Market outlook of the week: October month historically has been one of the best months for Nifty with avg 3% return

Indian equities performed in tandem with global peers.
Major US indices have ended flattish for the week while Europe underperformed (down >1%).
Small caps outperformed Nifty in a volatile expiry week. Nifty Small cap index gained 1.7% while Nifty is almost for the week.
In upcoming truncate week, we expect Nifty to extend consolidation in 19,400-19,800 amid stock specific action. Nifty sustaining above last week high of 19,800 would lead to regaining momentum.
Nifty Seasonality: October month historically has been largely positive -

In terms of seasonality, October month has been one of the best month for markets in last 10 years. Nifty has given positive returns on 9 out of 10 occasions. The average return for Nifty for October in last 10 years was nearly 3%.

Sectorally, we are positive on BFSI, Auto, Pharma, Power and PSU baskets.

FPI Flows: Turned net sellers after 6 months

Foreign flows paused in last 2 months.
Although August has seen net inflows but that has been largely driven by large deals.
September has seen reversal of the trend and FPI has finally turned net sellers after buying for 6 consecutive months.
FPI selling figure is close to ~18,000 crores for September which is largely visible among Index heavyweights while broader market continue to do well.

Monsoon 2023 likely to end near normal

Healthy rainfall spell in the month of September at 113% of LPA (13% surplus) has led to lower monsoon deficiency.
The cumulative rainfall in the current monsoon season 2023 as on date is now pegged at 94% of LPA i.e., a deficiency of 6%.
This is an improvement from ~10% deficiency levels witnessed at the start of the month.
On the crop sowing front, the total acreages this kharif season is in tandem with its usual trend at 110 million hectares. Except pulses acreages are normal to positive in all other foodgrain items.
In terms of water reservoir levels, the situation has improved with present water levels at 81% of last year and 92% of last 10 years average. It is within its normal range in the Northern, Central and Western India while is below average in the Eastern and the Southern Regions.

Latest Accenture guidance points towards continued muted outlook for IT companies

Accenture posted a revenue of $ 16 billion, up by 4% YoY and 3.6% QoQ in Q4FY23. Adjusted operating margin was 14.7%, down 160 basis points QoQ. The new bookings were to the tune of $16.6 billion, down 10% YoY and 3.5% QoQ.
As per guidance, forecasted full-year earnings and first quarter revenue for FY24 is below street’s estimates. The company has guided revenue growth of -2 to 2% in Q1FY24. For the full year, it expects revenue growth to be in the range of 2-5% (Organic growth of 0-3%).
The guidance is tad lower than expected as economic growth challenges in US is likely to impact H1FY24 performance, in our view.
From the Indian IT companies perspective, Accenture commentary implies no major improvement in macro or revival in discretionary tech spends in FY24.
Most tier 1 IT companies like Infosys, Wipro, Tech M and TCS have indicated a muted FY24 (flat to max growth of mid-single digits in FY24), It will be key to watch HCL Tech which had maintained double digit growth earlier.
Similarly, tier 2 companies have guided for mid teen organic growth and sustained US growth challenges could be a risk to their guidance ahead.
From stock price perspective, we believe large cap haven’t run up much so further downsides might be limited with upsides hinging on timing of US growth recovery ahead.

Real Estate - Robust demand supply construct

The overall real estate demand-supply scenario construct remains robust with all time high absorption and all-time low inventory (17 months in Q2).
Real Estate (Nifty Realty) has been outperforming sector in the last 6 months with ~50% return vs. Nifty 50 return of ~15% in the same period. This was led by strong demand traction amid low inventory and also propelled by RBI rate pause.
As per Anarock, Housing sales, across seven major cities, are estimated to have risen by 36% in Q2FY24 to ~1.20 lakh units while prices appreciated by 11% on a blended level. Among major cities, Pune, MMR, Chennai and Bengaluru saw growth of ~62%, ~46%, ~41% and ~29%, respectively.
Amid robust sales, unsold inventory across the top 7 cities reduced by 3% YoY to 6.1 lakh units during the quarter.
Brigade Enterprises (CMP: Rs 571, TP: Rs 745, ~30% upside), and Mahindra Lifespace (CMP: Rs 548, TP: Rs 650, ~19% upside) remain attractive pick in the space.

