022. Banking index on the other hand was one of the top performing indexes in 2022. In line with the sectoral trend SBI managed to outperform the markets. SBI was one of the top performing stocks of the portfolio.

I N T E R V I E W 

Amit Gupta, Fund Manager PMS, ICICI Securities 

"Banks, capital goods, power, chemicals and telecom should remain the top sectoral themes for 2023" 

What is your outlook on equity markets for 2023?

India’s valuation premium to MSCI EM historically was 40 per cent, now it is at 86 per cent. On a one-year basis, India is looking costlier in comparison to EMs while on a 3-5 year basis due to higher EPS growth it looks one of the cheapest. Nifty was overvalued in October 2021 with 23x valuations and it became fairly valued in November 2022 near 18,000 when it was valued at 19x due to 17 per cent EPS growth in the last one year. The last five-year average PE is close to 18.5 which makes the market attractive at 18,000 though our premium over emerging markets is high due to their underperformance. India’s weight in the MSCI index has increased from 7.7 per cent in March 2020 to 14.1 per cent in September 2022. With the dollar seeming to be topping out in the near term, the FII flows in emerging markets should benefit India. In addition, lower inflation in India versus the US would also keep our bond yields more subdued, thus keeping the outperformance of Indian equity markets intact. 

What are the key risks facing equity markets next year and where do you see the outperformance coming from?

A major risk is from China regarding the resurgence of the pandemic. If it is controlled and doesn’t have any major impact on India, then the current upward trajectory of the markets should continue. Banks, capital goods, power, chemicals and telecom should remain the top sectoral themes for 2023. 

Consumer discretionary will remain the evergreen theme in India but only in selected categories like ACs, SUVs, etc. Some recovery may be seen in select IT and pharmaceutical largecaps but doesn’t seem to be sustainable. Lower NPAs and higher credit growth would continue to drive banks’ earnings. Reforms in the power space and a move towards renewable energy would lead to higher growth. Higher tariff rates would be the key driver for ARPUs in telecom and higher government expenditure and private capex would drive earnings in capital goods companies. Custom synthesis players and manufacturers of fluorochemicals would be the key beneficiaries in the chemicals sector. 

According to you, what was the key highlight in 2022 for equity investors?

The key highlight is the credit growth in the banking system which has seen sharp upward movement from 5 per cent in 2021 to 17 per cent in 2022. Gross NPAs in the banking system have declined from 11.2 per cent in 2018 to 5.5 per cent in 2022. The credit demand is coming from all segments like retail, SME and corporates. The corporates are coming due to increased working capital requirement. PSU banks are high on corporate lending and have been well-capitalised which can keep them afloat in this move. On the domestic front, major triggers like higher government expenditure, pickup in private capex and resurgence of the housing market have been the major driving forces for the new credit cycle.

Perspectives for 2023

So what are the FIIs and DIIs saying for 2023? Credit Suisse — Credit Suisse upgraded its stance on India to ‘benchmark’ from underweight for 2023 despite the concerns of inflated valuations. The bank expects the GDP growth to surpass the consensus estimate of 6 per cent. 

Goldman Sachs — Timothy Moe, the chief Asia Pacific equity strategist at Goldman Sachs, believes that it will be tough for India to outperform global peers in 2023 as valuations of Indian stocks remain elevated amid rising interest rate hikes by the central bank. He also stated that the longer-term strategic prospects for India and for the Indian stock market are actually among the best, if not the best in Asia. Goldman Sachs Group expects Nifty to reach 20,500 by the end of 2023 led by midteen corporate earnings’ growth. The Goldman Sachs India 2023 Equity Outlook report says that India continues to offer superior profit growth compared to the rest of the region. 

Kotak Securities — While the World Bank expects India to grow at 6.9 per cent in FY23 and 6.6 per cent in FY24, Kotak Securities believes India’s GDP will grow at 6.8 per cent in FY23 and 6 per cent in FY24. 

