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Market Outlook: 18,500 key hurdle for Nifty in expiry week, market to remain stock specific

ICICI Securities 19 May 2023

  • Global markets outperformed Nifty last week, in an attempt to catch up. Nifty trading at 18,100, down 1%, Nifty small cap inched up by 0.3%.
  • Nikkei (4.8% up) and Nasdaq (3.7% up) were top performing markets while German Dax (up 1.6%) is within 0.5% of life highs( hit in CY21).
  • We maintain the stance of consolidation at index level in expiry week with 18,500 being key resistance as profit taking is visible. Key support at 17,800.
  • Small caps to find favor: Nifty small cap index is still ~16% away from highs. However, many small caps which are not part of small cap index are coming out of large consolidations. We believe money making opportunities are plenty beyond index and one should focus on quality names.
  • Bank Nifty (43,640): Index hit new high last week after eight consecutive weeks of gains (15% up) Round of profit booking after sharp rally is on the cards.

US Debt Ceiling: Standoff should resolve sooner

  • The concerns related to US debt ceiling are nothing new to the share markets and we have seen these in the past as well.
  • We believe the same should happen this time as well and we should see some resolution before 1st June.
  • Even looking at US markets, NASDAQ has moved to 1 years highs, S&P is moving to 7 month highs while US VIX is near its 1 year lows. This suggests that markets are not perceiving any major concerns regarding US debt ceiling.
  • However, if it blows like we have seen in 2011, then perhaps we might look at some short-term instability in the market. Last time, US credit rating was downgraded because of the same and markets have declined by more than 10%.
  • However, we do not expect repeat of the same. Despite the ongoing noise, inflows of almost 3 billion were seen from FIIs in May which is the highest monthly figure since November last year and highest among the EMs in the month.

Strong tendering & awarding activity seen in the beginning of the fiscal 2024

  • The Government of India has increased capital expenditure outlay for FY24E at Rs 10 lakh crore.
  • In April 2023, projects tenders worth issued of Rs 1.07 lakh crores vis a vis Rs 81,517 crores in April 2022, an increase of 32% on YoY basis. In Mar 2023, tenders were issued of Rs 1.11 lakh crores.
  • Given April being a soft month compared to March, which is seasonally the strongest month, the continued momentum seen in the tendering activity is a big positive.
  • In terms of awarding projects in April 2023, Rs 47,794 crore were awarded vis a vis Rs 26,095 crores in April 2022 which grew by 83% on YoY basis. FY23 saw the highest ever awarding at Rs 7.11 lakh crores vs Rs 3.74 lakh crores in FY22.

Every April month tendering and awarding activity for last 5 years

Yearly tendering and awarding activity 

Front line PSU banks deliver best ever performances

SBI Net profit for FY23 crosses Rs 50,000 crores and stands at Rs 50,232 crores witnessing a growth of 58.58% YoY while Bank of Baroda reported highest quarterly net profit at Rs 4,775 crore.

SBI earnings were driven by by ~16% YoY growth in advances while BOB delivered credit growth of 18.5% YoY.

SBI margin improved 7 bps at 3.37%, highest seen in past several years, led to 8 year high RoA of 1.23%. BOB delivered and 16 bps QoQ improvement in margins.

GNPA and NNPA lowest in last 7-8 years at 2.78% and 0.67% for SBI while asset quality was its best with GNPA and NNPA lowest in last 6-7 years at 3.79% and 0.9% for BOB.

Continued healthy growth at 12-13%, lower slippages and recoveries from stressed assets to sustain RoA at 1-1.1% in FY24E for SBI. For BOB sustenance of healthy credit growth (guidance - 12-14%), steady margin and lower credit cost at ~50 bps to keep RoA at ~1% ahead.

Buy rating on both. SBI (Target price – Rs 725) - Fantastic quarter with earnings momentum surging. Bank of Baroda (Target Price – Rs 220) – Strong all-round performance; outlook remains intact.

PSU downstream companies refining margins on a high

  • PSUs such as IOC have traditionally underperformed w.r.t. Singapore refining margins, however, since last 10 quarters (from Q3FY21), refining margins are on an uptrend.
  • IOC adjusted refining margins arrived at US$15.3 per barrel vs expectation of US$10. Other PSU refiners such as Chennai Petro/MRPL/HPCL too achieved refining margins at a premium to Singapore GRMs at US$12.5/15.1/14 per barrel respectively.
  • The reason is two pronged: a) Sanctions on Russian petroleum product exports (although later getting absorbed by nations Turkey and Morocco) b) higher imports of discounted Russian Ural grade crude by India (42% in April 23).
  • Chennai Petro on its concall has confirmed purchasing Russian crude oil at US$5-8 discount to market price in recent times, which led to its strong operating performance.
  • For FY24E and FY25E, we conservatively expect a US$2-3 premium for both IOC and HPCL at US$11 and US$10 per barrel respectively.

Top Picks

Indian Oil Corporation (CMP: Rs 86, Target Price: Rs 105, Upside: 22%, P/E Multiple: 7) - In Q1FY24-TD, GRMs are likely to be subdued but expected to be countered by strong marketing margins. However, we expect GRMs to improve in H2FY24 with expected rise in demand. IOC also plans to increase its refining capacity from current 80 MMT to 107 MMTPA by 2024-25. Higher dividend payout (7-8% yield).

HPCL: (CMP: Rs 256, Target Price: 310, Upside: 22%, P/E Multiple: 5) - HPCL’s refining capacity is expected to increase from 8.3 MMTPA to 15 MMTPA. HPCL has the highest Marketing: Refining capacity mix, which would work favorably in current environment of higher marketing margins. Higher dividend payout (5-6% yield).

Fluorochemicals, CRAMS businesses stand out in a tough Q4 environment, agrochemical suffer

  • Our chemicals universe registered YoY revenues and EBITDA growth of 15% and 17% respectively, mainly driven by Fluorochemicals (45% YoY revenues growth) and CRAMs (23% YoY revenues growth) even as players from Agrochem space witnessed muted 1% YoY revenues growth.
  • Fluorochemicals - All players in Fluorochemicals and Fluoropolymers (45% YoY revenues growth) space reported stronger than expected sales growth and margin improvement. All the three players SRF, Navin and GFL reported YoY sales growth of 34%, 70% and 56% respectively with significant margin expansion.
  • CRAMS - Companies (23% YoY revenues growth) with significant specialty chemicals CRAMs business presence continued to benefit from China 1 and Europe 1 strategies in the post Covid era. Companies like Navin, PI Industries, Astec reported CRAMs growth of 131%, 15% and 11% respectively.
  • On the flip side, agrochemical players (Both domestic and exports) had a tough Q4 largely laid by sluggish demand in the domestic market and international market along with higher inventory piling up at customers' end. Companies like Astec Lifesciences witnessed YoY de-growth of 22% in the domestic markets and a de-growth of 66% in the international markets.
  • Top Picks - SRF (TP:  Rs 3,000) -Sustained efforts and opportunity-focused capex to ride on the increasing opportunities for specialty fluorochemicals across key industries.

Tata Motors – well-rounded performance

  • Tata Motors Q4 was an all-round performance with both Indian and overseas business reporting healthy operating margins.
  • On the Indian operations front, its CV business reporting 10.1% margin (up ~170 bps QoQ, highest ever in recent past) and PV business reporting margins of 7.3% (up ~40 bps QoQ).
  • On the overseas operations front, JLR reported 14.6% margins up 270 bps QoQ.
  • The company reported positive PAT on full year basis for FY23 at Rs 2,414 crore, after a gap of 4 years and consequently declared dividend of Rs 2/share after a gap of nearly 7 years.
  • Going forward, key positive surprise was management commentary on net debt reduction on JLR front to in FY24 vs current ~£3 billion in FY23 with robust FCF generation of >£2 billion amidst accelerated capex plans on the EV front amounting to ~£3 billion.
  • Further management guided about wholesale of ~4 lakhs units on JLR front for FY24E & retained its guidance of cash positive balance sheet by FY25 and double-digit EBIT margin by FY26.
  • We now expect healthy 20.1% revenue CAGR at Tata Motors over FY23-25E driven by 10% total volume CAGR. We now value Tata Motors at Rs 650 on SOTP basis (8x, 2x FY25E EV/EBITDA on India, JLR; Rs 150 value to Indian EV business, stake in Tata Technologies).

ITC – Cigarette volume grows, FMCG margin in top gear

  • ITC witnessed revenue growth of 6.6% to Rs 17,506.1 led by 14.2% growth in cigarette business & 19.4% growth in FMCG business. Hotels business saw 100% growth.
  • The 14.2% growth in cigarettes business was led by ~12% volume growth. Market share gains from illicit, contraband cigarettes & stable taxation helped.
  • FMCG business growth of 19.4% was led by ~8% volume growth. Strong growth in Atta (led by high pricing growth), Biscuits, Noodles, Juices & Snacks.
  • FMCG business saw 352 bps operating margin improvement (EBITDA) to 13.3%.
  • We estimate cigarettes volume growth of 8% & 5% in FY24E & FY25E respectively. The company is expected to grow operating margins by 100-150 bps every year.
  • We remain positive on long term growth outlook for the company & maintain our BUY recommendation with the target price on stock to Rs 500 /share.

