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- Budget Hangover Continues
Budget Hangover Continues
Yash Upadhyaya
July 24, 2024
Tale of the Tape
Hola Amigos!
Nifty (-0.3%) and Sensex (-0.4%) ended in the red. Midcaps (+1%) and Smallcaps (+1.8%) bounced back after yesterday’s fall. The advance-decline ratio was in favour of the bulls (3:2).
Most sectors ended in the green. Oil & Gas (+1.7%), Real Estate (+0.8%) and Pharma (+0.7%) saw the most buying. Banks (-0.9%), NBFCs (-0.6%) and FMCG (-0.5%) witnessed some selling pressure.
Bye, bye indexation benefits! Are real estate stocks still a good bet? Read our top story to find out more.
Bajaj Finance (-2%) fell after its Q1 raised some red signals. Meanwhile, United Spirits (+5%) hit a lifetime high. More details below.
Avanti Feeds, Alembic Pharmaceuticals and Dabur saw big movements today. Check out their charts below to find out why.
ITC was in focus after Jefferies upgraded the stock; the brokerage sees a +18% upside from current levels.
NTPC (+3%) hit a record high after the FM said it would set up an 800 MW JV with Bharat Heavy Electricals for supercritical thermal power plants.
Global Health (+3%) will acquire land in Mumbai worth Rs 125 cr to build a 500+ bed hospital.
Welspun Living (+2%) will buy back 1.26 cr shares at a price of Rs 220 p/sh; a +24% premium from current levels.
Results reaction. Thyrocare (+20%) jumped after quarterly revenue hit a 2-year-high. Go Fashion rallied +11% intraday after a decent overall Q1 show.
Here are the closing prints:
Nifty | 24,414 | -0.3% |
Sensex | 80,149 | -0.4% |
Bank Nifty | 51,317 | -0.9% |
Spotlight
SEBI RA Spotlight
LIC to the moon! After giving a +30% return in less than 3 months Priyank believes the stock is setting the stage for even bigger targets from current levels. 1,050 to 1,100 is a good accumulation zone, according to him, for a potential target of +1,500 by Dec-end. That’s a solid +35% upside from Wednesday’s closing price.
FYI - Priyank Sharma is a seasoned finance professional with an MBA in Finance and a SEBI registration as a Research Analyst. He brings over 8 years of experience in financial markets, specializing in equity derivatives, cash trading, and commodities. Follow him for more amazing insights and add $LICI.NSE to your watchlist and track the latest from the community.
Budget
Breaking Down The “Indexation” Puzzle
Real estate stocks traded positive after the GOI lobbed a tax grenade its way in the Budget. ICYMI - while the LTCG tax was reduced from 20% to 12.5%, the inflation indexation benefit was yanked away. The sector has seen an insane post-Covid boom, both for stock investors and land/flat buyers. How will the new changes shake things up? Here’s what you need to know.
1) Winners and losers: With indexation gone, it makes sense to think that if you sell an older flat or piece of land, you will end up paying more tax! But returns are an equally important factor. So here’s a general rule of thumb. You are WORSE off if you have a shorter investment (<5 years) and a lower rate of return (<10% p.a.). On the flip side, the new tax rules are either neutral or slightly beneficial if you have a longer holding period (>10 years) and better returns (>10% p.a.).
2) Small net: If you invest in real estate stocks, the MOST important thing to note is that this won’t affect all buyers. This doesn’t impact people who sell flats and re-invest the profits in another piece of land. FYI - this is what most people were doing to save LTCG anyway. It also doesn’t hurt luxury apartment buyers whose indexation benefits were capped last year. ICYMI - this segment is what propped up company earnings after Covid-19. There’s also the geographic spread to consider. Markets like Bangalore, Pune or Hyderabad which are buyer-driven should be hurt less. On the other hand, markets like Mumbai or NCR where there’s investor speculation could see some negative impact.
3) Sops: Finally, the GOI allocated Rs 2.2 lakh crore for urban housing in the budget. CLSA says this should help 10 million urban households and is a positive trigger for mid-income players like Prestige Estates (+5%), Sobha (+4%) and Sunteck (+2%)!
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Earnings
Earnings Roundup
Bajaj Finance Q1 results mostly met Street estimates. The company added 4.4 million new customers. New loans were up +10% YoY (10.97 million versus 9.94 million), while Assets under Management jumped 31% to hit 3.54 lakh crore.
If user metrics look OK, why did the stock slip -2%? Well, there were a couple of warning signs. Bajaj’s ‘loan loss & provisions’ --- basically money needed to cover potential defaults -- soared nearly +70% YoY to Rs 1,685 cr; indicating system wide stress. Credit costs also remained an issue due to high interest rates. FYI - the company’s finance costs were up +39%. All of this led to net interest margins falling by 23 bps QoQ.
Here is its report card:
Net Profit: Rs 3,912 cr, +14% YoY (vs Est: Rs 3,974 cr)
Net Interest Income: Rs 8,365 cr; +25% YoY (vs est: Rs 8,445 cr)
GNPA: 0.86% vs 0.85% QoQ
NNPA: 0.38% vs 0.37% QoQ
The company has had a rough year, with the RBI ban and then growth concerns. But this is what happens when you command premium valuations; you gotta justify them. FYI - Bernstein Research downgraded the stock, cutting its target price to Rs 5,700 p/sh (vs Rs 6,800 p/sh earlier) citing slow retail credit growth & high cost of funds!
Bajaj Finance is -10% YTD.
United Spirits gained +5% after its Q1 results beat Street estimates. Volumes grew +4% YoY, led by a higher share of premium products. FYI - net sales of high margin ‘prestige and above category’ were up +10% YoY. Strict cost control measures also resulted in a decent bump in operating margins!
FYI - market sentiment was also helped by the company announcing two new deals; the first being a 15% stake in a non-alcoholic beverage maker and the other a 25% stake in a specialty cold brew coffee liquor firm!
Here are its key Q1 stats:
Revenue: Rs 2,352 cr; +8% YoY (vs Est: Rs 2335 cr)
EBITDA: Rs 458 cr; +19% YoY (vs Est: Rs 405 cr)
EBITDA Margin: 19.5% vs 17.7% YoY
Net Profit: Rs 299 cr; +26% YoY (vs Est: Rs 238 crore)
United Spirits is +7% YTD
What’s your view on the stock? |
Charts
Chartbusters
Here are three companies that saw big movements today!
1) Avanti Feeds rocketed to the moon after the FM announced that the GOI would facilitate financing for shrimp farming, processing and exports! FYI - the budget says that specific support would be given to set up a network of ‘nucleus breeding centres’. This should help the industry hit its export target of Rs 1 lakh cr, which sent all shrimp stocks soaring today!
2) Alembic Pharma was up +8% after securing final USFDA approval for its new antipsychotic drug. Fun fact: the market for such drugs hit $18 billion in 2023 and is projected to grow to $37 billion by 2032. A big money-maker for Alembic if all things work out well.
3) Dabur fell -5% intraday after getting a downgrade from Goldman Sachs. FYI - experts thought the Budget would boost rural consumption, but there was hardly any stimulus. That doesn’t mean things are bad right now, in fact, the rural economy slowly bounced back, helped by a good monsoon. A case of mismatched expectations perhaps.
Check out their charts below:
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