Axis Securities — B Gopkumar sees the consumer space witnessing a strong revival and expects housing and banking to be crucial sectors in 2023 due to their improved economic outlook and pick-up in credit growth. He also expects affordable housing to get a further push in the upcoming Union Budget. 

JP Morgan — According to JP Morgan, they foresee fundamentals to likely deteriorate as financial conditions continue to tighten and monetary policies to turn even more restrictive. They expect the economy to enter into a mild recession, with the labour market contracting and the unemployment rate rising to around 5 per cent.
 

Institutional Activity in 2022

The institutions have been busy in 2022 as volatility increased this year. The month-on-month data in the table below indicates how FIIs have been consistent sellers and the DIIs have been absorbing the liquidity. 

FIIs were seen buying in financial and capital goods sector. 

Conclusion 

One can expect much of 2023 to be about ‘recession fears’. Whether we will face recession in 2023 will impact heavily on the policymakers’ minds and that in turn may impact the market moods. We as investors need to keep a close eye on the economic data, especially in the developed markets. Beyond the recession fear the focus in 2023 will be on the geopolitical situation and in its current state the geopolitical situation promotes deglobalisation of sorts. It will therefore be interesting to watch how this reverse globalisation takes shape in 2023. More interesting would be to find out how India reacts and seizes this one-time opportunity to bring global industries to Indian shores and make India the manufacturing hub of the world. 

There is no doubt that the manufacturing sector will be in the limelight in 2023. In 2023 the defence sector will also be in focus as the chorus grows for ‘Make in India’. Humongous opportunities exist for the Indian defence sector and the defence companies may stand to gain in the coming years. It will be on investors’ radar in the coming year. The stellar run in PSU companies can be expected to slow down a bit even though the momentum in several PSU companies can be expected to be strong. We should not be surprised if the PSU banks continue to surprise us on the positive side in 2023. The year 2022 has been about inflation and war. The volatility caused by these two major factors dictated the market moods in 2022. The year 2023 may be of recession expectations and impact on earnings due to higher cost of finance. 

The inflationary environment which led to increase in interest rates will start showing its impact in the first half of 2023 and hence the earnings’ report will be watched closely in the coming quarters for the impact of higher interest rates on the earnings. The momentum in 2023 will clearly stay with India and it will once again prove to be the fastest growing economy with strong leadership and focus on development. The huge infrastructure projects to be announced and ongoing are expected to create jobs and opportunities for the private sector in India. The healthy demand in Indian economy will keep corporates profitable in 2023 as well. 

Export-oriented companies may face turbulence owing to the geopolitical situation which allows ‘culture first, then economy’ mindset. Investors may benefit by investing in companies that focus on the domestic economy. Given the volatility in the markets, defensives can be accumulated in 2023 as well. High dividend-yielding stocks will also prove to be handy in 2023 as high dividends always tend to support the valuations – an example being a stock like REC. To benefit from the broader trends that may impact the markets in 2023, we are recommending our top 10 picks for the year 2023 as follows. 

Action Construction Equipment 

CMP (₹ ): 268.75
BSE CODE : 532762
Face Value (₹ ) : 2
Mcap Full ( ₹  Cr.) : 3,200.36 

Action Construction Equipment Ltd is a Small-Cap company with a market cap of ₹ 3483.18 crore. The company is engaged in the business of manufacturing and marketing hydraulic mobile cranes, mobile tower cranes, material handling equipment like forklifts, road construction equipment like backhoe loaders, compactors, motor graders and agriculture equipment. The company has eight manufacturing sites in Faridabad, Haryana with research and development in the Faridabad district and has a manufacturing capacity of 12000 construction equipment and 9000 tractors annually. 