Hidden Gem

Siyaram Silk Mills (Target Price: Rs 710, MCap:  Rs 2,708 crore; Upside: 23%)

  • Siyaram Silk Mills (SSML) is of India’s leading fabric manufacturer and retailer largely catering to Tier II and Tier III towns. Siyaram’s brand portfolio consists of reputed brands like Siyaram (flagship brand), Oxemberg, MSD and J Hampstead.
  • Over the last decade, the company has gradually expanded its fabric and garment capacities and simultaneously managed to reduce the debt/equity from 1.0x in FY12 to 0.2x in FY23.
  • The number of EBOs with sale or return (SoR) has reduced from 83 in FY19 to only four in FY23. With focus on becoming asset light, the company has reduced company owned company operated (COCO) exclusive brand outlets (EBO) from 31 in FY19 to nil in FY23.
  • The company continues to be selective with its product strategy and has increased focus on fast running stock keeping units (SKUs) with a target to maintain lower inventory level and reduce working capital cycle.
  • We expect the company to report revenue and earning CAGR of 13% and 15% over FY23 to FY25E. Enhanced capital efficiency (low leverage, controlled working capital cycle) and better profitability are expected to result in SSML maintaining healthy RoCE of ~23% by FY25E.
  • The company trades at an attractive PE multiple of 8.1x FY25 EPS. We value SSML at Rs 710 i.e. ~10x FY25E EPS.
Source: ICICIdirect Research

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Wipro Buyback: Opportunity for Retail Investors

ICICI Securities 19 May 2023

Wipro has announced a share buyback program amounting to Rs 12,000 crore. The good news for investors is that, unlike other buyback programs in the recent past, it will be through a tender route - which means investors can tender their shares at the buyback price. 

The buyback presents an opportunity for investors to make money. We will explore the opportunity in Wipro buyback in this article.

The Buyback details

The Wipro board has approved a buyback of 26.96 crore shares which translates to 4.91% of total equity shares on a proportionate basis. The company will buy back shares at Rs 445 per share from investors. 

As per SEBI guidelines, 15% of the buyback (in this case, Rs 1,800 crore) has to be reserved for retail investors. Investors holding Wipro shares with an investment below Rs 2 lakh will fall under the retail category. 

The company has not announced the record date, timelines, and other offer details yet.

Promoters holdings and share performance

Wipro promoters hold 72.92%, and Foreign investors have a 9.78% stake in Wipro as of 31 March 2023. As per reports, promoters are also expected to participate in the buyback. 

Like other IT giants, Wipro's share price has also struggled in the last one year - the stock price has fallen nearly 15% in the time frame. In 2023, the share is down 2.63%. On 18 May 2023, Wipro shares closed at Rs 383 per share.

The obvious - Buy Low, Tender High

We have shared two crucial numbers above - the current market price (CMP)* of Rs 383 and the tender price of Rs 445. It makes all the sense to buy at the current levels and tender at Rs 445 and make double-digit profits. 

However, in the real world, the equations are never so simple. The equation gets complicated as there is another parameter called Acceptance Ratio. Let us understand this term in detail first.

The acceptance ratio in a share buyback process refers to the proportion of shares tendered or offered by shareholders that the company is willing to accept for repurchase. When a company announces a share buyback program, it sets certain parameters for the buyback, including the maximum number of shares it intends to repurchase and any conditions or restrictions associated with the process. The acceptance ratio is typically expressed as a percentage or a ratio indicating the percentage of tendered shares that will be accepted for repurchase.

For example, a company announces a buyback program, and the acceptance ratio is 50%. It means that for every share tendered by a shareholder, the company will accept and repurchase only 50% of those shares. The remaining 50% would be returned to the shareholder, who would retain ownership of those shares.

So if you think, you will buy 100 shares and sell - the problem is not all 100 will get accepted. Post the buyback (when balance shares are returned to you), the price of the shares you hold may fall, and you may suffer losses on them.

The likely scenario for Wipro buyback

As a retail investor, the maximum number of shares you can hold at the current CMP is 449 (445*449 < 2 lakh). Now look at the below table - we have highlighted different cases (the profits) based on the acceptance percentage. 



Let us understand the above table by assuming the acceptance ratio comes to be 60%. 

  • You buy shares at Rs 383, and your total investment would be 449*383 = 1,71,967
  • Acceptance ratio 60%, so no. of shares accepted = 269
  • The amount you will receive on shares accepted would be 269*445 = Rs 1,19,705
  • Shares returned back = 180
  • The cost of remaining shares is 1,71,967 - 1,19,883 = Rs 52,084
  • Effective per share price of a remaining share is 52,084/180 = Rs 290 (approx)

We have arrived at a breakeven price of Rs 290 per share based on the assumption of a 60% acceptance ratio. However, if the acceptance ratio changes to 35%, the breakeven comes at Rs 350 per share. 

The final part of the equation is to understand the breakeven price. If you look at the amount you received from the tender offer and shares in your DEMAT account, if the shares price of Wipro falls to Rs 290, then you don't make any money in the trade (breakeven). Assuming the price is Rs 360 post buyback, you will make a profit of Rs (360-290)*180 = Rs 12,600

Trade summary

Let us sum up the trade for you with a 60% acceptance ratio:

  • Amount invested: Rs 1,71,967
  • The amount received from buyback: Rs 1,19,883
  • The amount received by selling the remaining 180@360 = Rs 64,800
  • Net profit: 1,19,883 64,800 - 1,71,705 = Rs 12,678 (slight diff from above as breakeven price is 289.35, 290 was taken for easy calculation.

Our expectation

We do believe that the acceptance ratio is likely to be north of 60%. In the last 4 buybacks, retail acceptance has been in the range of 50-100%, with 100% three times. Do note, it is a high-risk trade in which the acceptance ratio plays a crucial role.

*As on 18th May

Source: ICICIdirect Research

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MSCI’s move and the impact on HDFC and HDFC Bank stocks

ICICI Securities 17 May 2023

Earlier this month, we had the unusual scenario of the usually stable stocks of financial services giant twins – HDFC and HDFC Bank – falling 5-6% on a single day. The trigger? The much sought-after index maker MSCI had decided to give a lower weightage to the merged entity (HDFC Bank) once it is included in the benchmark, after the merger is completed formally.

From a situation where there were expectations of substantial capital inflows into HDFC Bank after the index inclusion, the scenario actually changed to one of possible selling in the stock to maintain the weightage in the MSCI index.

Much of these aspects are better understood if we take stock of how the index is constructed in the first place, get a grip on free float marketization, and make sense of key issues such as foreign room and adjustment factor.

Here’s more on the inclusion of HDFC Bank in the MSCI index and the stock reactions.

Free float market capitalization

Before getting into the index addition part, a brief background would be in order.

HDFC and HDFC Bank decided to merge in April 2022. The ratio of merger was set at 42 shares of HDFC Bank for 25 shares of HDFC. The transaction is expected to be completed by July 2023.

Presently (as of May 16), HDFC has a market capitalization of Rs 5.08 lakh crore and a free float market capitalization of Rs 5.03 lakh crore. HDFC Bank has a market capitalization of Rs 9.35 lakh crore and a free float market capitalization of Rs Rs 7.39 lakh crore. The combined market free float market capitalization is thus around Rs 12.43 lakh crore (7.39 5.03).

Free float market capitalization is calculated by multiplying the market price of a stock with the number of shares (excluding the shareholding of promoters). This gives a clear picture on the liquidity available for a stock in the market.

Now, MSCI indices use the free float market capitalization method to assign weightage to stocks.

Index inclusion and weightage

Now, HDFC is already present in the MSCI India and MSCI Emerging Markets indices. As of April 28, 2023, the index factsheets show that HDFC had a weightage of 6.61% in MSCI India and was the second largest constituent in the index behind Reliance Industries (10.16% weightage). In the MSCI Emerging Markets Index, it carried a weightage of 0.91%. Since HDFC Bank is a listed entity in the Indian markets, after the merger, the combined entity (HDFC Bank) would be included in the MSCI indices as a matter of continuity and HDFC would obviously be removed since it would not exist as a separate entity anymore.

The concept of foreign room becomes important here.

MSCI indices require considerable room for foreign investors (FIIs and FPIs) in buying stocks for them to be included in benchmarks. Foreign room is the portion of the shareholding available for foreign investors in companies.