NTPC : Powering the Green Transition :: Stock on high !!!

NTPC has been outperforming nifty and making new high with a YTD return of 48%.
It is India’s largest power generation company with a total installed capacity of ~73,000 MW, has 17% of total installed capacity with 24% generation share.
The company’s vision is to become a 130 GW+ company by 2032 of which 60 GW would be contributed by renewable energy.
Besides aggressive expansion to renewable energy, it is striving hard to diversify into areas like green hydrogen, Nuclear power (JV with NPCIL), C&I, etc.
We estimate EBITDA and PAT to grow at 16.1%, and 16% CAGR respectively over FY23-25E.
ROE’s of the company will see a meaningful improvement from 12.9% in FY23 to 14.3% in FY25E given increasing share of renewable capex will see lower gestation vis-à-vis thermal assets
We maintain our BUY rating on NTPC. We value the stock at Rs 300 per share (based on 1.8x FY25 Book Value).

L&T: Business and Stock mirroring the Capex Boom

L&T de-facto is the best play on Indian capex cycle with stock gaining 45% this year.
This is quite reflective from the fact that as of Q1FY24, the order backlog stood at Rs 4,12,600 crore up 14% YoY whereas order inflows grew by a whopping 57% at Rs 65,520 crore.
This puts L&T in a comfortable position of meeting its revenue growth and order inflow growth guidance of FY24E. we believe the ordering environment across all segments like Power T&D, Buildings and factories , Hydrocarbons , Defence, Water, Infra and export markets will ensure.
Steady order inflows over the next 2-3 years, we believe will ensure 17% revenue and 26% PAT CAGR over FY23-FY25E.
Even the non infra business-like IT and Finance are doing well and have the potential to further de-risk business and enhance return ratios of the company.

Proposal of new aircraft carrier from Indian Navy; Cochin Shipyard in focus

Indian Navy has submitted a proposal to government for procurement of a new aircraft carrier.
Cochin Shipyard, which executed the second indigenous aircraft carrier INS Vikrant, is a major contender to execute this project after all the approvals from government is in place.
The stock has already rallied more than 20% this month and has doubled this year.
Though the details on actual contract amount and timeline is yet to come, but the size of this new aircraft carrier will be similar to second indigenous aircraft carrier INS Vikrant. We believe contract size should be atleast Rs 30,000 crore.
Apart from Cochin Shipyard, companies like Bharat Electronics (BEL) and Midhani will also be the beneficiaries as Midhani will be involved in supplying of critical materials or superalloys while BEL will be involved in supplying key electronic systems or sub-systems for the platform.

Hidden Gem

Balkrishna Industries (CMP: Rs 2,550; Target Price: Rs 2,920; Rating: BUY; Upside: 15%)

Product Company not a generalised tyre player!

Balkrishna Industries (BKT) is the market leader in the niche Off-Highway Tyres (OHT) in export space, which is used primarily in agriculture (~63% of sales), mining and other allied activities.
As of FY23, Europe and US combined form ~70% of sales, while India constitutes ~22% of sales, with replacement accounting for ~70% of channel mix with OEM share pegged at ~28%.
BKT stands apart from the rest of domestic tyre peers in areas of capital efficiency and strong B/S. Its global cost leadership - a result of frugal engineering, backward integration and low manpower costs, helps the company exhibit hallmarks of anti-commodity behaviour i.e., consistent high double digit operating margins (~20%+) & return ratios (>15%).
Its business model is unique and difficult to replicate given the high capex intensity and the need to develop high number of SKU’s.
With ambition to reach ~10% global market share in OHT segment in coming 3-4 years vs. ~5-6% currently, we expect Sales and PAT at BKT to grow at a CAGR of 5.6% (volume CAGR: 8.9%) & 32.0% respectively over FY23-25E.
We assign BUY rating on BKT amid healthy sales growth prospects coupled with margin recovery leading to robust bottom-line growth. Margins are expected to revert back to 25%+ trajectory by FY25E amidst a low of 18% clocked in FY23 primarily driven by consumption of high-cost raw material inventory and normalised freight rates.
We value BKT at Rs 2,920 i.e., 30x P/E on FY25E EPS.

Source: ICICIdirect Research