Taking into consideration the financial performance of the company on a consolidated quarterly basis, its net sales and other operating income rose by 36.28 per cent to ₹ 491.83 crore in Q2FY23 as compared to ₹ 360.90 crore in Q2FY22. Operating profit stood at ₹ 51 crore in Q2FY23 as compared to an operating profit of ₹ 36.23 crore in Q2FY22, up by 40.77 per cent. The net profit came in at ₹ 33.86 crore as compared to a net profit of ₹ 22.91 crore in Q2FY21, surging by 47.8 per cent. On an annual basis, net sales and other operating income soared by 33.79 per cent from ₹ 1227.15 crore in FY21 to ₹ 1629.58 crore in FY22. The operating profit was seen rising by 23.96 per cent in FY22 at ₹ 166.46 crore as compared to ₹ 134.29 crore in FY21. Furthermore, net profit soared by 31.59 per cent from ₹ 79.79 crore in FY21 to ₹ 105 crore in FY22.

India’s Capital Goods manufacturing industry serves as a strong base for its engagement across sectors. Turnover of the capital goods industry is expected to increase to USD 115.17 billion by 2025. Action Construction Equipment Ltd has paid ₹ 0.60 per share as a final dividend to its shareholders in the financial year 2022-2023 with a current dividend yield of 0.22 per cent. The shareholding pattern for ACE is where the maximum number of shares are held by promoters of the company by 66.76 per cent. In September 2022, FIIs decreased their shareholding to 4.86 per cent and DIIs increased their shareholding to 4.56 per cent. Hence, we recommend BUY.
 

Asian Paints

CMP (₹ ): 3,056.75
BSE CODE : 500820
Face Value (₹ ) : 1
Mcap Full ( ₹  Cr.) : 2,93,202.78 

The Asian Paints Group, which was established in 1942, is India’s largest paint manufacturer. It produces a variety of paints for both decorative and industrial purposes, in addition to wall coverings, water proofing, adhesives and services. Additionally, it offers organic composite solvents, thinners, surfacing preparation and varnishes. Asian Paints presently operates in 15 countries over four geographical regions – Asia, the Middle East, the South Pacific and Africa – under eight corporate brands. Taking into account the company’s financial performance, on a consolidated basis it reported a growth of 19.19 per cent from ₹ 7,096.01 crore registered in Q2FY22, recording total revenue of ₹ 8,457.57 crore in Q2FY23. 

It has reported strong EBITDA growth of 35.74 per cent. Comparing the net profit for the second quarter of FY23 to the same quarter last year, it soared 31.39 per cent from ₹ 594.97 crore to ₹ 781.74 crore. In terms of annual performance, the net profit of the company slightly fell 3.93 per cent to ₹ 3,053.24 crore from ₹ 3,178.15 crore the previous year. 

Net sales surged 34.03 per cent to ₹ 29,101.28 crore as against ₹ 21,712.79 crore during the previous year ended on March 2021. Currently, the company has a market value of ₹ 293,200 crore. Its promoters own a sizeable 52.63 per cent share in the company.

In comparison to its competitors, the company has a very high PE ratio and the stock price is also quite expensive. Even yet, it continues to draw investors in thanks to its ability to pay dividends with high ROE and ROCE, which reflect robust profitability. Some of the company’s strengths include its leadership in the industry and vast market share with a global presence. Given the company’s efficient management, sound financial health and opportunities in the pipeline, the stock, which is currently down by nearly 15 per cent from its 52-week high, is likely to rise in the future. Hence, we recommend BUY.
 

Bank of India 

CMP (₹ ): 77.45
BSE CODE : 532149
Face Value (₹ ) : 10
Mcap Full ( ₹  Cr.) : 31,782.1 

Bank of India is an Indian-based public sector undertaking (PSU) bank. Through its subsidiaries, the bank provides corporate, commercial, personal, retail, rural, and development banking. The group's services are also aimed at corporate and mediumsized businesses, as well as upscale retail clients. Treasury operations, wholesale banking, and retail banking are also divisions of the bank. Treasury operations include all of the investment portfolios, which include government and other securities, money market operations, and foreign exchange operations. 