One of the reasons for HDFC Bank not being included in the MSCI indices pre-merger was that there was no foreign room available for investments, whereas HDFC had the requisite headroom. The RBI limits the total foreign investments in banks at 74% for them to be treated as Indian banks.

Now, for the merged HDFC-HDFC Bank entity is expected to have a foreign room of a little over 17% according to analysts quoted in the media, going by the March 2023 shareholding pattern of the two companies.

Adjustment factor hurts merged entity

The next critical aspect to note is the adjustment factor that MSCI uses for the inclusion of stocks in its indices.

Ideally, after the merger of HDFC Bank and HDFC, the total weightage of the combined entity should have been higher in the MSCI index, going by the total free float capitalization mentioned earlier.

Had the MSCI’s index construction methodology used an adjustment factor of 1, the MSCI India index would have had HDFC Bank (merged) with a weightage of around 13%.

But the index aggregator instead released a statement earlier this month stating that it would use an adjustment factor of only 0.5. The analysis of the reasons cited – estimated post-even foreign room and risk of reverse turnover – indicates that flows into the stock after merger could be volatile and there may be a situation where the foreign room may fall below 15%.

Also mentioned in the methodology document of MSCI was the fact that an adjustment factor of 0.5 can be given for cases where the foreign room is between 15% and 25% based on its reviews.

MSCI reviews weightages and adjustment factors once every quarter.

Thus, HDFC Bank (merged entity) would get only half the weightage in the index compared to the full proportion expected earlier.

According to analysts quoted in the media, an adjustment factor of 0.5 would mean that the merged entity would have lower would have only 6.5% weightage in the index, lower than even the 6.74% weightage that HDFC currently enjoys.

Outflows expected as against inflows

Had the adjustment factor of 1 been applied as expected earlier and the weightage for HDFC Bank (merged) and a weightage of around 13% accorded to it in MSCI India, there were expectations of $3 billion in inflows into the merged entity’s counter.

Since MSCI indices are used by a host of FIIs, FPIs, and mutual funds to participate in various global markets including India, this move was keenly followed.

Now that the weightage of HDFC Bank would only be 6.5%, the situation meant that there would be net outflows of $150-200 million, and limited possibility of any incremental inflows.

This move from the MSCI surprised the markets and as a result there was heavy selling pressure in both HDFC and HDFC Bank, as both stocks fell around 5-6% on May 5. They did recover in the week after, but still trade below their prices recorded on May 4.

For passive investors, there was one key lesson here. Even though passive investing involves mechanically buying the index, there are risks beyond their control and are completely unanticipated such as an index provider changing weights all of a sudden.

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Market Outlook: Nifty to consolidate as earnings season peters out, all eyes on inflation print

ICICI Securities 12 May 2023

  • Indian equity markets maintained outperformance against global peers. Nifty, Midcap and small cap indices each gained 1%.
  • All major developed markets lost 0.7% for the week except Nasdaq which gained 1% post lower US CPI numbers and earnings.
  • Industrial metals like copper and Aluminum were down 5% each for the week amid weak Chinese data.
  • Nifty approaches overbought readings after seven-week rally. Expect healthy consolidation in 18,000-18,500 range amid stock specific action as most large cap earnings are behind us.
  • Midcaps to stay in focus: Nifty Midcap index is within 2% of its all-time highs. We expect the index to eventually challenge life highs over next few weeks.
  • Strong fund flow: continued FII inflows in May (18k Cr so far) is a key supporting factor. 

Declining Gas prices making gas stocks attractive

  • Domestic natural gas prices have been revised downwards by US$2 per mmbtu to US$6.5 (as recommended by KP committee) which led to the entire $2 cost savings being largely passed on customers (Rs 6-8 per kg).
  • In previous quarters, LNG had reached to multi-year highs (above US$45 levels – led by limited demand supplies and higher spot LNG demand from the Europe) amid falling crude oil prices and thus presented a unique challenge to gas importing nations like India. Spot LNG prices have come down now to US$10-11 per mmbtu. The fall in prices have been due to lower LNG demand post winters, higher inventory levels in Europe and ramp up in US LNG supplies.
  • The situation led by loss of market share for Industrial gas suppliers such as Gujarat Gas (LPG became more lucrative), lower CNG consumption and conversions for players like MGL, IGL and GGL, which threatened the entire gas infrastructure story (to raise Gas share in India energy pie from 6.3% to 15% by 2030).
  • On the industrial side, due to sharp fall in spot LNG prices, Gujarat Gas has been able to proactively cut Industrial PNG prices and has thus been able to improve its volumes from current 8.8 mmscmd to reach 9.8 mmscmd in FY24 and 10.7 in FY25.
  • We prefer IGL (Target: Rs 550, upside: 12%) as it has large CNG and domestic PNG exposure (80% of volumes), MGL (Target: Rs 1,300, upside: 23%) MGL has a large CNG and domestic PNG exposure (86% of volumes) and Gujarat Gas (Target: Rs 570, upside: 18%) as it has has 65-70% exposure to industrial PNG.

Paints -Strong demand recovery; benign input cost drives margin

  • Asian Paints and Kansai Nerolac reported strong volume growth in the range of 12%-16% which was much ahead of the street estimates. The volume growth was largely driven by new product launches, demand recovery in rural/semi urban regions and strong industrial paints demand led by Auto OEMs.
  • The managements have guided for volume led growth (CAGR of ~12-13%) over the next two years supported by pick up in construction activities, continued focus on dealer expansions and launch of new products. 
  • Companies have reported EBITDA margin expansion in the range of 300-425 bps YoY in Q4 led by benefit of lower raw material prices. Prices of key raw material (TiO2) have declined sharply by ~22% YoY to Rs 300/kg.
  • We expect supply to grow at CAGR 16% much ahead than overall demand CAGR of ~13%. Hence, we see EBITDA margin of Asian Paints and Kansai Nerolac at ~19%, 12% to remain lower than its peak margin level of ~22% and ~15%. 
  • We maintain hold on Asian Paints (Target price: Rs 3,425) given its market leadership position but upside is capped at current valuations. Kansai Nerolac is focusing to regain its market share through higher A&P spends and new launches. We have hold rating with a target price of Rs 440/share.

Moderation in margins and anticipated impact of ECL provisioning drag PSU banks prices

  • PSU banks have witnessed correction of 5-10% after reporting Q4FY23 performance. While operational performance remained healthy and asset quality continued to improve, moderation in margins and anticipated impact of ECL norms seems to be reason for the negative reaction in stock price.
  • Increase in cost of deposits, amid repricing of liabilities, has impacted margin trajectory to the extent of 13-23 bps QoQ across PSU banks (Canara Bank being an exception).
  • RBI has proposed Expected Credit Loss (ECL) framework for provisioning by banks, wherein banks are required to estimate impairment loss under the ECL approach for all loans. Few PSU banks have indicated potential impact of ECL norms at ~1 – 2.5% of advances or 5-20% impact on net worth.
  • Private banks, with a higher proportion of overlay provision, seems to be better placed when compared to PSU peers.

Margin Expansion Galore for Auto Space

  • Auto Space continued to beat our quarterly estimates with major players reporting better than anticipated margin expansion.
  • In the OEM space, the margin outperformance is pegged at ~125 bps while in the ancillary space margin outperformance is pegged at ~100 bps.
  • For Eicher Motors key highlight was 7.7% sequential rise in ASP’s at Rs 1.72 lakh/unit and 10% EBITDA margins at its CV arm i.e. VECV. Management commentary was upbeat on demand prospects for Royal Enfield both domestically as well as in international markets. The company also announced an accelerated capex spend of ~Rs 1,000 crore for FY24 on product development in EV & ICE space and manufacturing setup in EV domain.
  • For Escorts, key highlight was RM price decline led expansion in gross margins by 300 bps as against management commentary of limited benefits in the past with company guiding for more margin expansion with aim to attain tractor segment EBIT margins by ~13-14% by Q4FY24 vs. ~10% clocked in Q4FY23. It guided for mid single digit growth for domestic tractor industry for FY24E.
  • For Apollo tyres, Indian operations reported gross margin expansion of 470 bps QoQ, in tandem with its peers, however its absolute margin profile still being highest in the industry at 16%.

Going forward we expect auto volume growth to taper in FY24E, albeit on a high base. We however continue to remain positive on the PV (underpenetrated category domestically) and CV domain (beneficiary of robust government spending on infrastructure). Our top bets in the OEM space are Maruti Suzuki (Rating: Buy; Target price: Rs 11,200), Eicher Motors (Rating: Buy; Target price: Rs 4,165) and Ashok Leyland (Rating: Buy; Target price: Rs 185). Our top bets in Auto Ancillary space are Mahindra CIE (Rating: Buy; Target price: Rs 520), Mayur Uniquoters (Rating: Buy; Target price: Rs 580) and Ramkrishna Forgings (Rating: Buy; Target price: Rs 400).

Firm Sugar prices, stable sugar recovery & higher ethanol volumes to propel earnings in FY24

  • Sugar companies like Dhampur Sugar & Balrampur Chini posted strong earnings growth in Q4FY23.
  • Sugar companies in UP witnessed mixed trend in sugar recovery in 2022-23 season. Gross recovery for Dalmia Bharat Sugar, Balrampur Chini & Dhampur Sugar is similar or better compared to last year.
  • Moreover, Domestic sugar prices have moved up by Rs 2-3 / kg in last one month. We believe sugar prices would remain firm at least until the start of crushing season in November-2023.
  • Most of the sugar companies have completed large capacity addition last year, which would reflect in higher ethanol volumes in FY24. We believe sugar companies would earn better margins in sugar business in FY24. Moreover, higher ethanol volumes would also drive profitability.
  • We like Dhampur Sugar (Target price: Rs 340)  & Dalmia Bharat sugar (Target price: Rs 490) mainly due to dual benefit of higher sugar prices & lower cost of production. Balrampur Chini would also see strong earnings growth in FY24 due to improving margin & low base year numbers.

Pharma companies some respite in US markets

  • Combined US sales growth of ~12% YoY driven by complex and limited competition products (gRevlimid by DRL), new launches along with ~9% currency depreciation. DRL posted ~27% YoY growth boosted by complex product launch of gRevlimid besides a slew of injectable launches.
  • On the flip side, oral solids portfolio continues to face prising pressure due to stiff competition. Alembic Pharma US portfolio witnessed ~36% YoY degrowth and ~18% QoQ degrowth.
  • Outlook excluding oral solids -OSDs looks promising, the price erosion in OSDs still persists between mid-single digit to low double digit.
  • US focused companies are in the process of recalibrating the US portfolio with more investments and bolt-on acquisitions in the injectables and other complex generics.
  • We have observed strong correlation of US business strategy and the company’s EBITA margins and ROCE. While companies with higher % of complex generics, injectables, respiratory products in the US sales have maintained EBITDA margins profile of ~20%  and ROCE of 18-20%, companies with heavy tilt towards oral solids continue to report EBITDA margins in the range of 15-18% and ROCE of 10-12%.
  • Our top picks is Dr Reddy (Target Price: Rs 5520) - Focus on complex launches in the US and similar focus in other geographies to target management’s aspirational goal of ~25% EBITDA and ~25% ROCE by 2027.

L&T misses earning estimates, outlook intact (Mcap: Rs 3.13 lakh crores, Target 2,650)

  • L&T’s standalone core engineering business reported weak set of numbers in Q4FY23. Adjusted standalone revenues de-grew marginally by 1.9% YoY. EBITDA margins declined by 74 bps on a YoY basis to 9.6%. Consequently net profit grew by 3.5% on YoY basis.
  • Order inflows at the group level were up 3% YoY to Rs 76,099 crore. For FY23 total order inflow came at Rs 2,30,528 crore, 19.5% growth.
  • From latest result one noteworthy thing was NWC/ Sales came at 16.1% in FY23 vs 19.7% in FY22.
  • For FY24 L&T has given a revenue guidance of 12-15% and EBITDA margin guidance 9%. On the working capital to sales ratio, the company has guided for a range of 16-18% even though it will strive to achieve the lower end of the guidance. RoE was at 12.2% in FY23 vs. 11% in FY22. Improved performance of Hyderabad metro and Nabha along with divestment of noncore assets is expected to drive RoE by 1-2%. The company is aiming to reach 18% RoE by FY26. We value L&T at Rs 2,650 on an SoTP basis.

Hidden Gem

Gujarat Gas: Lower gas prices to drive volume recovery (CMP: Rs 485, Target: Rs 570, Upside: 18%)

  • Spot LNG prices have rapidly cooled to US$10-11 per mmbtu, leading to proactive price cut to Rs 40 per scm, while generating an EBITDA of Rs 7 per SCM.
  • The company had been clocking above 11 mmscmd volumes in Q2 and Q3FY22 (Industrial PNG 8.4-8.7). In FY23E, the volumes declined to a low of 7.3 (mainly led by industrial volumes at 4). At peak volumes, Morbi industrial cluster (tile manufacturers) were contributing 7).
  • The management expects to improve its volumes to 10 mmscmd in FY24. It clocked 8.9 in Q4FY23 (CNG & PNG - 3.5, Industrial - 5.4 mmscmd).
  • Gujarat gas has been heavily investing Rs 1,100 crore in areas such as Ahmedabad and newer areas such as Thane, several areas in Gujarat and Rajasthan to boost volumes beyond FY25.
  • In FY24, the company expects to add 3 lakh new connection on the domestic PNG front (18 lakhs connections currently) and 100 CNG stations (from current 808 stations).
  • We build a 9% CAGR growth in EBITDA to Rs 2,836 crore and 11% growth in PAT to Rs 1,865 crore (EPS of Rs 27.1). The stock is available at a multiple of 18 currently.


India inflation data, indications on Monsoon arrival and earnings of mid/small cap segment would be key drivers for coming week. Nifty to consolidate.

Source: ICICIdirect Research

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Understanding the importance of volume: Part 2

ICICI Securities 12 May 2023

In the previous post, we went through the fundamentals of volume analysis, how to interpret it, and some notable technical analysts and researchers' observations.

We will continue with it in today's post and study some advanced volume analysis principles with some helpful indicators.

We covered volume using a straightforward trading example in the previous piece, but I believe it's essential to learn more about volume using a bid-ask table.

Suppose we have a bid and ask table for a stock as shown below:

In this table, the bid price represents the highest price that a buyer is willing to pay for the stock, while the ask price represents the lowest price that a seller is willing to accept for the same stock. The bid-ask spread is the difference between the bid price and the ask price.

The bid size represents the number of shares that buyers are willing to purchase at the bid price, while the ask size represents the number of shares that sellers are willing to sell at the ask price.

Let's assume that during a specific period of time, the following trades occur:

  • 100 shares are traded at a price of 10 rupees
  • 50 shares are traded at a price of INR10.05 rupees
  • 150 shares are traded at a price of INR10.10 rupees

To calculate the volume of each trade, we can multiply the price by the number of shares traded. For example, the volume of the first trade would be 100 x 10.00 = 1,000 rupees. We can then calculate the total volume for the period by summing up the volume of each trade. In this case, the total volume would be:

INR1,000 INR502.50 INR1,515 = INR3,017.50

The total volume indicates the total value of shares that were traded during the period. Traders and investors use volume analysis to identify potential price movements and trends. High volumes can indicate strong buying or selling pressure and potential price movements in the direction of the volume, while low volumes may indicate a lack of market interest and potential price stagnation.

As we know, the total volume for the period was INR3,017.50. This tells us the total value of shares that were traded during the period, but we can also use this information to calculate the average volume per minute or per hour, depending on the time frame we are interested in.

Let's assume that the period we are looking at is 30 minutes. We can calculate the average volume per minute by dividing the total volume by the length of the period:

INR3,017.50 / 30 = INR100.58 per minute

This means that, on average, INR100.58 worth of shares were traded every minute during the 30-minute period. We can use this information to compare trading activity across different periods of time and identify trends and patterns.

In the bid and ask table example above, we can see that there is more buying interest at the lower price levels and more selling interest at the higher price levels. This means that if the price were to increase, there may be more selling pressure, while if the price were to decrease, there may be more buying pressure.

Useful indicators for Volume Analysis

1. On-Balance-Volume (OBV):

On-Balance-Volume (OBV) is the granddaddy of all volume indexes. Joseph Granville proposed OBV in 1976. On-Balance Volume (OBV) is a technical analysis indicator that measures buying and selling pressure by cumulatively adding or subtracting the volume traded on a stock or other financial asset based on whether prices close up or down.

The theory behind the OBV indicator is that when the volume on up days is greater than the volume on down days, it is a sign of accumulation and suggests that investors are buying the asset. Conversely, when the volume on down days is greater than the volume on up days, it is a sign of distribution and suggests that investors are selling the asset.

The OBV is calculated by taking the cumulative total of the volume traded on up days and subtracting the cumulative total of the volume traded on down days. If the closing price of the asset is higher than the previous day's closing price, the volume for that day is added to the cumulative total. If the closing price is lower, the volume is subtracted. If the closing price is the same, no volume is added or subtracted.

Traders often use OBV in conjunction with other technical analysis tools to identify potential buying and selling opportunities. For example, if the price of an asset is trending upwards but the OBV is trending downwards, it may suggest that there is a divergence between the price and the buying pressure, which could signal a potential reversal. Conversely, if the price is trending downwards but the OBV is trending upwards, it may suggest that there is a divergence between the price and the selling pressure, which could also signal a potential reversal.