The interest earned for Q2FY23 stood at ₹ 11,545.36 crore as compared to interest earned in Q2FY22 which stood at ₹ 9,580.23 crore. The company recorded a net profit of ₹ 752.18 crore in Q2FY23 as compared to a net profit of ₹ 1,072.08 crore recorded in Q2FY22. On the annual front, the performance of interest earned has gone down to ₹ 38,280.92 crore for FY22 from FY21 interest gained reported at ₹ 40,853.83 crore. In FY22, the company reported a decrease in total income by 3.06 per cent to ₹ 46,291.46 crore, compared to a total income of ₹ 47,750.38 crore in FY21. The net profit was increased by 54.91 per cent to ₹ 3,406.12 crore in FY22 as compared to a net profit of ₹ 2,198.78 crore for FY21. In financial year 2022-2023 the bank has provided a dividend yield of 2.5 per cent. 

The banking sector performed well in terms of earnings in the financial year 2022-2023. During the previous two to three months, the PSU bank index had an outstanding performance, rising by 1500 points. The bank continues to focus on improving income streams with control of costs. The Bank of India recently increased fixed deposit interest rates for deposits under ₹ 2 crore. The new interest rates went into effect on December 16, 2022. Regular customers can now earn interest rates ranging from 3 per cent to 6.75 per cent, while senior citizens can earn up to 7.25 per cent.

Hence, we recommend BUY.
 

Cholamandalam Investment and Finance Company 

CMP (₹ ): 698.35
BSE CODE : 511243  
Face Value (₹ ) : 2
Mcap Full ( ₹  Cr.) : 57,382.46 

As the financial services division of the Murugappa Group, Cholamandalam Investment and Finance Company was established in 1978. One of India’s top non-banking finance corporations, it specialises in lending against real estate, home loans and vehicle financing. Additionally, the business offers stock broking and investor advisory services. With more than 1,100 branches operating throughout India, the business manages assets worth more than ₹ 91,800 crore. Over 20.9 lakh satisfied clients spread across the country make up its growing clientele. On a consolidated basis it reported a growth of 20.84 per cent from ₹ 2,496.66 crore registered in Q2FY22, recording total revenue of ₹ 3,016.84 crore in Q2FY23. 

It has reported EBITDA growth of 8.81 per cent. Comparing the net profit for the second quarter of FY23 to the same quarter last year, it declined 7.19 per cent from ₹ 610.16 crore to ₹ 566.28 crore. In terms of annual performance, the net profit skyrocketed by 41.9 per cent to ₹ 2,158.89 crore from ₹ 1,521.39 crore the previous year. Also, net sales surged slightly by 5.86 per cent to ₹ 10,140.75 crore as against ₹ 9,579.40 crore during the previous year ended on March 2021. At the time of writing this report, the company had a market value of ₹ 57,500 crore. Its promoters owned 51.50 per cent share in the company. 

Institutional investors have total stake of 40.61 per cent, out of which foreign portfolio investors (FPIs) owned 18.68 per cent. Non- institutional investors have total stake of 7.89 per cent. Investors are drawn to the company’s strengths, which include a low PE compared to its competitors, a high return on equity (ROE) and a sizeable promoter ownership stake.

After the pandemic period, the company’s profitability margins and earnings per share (EPS) have been rising steadily. Given the current growth in the banking and financial services’ sector and the company’s potential to soar higher, we recommend BUY.
 

Cochin Shipyard 

CMP (₹ ): 497.55
BSE CODE : 540678
Face Value (₹ ) : 10
Mcap Full ( ₹  Cr.) : 6,544.79 

In 1972, Cochin Shipyard was incorporated as a wholly owned Government of India corporation. The company has established itself as a leader in the Indian shipbuilding and ship repair industry over the past three decades. It is a major player in the construction of all types of ships, their repairs and refits, as well as their periodic upgrades and life extensions. While exporting 45 ships to diverse clients outside India, it has built and repaired some of the largest ships for its prestigious customers throughout the world. 

Taking into account the company’s financial performance, on a consolidated basis it reported a decline of 1.86 per cent from ₹ 696.14 crore registered in Q2FY22, recording total revenue of ₹ 683.18 crore in Q2FY23. Comparing the net profit for the second quarter of FY23 to the same quarter last year, it declined 14.1 per cent from ₹ 131.31 crore to ₹ 112.80 crore. In terms of annual performance, the net profit of company fell 7.34 per cent to ₹ 563.96 crore from ₹ 608.66 crore the previous year. Net sales surged 13.2 per cent to ₹ 3,190.95 crore as against ₹ 2,818.90 crore during the previous year ended on March 2021.

Currently, the company has a market value of ₹ 6,750 crore. Its promoters owned a sizeable 72.86 per cent share in the company. Among its competitors, the stock has the lowest price-to-earnings (PE) ratio. Despite a drop in profit margins, the company has been able to boost sales. The company’s strong profitability is reflected in high levels of ROE and ROCE. The government firmly supports the company, which has a leading position in the industry. Capacity expansion for ship-repair activities to help get more orders in this segment, which is also a higher margin business. CSL has secured shipbuilding orders from internationally renowned companies from Europe and the Middle East in the recent past. The stock underwent a correction and dropped considerably during the previous month, although it was still up almost 60 per cent over the past six months. Given the promising outlook for the industry and the stock’s prior 52-week high, it has the potential to soar in the near future. Hence, we recommend BUY.
 

Federal Bank 

CMP (₹ ): 122.65
BSE CODE : 500469
Face Value (₹ ) : 2
Mcap Full ( ₹  Cr.) : 25,918.50 

Federal Bank Limited was founded in 1931 as Travancore Federal Bank Limited. The Bank provides a wide range of financial services, including merchant banking, international banking and foreign exchange, leasing facilities, money markets, and agricultural advances. The bank also lends to high-tech agricultural projects and government-sponsored schemes. Throughout India, the bank has branches and regional offices. 

The consolidated quarterly financials of the company revealed that interest earned grew by 19.42 per cent from ₹ 3,566.27 crore in Q2FY22 to ₹ 4,258.93 crore in Q2FY23. Total income increased by 20.34 per cent, from ₹ 4060.75 crore in Q2FY22 to ₹ 4886.58 crore in Q2FY23. Net profit for Q2FY23 came in at ₹ 740.91 crore for Q2FY22, up by 51.83 per cent from ₹ 487.99 crore in Q2FY23. On the annual front, the company reported an increase of 0.47 per cent in interest earned, from ₹ 14,314.08 crore in FY21 to ₹ 14,381.53 crore in FY22. Total income surged 1.33 per cent from ₹ 16285.73 crore in FY21 to ₹ 16502.47 crore in FY22. Net profit for FY22 stood at ₹ 1,965.40 crore as against ₹ 1,647.20 crore in FY21, registering a growth of 19.32 per cent. On trailing 12-month compounded growth is increasing to 40 per cent. 

The net profit figures of private sector banks soared in the Q2FY23 quarter, on the back of higher net interest income (NII) and robust loan growth. India Ratings has also raised its credit growth expectation in FY23 to 13 per cent from 10 per cent in FY22. The stock has provided more than 40 per cent returns year to date with a CAGR of 51 per cent. The company currently has a more than 12 lakh customers base serving them across 1336 outlets & 1355 ATMs in India. In the financial year 2023-2024, the company has a target to open a few more outlets & ATMs and increase the net profit by more than 30 per cent.

Hence, we recommend BUY.
 

HG Infra Engineering 

CMP (₹ ): 541.50
BSE CODE : 541019  
Face Value (₹ ) : 10
Mcap Full ( ₹  Cr.) : 3,529.02 

The corporation works on civil construction projects such as grading and extending runways, building railroads and developing land. They have recently expanded their business to include water pipeline construction with a distinguished clientele made up of both public and commercial entities such as the NHAI, Ministry of Road Transport and Highways, Tata Projects, IRB and Adani Group, to name a few. The company is also registered as a grade AA contractor with PWD, Rajasthan and in the SS category with Military Engineering Services. It is pre-qualified to submit independent bids for large EPC and HAM projects (MES). 