How can the OBV be used in prices that are in a consolidation pattern or trading range rather than trending? When prices are in a trading range and the OBV breaks its own support or resistance, the break often indicates the direction in which the price breakout will occur. Therefore, it gives an early warning of breakout direction from a price pattern.

2. Money Flow Index

Another method of measuring money flow into and out of a stock is the Money Flow Index. It considers "up" days and "down" days to determine the flow of money into and out of a stock. It takes into account both price and volume to determine the strength of the trend and the likelihood of a reversal.

The MFI is calculated by first calculating the typical price of the asset, which is the average of the high, low, and closing prices for a given period. The money flow is then calculated by multiplying the typical price by the volume for that period. This gives an indication of the amount of money flowing into or out of the asset.

An MFI value above 80 is typically considered overbought and may indicate that the asset is due for a price correction, while an MFI value below 20 is typically considered oversold and may indicate that the asset is undervalued and due for a price rebound. These parameters, along with the period, are obviously adjustable.


Volume analysis is an essential tool for traders and investors to understand the buying and selling activity of a particular asset. By examining the volume, you can determine whether there is sufficient market interest and liquidity to support a trend, identify potential reversals and breakouts, and confirm price movements. However, volume analysis should not be used in isolation, but in combination with other technical and fundamental analysis tools to make well-informed trading decisions. By mastering the art of volume analysis, traders can gain a competitive edge in the market and achieve their investment goals.

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Go First airline files for bankruptcy, may not take off for now

ICICI Securities 09 May 2023

Indian airline companies have rarely had a smooth run over the long run. Very few have taken off well over the long term. Following the turbulent journey and failure of the likes of Kingfisher Airlines, Jet Airways and Paramount Airways, Go First (Go Air earlier) is the latest addition to list of airline companies that have gone under. Go First filed for bankruptcy on May 2, 2023. A key reason it cited was the inability of its airplane’s engine vendor, Pratt & Whitney, in supplying fault-free engines as per schedule, resulting in the grounding of its flights and the resultant financial losses.

What led to this sequence of events for a once-successful airline? What are the implications for banks, operational creditors and passengers? What is the way forward for Go First?

Coming at a time when passengers carried by domestic airlines are at record levels of 3.35 crore in January-March 2023, growth of 51.7% YoY, here’s all that you need to know about Go First’s tumultuous flight and the broader ramifications for stakeholders.

Large airline runs into rough weather

Go First has been in operation for nearly 18 years from 2005 onwards. It was among the top four airlines in the country with a healthy 10.6% market share of passenger traffic for the year 2019, behind Indigo, Air India and SpiceJet. Even as recently as the year 2022, Go First had 8.8% passenger market share, third highest in the country.

Its passenger load factor – which measures the ratio of the seats filled to the total capacity of an airline – for Go First has generally remained around the 90% level. It was able to run 200 flights every day, and about 185 flights closer to its bankruptcy. It carried 8.95 lakh passengers in March 2023.

That’s where the good part stops.

Source: DGCA

The airline’s troubles go back in time. The GTF (geared turbofan) engines supplied by Pratt & Whitney to airlines with A320 neo airplanes around the world – including to Indigo and Go First in India – were found to be defective.

The earliest problems arose in 2017. By 2019, the issues were serious enough for the Indian aviation regulator DGCA (Directorate General of Civil Aviation) to ask airlines using the faulty engines to ground them until the defects were rectified.

Unfortunately for Go First, from 7% of its flights being grounded in December 2019 and 31% by December 2020, the proportion rose to as high as 50% or 25 of its Airbus A320 neo aircraft fleet as of December 2022.

Go First filed an arbitration case against Pratt & Whitney. The Singapore International Arbitration Centre (SIAC) had asked Pratt & Whitney to deliver at least 10 serviceable spare leased engines by April 27, 2023 and a further 10 spare leased engines per month until December 2023. Unfortunately, none of the engine deliveries happened. Go First has claimed that had these engines arrived on time, it would have returned to full operations by August or September this year.

For its part, the engine maker has claimed that Go First did not make payments and had a history of defaults on financial obligations.

Indigo, too, faced these issues, but was able to get back to its feet quickly due to a much larger fleet size and stronger finances.

In the meantime, 2020 saw the COVID-19 pandemic and the resultant lockdowns seriously hurt the entire airline industry, with Go First also facing the heat.

In the aftermath of the pandemic, inflation soared with crude oil and a host a commodity prices soaring, further worsened by the Russia-Ukraine conflict.

These events jeopardised an already financially fragile Go First, which called back its intended IPO in 2022 due to volatile market conditions.

Indigo was able to overcome the issue as the airline re-inducted some of the defective plane engines after fixing them. Also, currently the majority of its A320 neo aircraft are now powered by CFM engines instead of those from Pratt & Whitney, according to reports.

After Jet Airways’ failure in 2019, Indigo gained further strength and has more than half the domestic market share. The ailing government-run Air India was also bought by the Tata group. With Vistara and Air Asia already under its wings, and Air India added to its repertoire, competition became even more severe for Go First, as it was already troubled with grounded aircraft.

Financial woes and eventual grounding

The promoters of Go First pumped in Rs 3,200 crore over the past three years, of which Rs 2,400 crore was injected in just the last two years. They had reportedly ploughed in Rs 6,500 crore totally since the airline’s inception.

Given the post-COVID airline industry woes and with half of its fleet grounded, Go First could not function as usual, especially given the surging fuel and operational costs. Given the losses and curtailed operations, the promoters were not keen to plough in any more equity into the airline.

The airline has claimed that the grounding of 50% of its aircraft meant that it suffered a revenue loss of a whopping Rs 10,800 crore and incurred additional operational costs. It further claimed that Pratt & Whitney’s actions had also “driven some lessors to repossess aircraft, draw down letters of credit and notify further withdrawal of aircraft.”

It also claimed to have paid Rs 5,657 crores to lessors in the last two years, of which around Rs 1,600 crores was paid towards lease rent for non-operational grounded aircraft from the funds infused by the promoters and the Government of India’s Emergency Credit Line Guarantee Scheme.

Go First has sought Rs 8,000 crore in compensation from Pratt & Whitney for the loss in the SIAC.

In fact, Go First’s staff salaries were delayed in recent months and were not given on time.

Lenders face anxious times

The financial and operational troubles of Go First aren’t isolated problems. It has loans of Rs 6,521 crore that it needs to repay. It has serviced interest for the month of April 2023, but the future remains uncertain.

Central Bank of India, Bank of Baroda, Deutsche Bank and IDBI Bank are among the key lenders to the airline. The outstanding exposure of Central bank of India was Rs 1,305 crore and was almost similar for Bank of Baroda as well. Go First had also taken Rs 1,292 crore loan from the government’s emergency credit scheme announced during the COVID crisis.

In addition, the airline has defaulted on payments to operational creditors, including Rs 1,202 crore to vendors and Rs 2,660 crore to aircraft lessors.

In all the total liabilities stood at Rs 11,463 crore for Go First. Some reports suggest that a few of the bankers are open for negotiation in repayment. Others suggest that the recovery for banks may not be more than 25-30% of the outstanding loans.

Airfares soar, revival chances weak

Go First had cancelled flights till May 5 earlier, but has extended the suspension by a week to May 12 now.

Given that this is the peak summer season, there is huge air traffic to cater to for airlines as passengers head out to various destinations for their holidays.

As Go First has been grounded, the capacity available is reduced, thus increasing fares massively.

Some airlines are reportedly charging Rs 28,000 for the Delhi-Mumbai route as spot fares. Mumbai-Goa fares have risen to Rs 15,000 from Rs 6,000 a week ago according to reports.

In most cases spot fares have doubled or in a few instances the tickets are now 3-4 times costlier than they were a week ago, according to news reports.

Given the surge in air travel, it is unlikely that the fares would come down any time sooner and airlines would look to make the most of it, thus burning a hole in the pockets of passengers.

For Go First, the path to revival seems extremely challenging at the moment. The airline has filed a petition in Delaware to force Pratt & Whitney to implement the arbitration award of the SIAC.

In addition, the insolvency proceedings before the NCLT (National Company Law Tribunal) may not get a hearing very soon.

According to experts quoted in the media, even if Go First wins compensation from the engine maker – which in itself may be lengthy process – it remains to be seen if that would enough to repay the lenders and operational creditors. Again, mere payment won’t be enough as the defective engines need to be replaced by sound ones before Go First can run full-fledged operations as before. That seems to be a tall order now.

Source: Company press release

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Understanding the Importance of Volume

ICICI Securities 09 May 2023

Price and volume are considered as the king of chart analysis as all indicators get constructed by combining them. Therefore, price and volume are the two ingredients that prepare any indicator for market analysis.

Volume refers to the number of shares or contracts traded in a given period of time. The concept of volume is based on the idea that price movements in the market are driven by the actions of buyers and sellers. When buyers and sellers are actively participating in the market, the trading volume is high, and vice versa.

Let's say you are watching the trading activity of a particular stock over the course of a day. The stock's current price is 500 rupees per share, and the following trades take place:

• Trade 1:10 shares are bought at 500 rupees per share

• Trade 2:5 shares are sold at 490 rupees per share

• Trade 3:20 shares are bought at 550 rupees per share

• Trade 4:15 shares are sold at 500 rupees per share

• Trade 5:30 shares are bought at 510 rupees per share

The total volume for the day is calculated by adding up the number of shares traded during each trade, which gives us a total volume of 80 shares for the day. So if A has bought 10 shares for 500 rupees, then someone must have sold the same shares at the same price to A, therefore volume would be not 20 shares, but 10 share, that is, the number of shares traded in 1 trade or transaction.

But how should we analyse and interpret volume? --The trading volume can be used to gain insights into the behaviour of market participants.

Trend Confirmation

An increase in trading volume can often be associated with an increase in buying or selling pressure, which can in turn lead to a corresponding increase in the price of a stock. This is because when there is a higher volume of buyers than sellers, it indicates greater interest and confidence in a particular stock , which means that the demand for the stock increases, which can push up its price. Conversely, when there is a higher volume of sellers than buyers, the supply of the stock increases, which can lead to a decrease in its price. For example, if a company reports better-than-expected earnings, it may attract a higher trading volume as investors become more interested in the company's prospects, which can drive up its stock price.

Here's an example table that illustrates how volume can confirm price movements in the market:


Open Price

Close Price


Price Movement

Volume Movement

Jan 1






Jan 2






Jan 3






Jan 4






Jan 5






Jan 6






Jan 7






Jan 8






In this example, we are looking at the daily price and volume movements of a particular stock over a period of nine days. As you can see, the price movements are listed in the "Price Movement" column, and the volume movements are listed in the "Volume Movement" column.

The table shows the trading activity of XYZ stock over five days. Each day's volume is the number of shares that were bought and sold during that trading session.

On day 1, the stock opened at INR100 and closed at INR101.5. There was heavy buying and selling activity, with a volume of 100,000 shares. This indicates high market participation and interest in the stock. The increase in price and high volume suggest bullish sentiment.

On day 2, the stock opened at INR101.5 and closed higher at INR102.00 ,as there was high volume, with 150,000 shares traded.

Onn day 3, the stock opened at INR102.00 and closed at INR102.50. There was moderate volume with 110,000 shares traded. The stock closed higher than the opening price, which suggests bullish sentiment, but the volume was relatively low.

On day 4, the stock opened at INR102.50 and closed at INR102.50. There was low volume, with only 100,000 shares traded. The stock closed unchanged, which indicates a lack of conviction among traders.

On day 7, the stock opened at INR100.50 and closed at INR99.00. There was heavy buying and selling activity, with a volume of 250,000 shares. The price closed below than the opening price, suggesting bearish sentiment, and the high volume confirms the strength of the move.

In summary, high trading volume can indicate strong market interest and confirm a price trend, while low volume may indicate a lack of conviction among traders.

In summary, an increase in trading volume can often be associated with an increase in buying or selling pressure, which can lead to a corresponding increase in the price of a stock. However, the relationship between trading volume and stock price is complex, and other factors can also impact the price of a stock.

It's important to note, however, that there is no guaranteed relationship between trading volume and stock price. In some cases, high trading volume may not necessarily result in a corresponding increase in the stock price, and vice versa. Other factors, such as macroeconomic trends, company fundamentals, and market sentiment, can also influence stock prices.


Volume is a crucial indicator of liquidity in any market, including the stock market. Liquidity refers to the ability to buy or sell an asset quickly and easily without significantly impacting its price.

When a market has high trading volume, it generally indicates a high level of liquidity. This is because there are many buyers and sellers actively participating in the market, which makes it easier to buy or sell a particular asset at a fair price. High trading volume also tends to result in more efficient price discovery, as prices are more likely to accurately reflect the supply and demand dynamics of the market.

On the other hand, a market with low trading volume may be illiquid, meaning it may be difficult to buy or sell assets quickly without affecting their price. This is because there may not be many buyers or sellers actively participating in the market, which can lead to wider bid-ask spreads and lower liquidity.

In the context of the stock market, liquidity is important for investors because it allows them to enter or exit positions quickly and easily, without impacting the price of the stock. This is particularly important for large institutional investors who need to buy or sell significant amounts of stock without affecting the market.


Volume is a critical indicator for traders looking to identify potential breakouts in the stock market. Breakouts occur when a stock's price breaks through a key level of support or resistance, often indicating a shift in market sentiment and potentially creating a new trend. You can learn more about breakouts here.

One way volume helps in breakouts is by confirming the strength and validity of the breakout. For example, when a stock breaks through a resistance level on high trading volume, it suggests that there is a significant increase in buying pressure, which can help confirm the validity of the breakout. This can help traders make more informed decisions about whether to enter or exit positions.

In addition, volume can also help identify potential false breakouts, which occur when a stock temporarily breaks through a support or resistance level but fails to sustain the momentum and ultimately reverses back. When a breakout occurs on low trading volume, it may suggest that the move is not sustainable and could be a false breakout. In contrast, when a breakout occurs on high trading volume, it is more likely to be a valid breakout and a potential trend reversal.

Finally, volume can also help traders identify potential breakout opportunities before they occur. By monitoring trading volume and identifying patterns of increasing volume, traders can anticipate potential breakout opportunities and position themselves to take advantage of them.

In summary, volume is a critical tool for traders looking to identify potential breakouts in the stock market. By confirming the strength and validity of breakouts, identifying potential false breakouts, and anticipating breakout opportunities, traders can use volume to make more informed trading decisions and potentially achieve greater returns.

Volume Spikes and Breakout

Volume spikes and breakouts are related concepts in technical analysis, as both can indicate potential changes in market sentiment and price movements.

A volume spike is a sudden and significant increase in trading volume compared to its average trading volume over a given period of time. Volume spikes can occur for a variety of reasons, such as news events, earnings releases, or changes in market sentiment. When volume spikes occur, it can be a signal to traders and investors that there is increased interest and activity in the stock, which can lead to potential price movements.

A breakout, on the other hand, occurs when the price of a stock moves outside a defined price range or technical pattern, such as a resistance level or a trendline. A breakout can indicate a potential change in market sentiment and lead to significant price movements in the direction of the breakout.

Volume spikes can be a valuable tool for traders and investors in confirming breakouts and identifying potential trend reversals. When a breakout occurs with a significant increase in trading volume, it can be a strong signal that the breakout is legitimate and that there is strong buying or selling pressure supporting the price movement. Conversely, if a breakout occurs on low trading volume, it may not be a reliable signal and may be more susceptible to a false breakout.

Examples of volume Spikes

A number of volume spikes appear in the above chart. The first occurs on the start of the symmetrical triangle. The second occurs on a breakaway gap from the earlier symmetrical triangle formation. However, the price peaks almost immediately at the top of the volume spike and goes into a consolidation that forms a descending wedge. The fourth volume peak is interesting because it does occur, but after the breakout there was low volume, bolstering Thomas Bulkowski’s, widely known for his research and analysis of chart patterns and technical trading strategies, observations that volume does not necessarily occur on a breakout or confirm a price reversal.  

Key takeaways:

There are some general rules that date back to the work of H. M. Gartley in 1935, a prominent technical analyst and trader who developed a method of identifying specific chart patterns in the stock markets.

1. When prices are rising:

  • Volume increasing is impressive.
  • Volume decreasing is questionable.
2. When prices are declining
  • Volume increasing is impressive.
  • Volume decreasing is questionable.

3. When a price advance halts with high volume, it is potentially a top.

4. When a price decline halts with high volume, it is potentially a bottom.

In other words, price change on high volume tends to occur in the direction of the trend, and price change on low volume tends to occur on corrective price moves. Higher volume is usually necessary in an advance because it demonstrates active and aggressive interest in owning the stock. However, higher volume is not necessary in a decline; prices can decline because of a lack of interest, and thus potential buyers, in the slock, resulting in relatively light volume.

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Market Outlook: Expect Nifty to reclaim all-time highs, with midcaps in focus

ICICI Securities 05 May 2023

  • Indian equities extended outperformance against global peers. Nifty gained 0.6% while Nifty midcap index is up 1.8% while Nifty Midcap50 index already hit new highs on closing basis.
  • Most developed markets were down ~2% amid prospects of mild recession in US given challenges within regional banks.
  • Nifty bottom in place, Nifty to reclaim all-time highs of 18,887 by June 2023 – Current index structure on many technical counts (chart pattern, breadth, other market internals) is comparable with CY13, CY16, CY19. In each of these instances index reclaimed new highs within three months once higher bottom was in place. In current context with higher bottom in place at 16,800 in March, we expect Nifty to reclaim all-time highs of 18,887 by June 2023.
  • Midcap index just 2.5% away from life highs: We expect midcap index to challenge life highs in May and outperform Nifty.
  • Brent – prices approached lower band around $70 which is a key support level. We expect upsides to be short lived with immediate hurdle at $80.
  • Bond yields: India 10y yields have softened further to 7% - Indication of interest cycle peaking out in US and lower crude prices would act as tail winds.
  • FII continuing their buying spree in May so far- After strong flows in April (approx. 10kcr), FII pumped in ~4,700 cr in cash market in first three sessions of May. Dollar index breaking below 100 mark could mean accelerated flows in EM.