For the second quarter that ended on September 31, 2022, the company reported net sales of ₹ 795.70 crore, giving a rise of 1.34 per cent over the net sales reported during the same time last year. Likewise, the operating profit also saw a rise of 5.8 per cent in the recent quarter. The operating profit climbed to ₹ 165.17 crore from ₹ 156.11 crore in the first quarter of FY21. The company also reported decent net profit of ₹ 81.69 crore as compared to net profit of ₹ 74.51 crore in the previous year same quarter, presenting a rise of 9.64 per cent. Besides, the company’s annual financials reveal that its net sales surged to ₹ 3,751.43 crore in FY22 from ₹ 2,609.72 crore in FY21.

This indicates an increase of 43.75 per cent. The operating profit zoomed by 46.24 per cent to ₹ 717.42 crore in FY22 from ₹ 490.59 crore in FY21. Similarly, the net profit for the year FY22 stood at ₹ 380.04 crore, delivering an exceptional return of 60.59 per cent from ₹ 236.65 crore reported in the past year. The company invested ₹ 149 crores in Capex in H1FY23 and further Capex of ₹ 45 Cr would be incurred in H2FY23. The company has an order book of ₹ 10,852 crore, implying revenue visibility for the next 2-3 years. With a robust bidding pipeline in EPC and HAM projects and expected healthy order inflow, HGIEL is well-placed to capture growth opportunities in the sector. It expects orders to pick up in H2FY23. Hence, we recommend BUY.
 

NOCIL LTD. 

CMP (₹ ): 497.55
BSE CODE : 500730
Face Value (₹ ) : 10
Mcap Full ( ₹  Cr.) : 3,756.76 

NOCIL began manufacturing rubber chemicals in 1975. The largest manufacturer of rubber chemicals in India, NOCIL is located in a designated chemicals’ zone about 40 km from Mumbai. It uses cutting-edge technology to produce Pilflex anti-degradants, Pilnox antioxidants, Pilcure accelerators, post-vulcanization stabilisers and Pilgard prevulcanisation inhibitors. The company’s Quarterly Results show positive returns. It has delivered net sales of ₹ 389.23 crore as compared to ₹ 375.16 crore, giving a rise of 3.75 per cent. Similarly, the operating profit stood at ₹ 62.86 crore in Q2FY23 as compared to ₹ 51.65 crore in Q2FY22. 

This indicates a confident movement of 21.7 per cent. As a result, the net profit for the quarter ending in Q2FY23 increased by 19.14 percent and stood at ₹ 35.73 crore as compared to ₹ 29.99 crore in the same period last year. On the annual front, the net sales showed a stellar increase of 69.93 per cent and stood at ₹ 1,571.31 crore in FY22 as opposed to ₹ 924.66 crore in FY21. The operating profit for FY22 was at ₹ 290.05 crore as opposed to FY21 which was ₹ 145.53 crore. The net profit zoomed to ₹ 176.11 crore from ₹ 88.41 crore, showing an astronomical gain of 99.20 per cent.

The company is a one-stop shop with wide range to suit market requirements. It is working on new products where there is an opportunity to localise manufacturing, benefiting from the China Plus One strategy. NOCIL currently has 5-6 per cent of the global market share in the rubber chemicals space and looks to grow this to a double-digit figure. The management believes that the worst is over in the export market and it expects to consolidate and perform better from here. Ongoing challenges in Europe present a longer-term opportunity (Europe+1), Europe has around 10 per cent global production share, while European companies have nearly 15 per cent global market share. The China Plus One strategy is gaining traction every year with Europe Plus One expected to play out in the medium term. Hence, we recommend BUY.
 