US Fed Update

  • US Federal Reserve once again increased the rate by 25 bps brings its benchmark rate to a range between 5% - 5.25%, a 16-year high. Fed also signalled that they might be done raising interest rates for now and amplified attention to credit and other economic risk.
  • Further, policymakers had dropped a key phrase which they used in their previous statements that said “committee anticipated some additional increases might be appropriate” and replaced it with new language saying “they would carefully monitor the economy and the effects of their rapid increases over the past year.”
  • Even one more sentence related to banking crisis was replaced. “Recent developments are likely to result in tighter conditions” was removed and replaced with “Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.”

ICICIdirect View: We expect a peak in interest rates and possible rate cut by the end of the year as the impact of higher borrowing cost is now evident in most of the economic data points.                                            

Cement Sector: Heathy volume off-take

  • Q4FY23 result season started on a positive note, with top three players (UltraTech, ACC & Ambuja) reporting record high-capacity utilization rate of ~97% in Q4FY23 (vs. 92% Q4FY22).
  • Cumulative volume growth for three players increased 13% YoY to 47.1 MT in Q4FY23 (vs. industry growth of 8-9%).
  • Pricing scenario remained weak during the quarter as realizations declined by 2.5% QoQ to Rs 5,768/t.
  • Despite weak realizations, EBITDA/T improved by Rs 150/T QoQ to Rs 930/T, mainly driven by positive operating leverage and partial benefit of moderation of fuel cost.
  • Companies are expected to attempt price hike by end of this week (~Rs 10-30/bag), however absorption for the same would be a critical factor to watch out for.
  • Cost tailwinds through reduction in fuel costs (domestic pet coke prices down 34% YoY to Rs 14,639/t) would entail positive profitable momentum in FY24E. We expect EBITDA/T to surpass Rs 1,000 levels for our coverage universe.

UltraTech Cement (CMP: Rs 7,505, TP: Rs 9,000, upside: 20%)

  • Volumes grew 16% YoY to 30.5 MT in Q4FY23 with capacity utilisation rate standing at ~95% (vs. 92% in Q4FY22). In the month of March, company operated at nearly 100% capacity utilisation. EBITDA/T surpassed Rs 1,000/t (Rs 1,030/t in Q4FY23, I-direct estimate: Rs 1,050, Q3FY23: Rs 869/t).
  • Company reached the landmark of clocking in 100MT volumes in FY23. It currently has capacity of 129 MT and in phase two of the expansion company would take its overall capacity to 154 MT by FY25E.

ACC Cement (CMP: Rs 1,770, TP: Rs 2,130, upside: 20%)

  • Recorded healthy volume growth of 10.2% YoY to 8.5 MT. The volume numbers are impressive in the context of challenges faced by the company regarding the shutdown of plant operations in Himachal Pradesh for ~50 days.
  • Through better operational efficiency coupled with synergising Adani group expertise, production cost per tonne (QoQ) declined by ~ Rs 312/t to Rs 5,088/t.
  • We find the risk reward favourable at the CMP as ACC trades at reasonable valuations of EV/t of US$85/t (~8x EV/EBITDA), which is ~25% lower than the replacement cost. Further, we find comfort owing to its b/s strength with cash & investment of Rs 3000 crore. Maintain BUY with a TP of Rs 2,130 (10x FY25E EV/EBITDA)

Ambuja Cements (CMP: Rs 390, TP: Rs 470, Upside: 21%)

  • Volumes grew 8% YoY to 8.1 MT with plant operating at nearly 100% utilisation levels. EBITDA/T improved QoQ to Rs 973/t (Q3FY23: Rs 813/t).
  • We build in cost savings initiatives of Rs 345/t during FY23-25E and expect the company to clock in EBITDA/t of Rs 1,240/t by FY25E. The company remains committed to doubling its consolidated capacity from current 68 MT to 140 MT by FY28 (CAGR: 16%).

Real Estate: Rate hike cycle pause to drive recovery in stock performance

  • Real Estate has been top performing sector in April, 2023 with ~13% return. This was led by RBI rate pause bringing the much-needed relief. We highlight that the sector has underperformed (Nifty Realty returned ~5% in last 1 year vs ~9% return for Nifty) owing to various concerns such as home loan rates (up 200 bps over the past 12 months as there was repo rate hike by ~250 bps in the same period), stamp duty normalisation in Maharashtra and increased supply across markets especially Mumbai market. Rate cycle pause, therefore, was a much need breather with eventual rate cut cycle being a major catalyst ahead.
  • The sales volumes numbers of residential real estate have been resilient. As per Anarock, the housing sales rose ~54% in 2022 to 3.65 lakh units as against 2.37 lakh units in 2021 across the top seven cities. Q4FY23 remained quite healthy with 1,13,770 units sold in the period, up ~14% YoY. Top players like Godrej Properties (saw 25% sales value growth in Q1), Sobha (~26% pre sales value growth), DLF (likely to report strong volumes given new project worth US$ 1 bn sold out in Q4).
  • The overall demand-supply scenario construct remains decent with decadal high absorption and decadal low inventory (20 months).
  • The top developers will continue taking market share given their superior balance sheet, execution record and brand. Most of the top developers in this cycle are sitting on lean balance sheet (net debt to equity ranging for 0.1x to 0.7x) which is among life time best levels. The players in high end user markets such as Bengaluru, Pune, Hyderabad as well as diversified players are better placed in our view.
  • Brigade Enterprises (CMP: Rs 533, TP: Rs 620, ~17% upside), and Mahindra Lifespace (CMP: Rs 374, TP: Rs 470, ~25% upside) are our preferred picks in the space. Phoenix Mills is a play on malls (CMP: Rs 1,450, TP: Rs 1,650).

CRAMs Q4 numbers- early cues mixed but outlook promising

  • Global clients have started focusing on non-covid opportunities gradually in 2023.
  • While the new client addition is yet to reach the pre-Covid level, there is a rise in incremental orders from the existing clients.
  • Lead indicators of orderbook visibility could be 1) maintaining of capex guidance announced before Covid and 2) frontloading of expenses of new idle plants to P&L. Laurus and Syngene have maintained Rs 800 crore and Rs 500 crore capex respectively.
  • Upbeat guidance from Syngene which derives ~1/3rd of the revenues from Discovery services which precedes Development and Manufacturing.
  • Clients looking to secure their supply chains in the backdrop of global geopolitical issues and are preferring vertically integrated CRAMs models.
  • PI Industries’ maiden foray into Pharma CRAMs.
  • Syngene- TP – Rs 740 - Well-rounded growth, Upbeat guidance - Q4 Sales grew 31% YoY while EBITDA grew 27% YoY driven by incremental orders from existing clients, new contract executions, reflecting revival signs of the CRAMs ecosystem.
  • Laurus Labs-TP - Rs 300 - Numbers reflect execution fatigue, Cautious guidance - Higher CRAMs base (large Covid execution) impacted Q4 numbers with sales de-grew 3% YoY and EBITDA de-grew 28% YoY. 

Tyre stocks in focus on record gross margin expansion and decline in crude prices

  • Natural rubber and crude derivatives form a majority (~65-70%) of raw material costs for tyre manufacturing.
  • The stocks are in focus post record ~500 bps gross margin on QoQ basis reported by listed players namely MRF and CEAT. This is more than anticipated expansion in gross margins as most of the companies had guided for ~3-4% QoQ decline in raw material prices for Q4FY23 while the realised raw material price decline is to the tune of ~8-9%.
  • To add to this, the crude price has corrected sharply over the past fortnight i.e. down ~16% and is presently quoting at US$73/barrel.
  • Natural rubber prices on the other hand have been largely stable and presently quoting at Rs 155/kg in domestic markets; with prices to remain under check amidst record rubber production domestically at ~8.4 lakh tonnes, up 8.3% YoY.
  • Domestically, over FY23-25E, tyre manufacturers are also expected to benefit from cyclical upswing in the M&HCV space and steady demand prospects in the PV domain.
  • In this space, our top bets are Apollo Tyres (Buy rating, Target Price: Rs 390) and JK Tyre.
  • Apollo Tyres stands to gain from its focus on capital efficiency, sweating of assets and controlled capex spends. With turnaround already in place at its European operations and benign commodity price outlook, PAT at the company is seen growing healthy double digit over FY22-25E. With reduction in debt, RoCE at the company is seen at 15% by FY25E. We have a target price of Rs 390 on Apollo Tyres, valuing the company at 6x EV/EBITDA on FY25E.
  • JK Tyre & Industries is more a tactical play wherein we had upgraded the stock post last quarter, trading at inexpensive valuations of ~4.5x EV/EBITDA on FY25E.

Major Results

HDFC Limited (Target Price – Rs 3,150) – Steady performance; fundamentals to be back in focus

HDFC Ltd reported slower credit off-take at 9.2% YoY, however, individual book (contributing 83% of portfolio) grew at healthy 15.7% YoY. Improvement of ~10 bps in margins at 3.6%, steadier opex at ~10% and lower credit cost at 25 bps led to healthy growth in earnings at 22.2% YoY to Rs 4,425 crore. Asset quality continued to remain resilient with GNPA at 1.18% on the back of 99% collection in individual segment.

As per MSCI, weightage of HDFC Bank (after merger) in global indices is expected to remain largely steady (HDFC Banks weight seen at ~6.5% vs HDFC Ltd current weight of 6.74%) ; contrary to earlier expectation of an increase (which would have led to an inflow of $3 bn). Though unfavourable change in weight, contrary to expectations could have near term impact on the price, clarity on RBIs approval and index inclusion & weight should put fundamentals back in focus and drive stock price from hereon.

Havells India (Target Price – Rs 1,425) - focus on margin recovery

  1. Havells witnessed pick up in construction activities and continued focus on market share gains in the AC business helped drive overall revenue growth at ~10% in Q4FY23. New product launches and dealer additions in the new geographies drove Lloyd revenue up by 32% YoY in Q4FY23. The Electrical Consumer Durable revenues were adversely impacted by rationalisation of fan inventory due to change in BEE norms. We expect revenue to grow at a CAGR of 13% over FY23-25E led by higher government spends on infrastructure and housing, capacity expansion, and dealer additions in new geographies. 
  2. The EBITDA margin at ~11% in Q4 has witnessed continuous recovery in FY23 (much better as compared to 8.5% in Q1). We believe, easing raw material cost, launch of premium products and continuous focus on trimming losses of its Lloyd segment will drive EBITDA margin up by 270 bps over FY23-25E.
  3. We maintain our Buy rating on the stock with target price Rs 1,425/share considering its diversified product portfolio, strong brand and robust balance sheet condition.

Hidden Gems

Newgen (CMP: Rs 557, TP: Rs 660, Upside: 18%) - Growth and margins likely to sustain

  • Newgen reported 25% revenue growth in FY23, which was higher than its guidance (20% growth, given at the start of the year). Growth was driven by strong growth in its traditional markets of India & EMEA (31-32% mix each) which grew by 40% and 28% respectively while growth in US market (relatively new market) didn’t pan out as expected. Vertical wise Banking & Insurance (74% mix together) grew by 27.6% and 42.3% respectively.
  • The company expects strong growth momentum to continue in FY24 on account of i) continued growth in traditional markets ii) recovery in US markets and additional growth through GSI (Global system integrators) iii) account mining iv) pursuing large deals.
  • The growth is also expected to come through structural change of more annuity business now (61% in FY23 vs 43% in FY18) eliminating lumpiness of license based revenues.  
  • The company reiterated its goal to reach US$500 mn annual revenues in the medium term. The company expects EBITDA margins in the range of 20-21% for FY24
  • We have factored in 20.9% CAGR revenue growth and 18.4% CAGR earnings growth over FY23-25. We value Newgen at 19x FY25 EPS


In coming week, expect Nifty to consolidate in 17,900-18,500 zone while midcaps to outperform.

Source: ICICIdirect Research

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What is Moving Average Convergence Divergence (MACD)

ICICI Securities 03 May 2023

MACD stands for Moving Average Convergence Divergence, and it is a technical analysis indicator used to identify changes in the momentum, direction, and trend strength of a security or asset. It is essentially an indicator made up of the convergence and divergence of two moving averages.

Developed by Gerald Appel in the late seventies, MACD helps identify the two most important parameters of technical analysis: trend following and momentum.

To put it simply, MACD is a simple yet highly effective and successful momentum indicator, especially when it complements the price action of the markets.

How to calculate the MACD?

The indicator works by comparing two moving averages of the stock's price, one that is calculated over a shorter period of time and another that is calculated over a longer period of time.

Let’s now look at how to calculate the MACD indicator, which is done in three steps:

  • MACD Line: The MACD line represents the difference between the short-term and long-term moving averages, and it's used to identify changes in the trend and momentum of the asset. The MACD line is the difference between the 12-period and 26-period exponential moving averages (EMA). The 12-period EMA is a shorter-term and faster-moving average that is more reactive to changes in price, while the 26-period EMA is a longer-term and slower-moving average that provides a broader view of the asset's trend and is less reactive to price changes. By subtracting the longer-term moving average from the shorter-term moving average, the MACD indicator can identify when the shorter-term moving average crosses above or below the longer-term moving average, which can indicate changes in trend and momentum.
    • When the MACD line is above zero, it indicates that the short-term moving average, that is the 12-period EMA is above the long-term moving average, that is the 26-period EMA, which indicates bullishness in the market.
    • Conversely, when the MACD line is below zero, it indicates that the short-term moving average (12-period EMA) is below the long-term moving average (26-period EMA), which indicates a bearish signal.
    • Signal Line: The signal line is a 9-period exponential moving average of the MACD line. The signal line smooths out the MACD line, making it less volatile and providing a clearer picture of the trend. It's used as a trigger for potential buy or sell signals when it crosses the MACD line.
      • When the MACD line crosses above the signal line, it generates a bullish signal, indicating that it may be a good time to buy the stock.
      • Conversely, when the MACD line crosses below the signal line, it generates a bearish signal, indicating that it may be a good time to sell the stock.
      • Histogram: The histogram in MACD (Moving Average Convergence Divergence) is a visual representation of the difference between the MACD line and the signal line. It's a vertical bar chart that fluctuates above and below the zero line, representing the degree of divergence or convergence between the two lines. The histogram's height reflects the magnitude of the difference between the MACD line and the signal line.
        • When the MACD line is above the signal line, the histogram is positive, indicating bullish momentum.
        • When the MACD line is below the signal line, the histogram is negative, indicating bearish momentum.

Here's the formula to calculate the MACD:

  • MACD Line = 12-period EMA - 26-period EMA
  • Signal Line = 9-period EMA of MACD Line

But why do we use 12, 26, and 9 as our parameters for these lines? The default settings in all trading software are set as 12, 26, and 9 days. Though the answer to this assumption is best known to Gerald Appel, the MACD's creator, of course, nothing is preventing you from altering the settings. The aforementioned adjustments, however, appear to have become "stuck" with the indicator.

The MACD indicator can be seen in the lower panel of the following chart:

The blue line is the MACD line (the fast line), while the red line is the slow signal line. The bars oscillating around zero is the MACD-histogram.

The idea behind the MACD is simple:

The intensity of a trend is indicated by the distance or size between a shorter and longer-term moving average (MA). Additionally, it indicates the strength or momentum of the trend.

The essential idea is that a shorter-term moving average just accounts for recent price movement, whereas a longer-term moving average accounts for recent price movement as well as older price movement.

If there is a clear separation between these two MAs, it indicates that the recent price action is diverging from the earlier price activity. This shows that the market is either heading upward or downward.


To interpret the MACD indicator, you need to look at its components and how they interact with each other. Here are some guidelines for interpreting the MACD:

  1. Crossovers: The most basic signal generated by the MACD is a crossover of the MACD line and the signal line. When the MACD line crosses above the signal line, it's a bullish signal, indicating that the trend is changing to the upside, and it might be a good time to enter into a long trade. Conversely, when the MACD line crosses below the signal line, it's a bearish signal, indicating that the trend is reversing to the downside, and it might be a good time to short the stock or exit from a long position.
  1. Divergence: If the MACD and prices are going in the same direction, this is referred to be convergence. A trend's strength, direction, and momentum are confirmed when the MACD and price movement converge. In other words, we get convergence if prices attain higher highs (during an uptrend) and the MACD is also making higher highs. This means that a trend is said to be stronger when both the price action and the MACD are moving in the same direction.

Divergence, on the other hand, happens when the MACD indicator and the asset's price move in opposing directions. Divergence from price action suggests that a trend may be waning or even reversing.

  • A bullish divergence occurs when the price makes lower lows while the MACD makes higher lows, indicating a potential trend reversal to the upside, that is a change in trend from a downtrend to an uptrend.
  • A bearish divergence occurs when the price makes higher highs while the MACD makes lower highs, indicating a potential trend reversal to the downside, that is a change in trend from uptrend to downtrend.