Siyaram Silk Mills 

CMP (₹ ): 510.30
BSE CODE : 503811
Face Value (₹ ) : 2
Mcap Full ( ₹  Cr.) : 2,391.78 

Siyaram Silk Mills Ltd. (SSM) is a subsidiary of the Siyaram Poddar Group, which also includes Balkrishna Industries and Govind Rubber, all of which are publicly traded on the Bombay Stock Exchange. SSM has a market valuation of ₹ 936.75 crore and is a small-cap company. Fabrics, readymade men’s and women’s clothing, home furnishings and yarns are all produced and sold by Siyaram Silk Mills. It is affiliated with more than 1 lakh retail locations and operates more than 170 branded showrooms all throughout the country. The business’ annualised net profit for the three months ending March 2014 was ₹ 20.2 crore. Over 4 million metres of cloth are manufactured each month by the company, totalling over 60 million metres annually. 

Analysing the performance of the company during the recent quarter, the net sales rocketed by 32.35 per cent in Q2FY23 and were recorded at ₹ 635.76 crore as compared to ₹ 480.37 crore reported in the last quarter. The operating profit also zoomed by 41.25 per cent and was recorded at ₹ 128.72 crore in Q2FY23 as against ₹ 91.13 crore in Q2FY22. Subsequently, the quarterly net profit for Q2FY23 stood at ₹ 80.13 crore, up 51.5 per cent from Q2FY22 net profit of ₹ 52.89 crore. On an annual basis, net sales increased by 74.89 per cent to ₹ 1,904.96 crore in FY22 from ₹ 1,089.25 crore in FY21. Likewise, the operating profit jumped to ₹ 367.53 crore in FY22 from ₹ 94.60 crore in FY21.

The net profit recorded was the best in the segment in FY22 and stood at ₹ 216.23 crore as compared to net profit of ₹ 3.58 crore reported in FY22. The company has gradually expanded its fabric and garment capacities and simultaneously managed to reduce the debt and equity from 1x in FY12 to 0.3x in FY22. SSML is expected to benefit from a demand revival post the reduction or removal of restrictions on trade activities owing to its strong brand portfolio, pan-India distribution network and presence across various price points. Enhanced capital efficiency (low leverage, controlled working capital cycle) and better profitability are expected to result in SSML reporting healthy ROCE of nearly 22 per cent by FY24E. Hence, we recommend BUY. 
 

TATA CONSULTANCY SERVICES 

CMP (₹ ): 3228.35
BSE CODE : 532540
Face Value (₹ ) : 1
Mcap Full ( ₹  Cr.) : 11,92,503.14 

Tata Consultancy Services (TCS), a subsidiary of Tata Sons Ltd, is a global IT services organisation. It provides a comprehensive range of services to its clients in diverse industries. The company caters to finance and banking, insurance, telecommunication, transportation, retail, manufacturing, pharmaceutical and utility industries. Revenue of TCS for the quarter ending September 2022 grew significantly by 18.0 per cent on yearly basis to ₹ 55,309 crore. It was mainly due to better gains across verticals. In terms of margins, operating profit margin expanded 90 bps sequentially to 24.0 per cent, however, down by 160 bps on yearly basis. It was primarily supported by operational efficiencies, improved realisations and favourable currency changes. The PAT margin stood at 18.9 per cent. Despite the economic headwinds in the quarter, TCS rebounded on strong demand for its services. The growth was primarily driven by higher demand for cloud platforms and continued customer interest in technology services as reflected in deal wins. We expect earnings to rise further, supported by operating efficiencies and cost optimisation. 

Some forward indicators are comforting such as deal bookings (USD 8.1 billion total contract value in Q2FY23) and continuity in fresher on-boarding, which was 35K in H1. Importantly, the recent drag on the margin reversed and the margin trajectory is expected to improve further even if we see slowdown in revenue growth. Management commentary was optimistic including project ramp-up as per schedule, deal closures being on track, but some sporadic instances of delay in decisionmaking owing to the macro (predominantly Europe). Company’s superior execution metrics, full stack portfolio and industry drivers will support growth going forward.

Shares of TCS are discounting last twelve month’s earnings by 30 times, which has come significantly down from 40 times and is currently at its long term average. This looks attractive looking at the return ratios of greater than 40 per cent and dividend yield of 1.5 per cent.

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