Share market outlook of the week: All eyes on Fed as we enter volatile September

• Indian equities fared better as compared to their global peers as risk-on sentiment prevailed. Index gained 1.5% and recorded new highs along with Midcap and Small caps.
• What lies ahead: Nifty is entering September on a positive note and maintaining its higher high-low sequence. For the month we expect, Nifty to gradually head towards 25,800, albeit episodes of volatility along the way cannot be ruled out. Key short-term support remains at 24,700.
• Global cues: Global equities are in steady up trend and would continue to weigh on sentiments and provide direction amid expectations of rate cut in US.
• Breadth: Market breadth for the week was flat as some profit taking in Mid and small cap segment was visible at new highs.
• Sectorally, IT, Pharma, Consumption are expected to outperform while Metals are poised with favourable risk-reward proposition.

India weight in MSCI set to reach 20 per cent weight revision

• Nifty has remained positive but witnessed high intraday volatility in last two sessions. First, due to Derivatives Monthly settlement on Thursday and then month end buying amid MSCI rebalancing today.
• Continued outperformance of Indian equities have helped India to achieved its highest ever 20% weight in MSCI EM index from 19.4%. Today, inflows of nearly 5 billion was expected in Indian equities where HDFC Bank has seen the lion’s share to its weight increase. 
• Apart from HDFC Bank, buying was seen among stocks like RVNL, OFSS, Idea, Prestige and Zydus Life due to their inclusion in MSCI Standard Index.
• On the other hand, outflows were seen among heavyweights like Reliance and Maruti. Bandhan Bank has also seen strong outflows due to its exclusion from MSCI.

RIL AGM Takeaways – aspires to double the size by FY28

• Reliance Industries laid out an ambitious roadmap to double the company’s current size by FY28, and a bonus of 1:1 after a long gap.
• RIL’s intends to double Revenue/EBITDA from Retail and JIO over the next 3–4 years.
• RIL’s retail business is now among the top 30 retailers globally by revenue, enabled by an investment of Rs 1.25 lakh crore over FY20–24. The company wants to make use of “deep tech” in adding value to operations, with use of data-driven analytics, robotics-driven warehouse solutions and tech usage to enhance customer experiences.
• JIO now has 490mn subscribers, carrying ~8% of global mobile traffic and responsible for 33% of consolidated EBITDA as of FY24. RIL has filed 350 patents in 6G and 5G tech. It laid out its strategy in AI stating Jio is developing a suite of tools and platforms that span the entire AI lifecycle, called Jio Brain.The focus of RIL to emerge as a “deep tech” powerhouse, leveraging the same to create new revenue/earnings streams and improving service offerings/efficiency. The company aims to invest meaningfully in developing AI capabilities and infra with gigawatt-ready data centres in Jamnagar one of the intended outcomes of this focus.
• The new energy business is expected to be of similar size to its Oil To Chemical segment in 5–7 years (OTC EBITDA in FY24 at Rs 62,400 crore), which is quite ambitious given the announced investment plans of Rs  75,000 crore in the segment. The company highlighted multiple projects designed to create an integrated manufacturing ecosystem: 1) Solar (enabling solar facilities for 10GW power capacity). 2) Batteries (30GWh capacity facilities shall be set up in the next 1–2 years). 3) Hydrogen electrolyser manufacturing (multi-GW facility likely to be ready by CY26). 
• RIL announced new capacity expansions in the petchem value chain, targeting to add 1.5mtpa of PVC/CPVC capacities, 1mt of specialty polyester capacity and 3mtpa of PTA capacity by FY27. RIL is also growing its ethane sourcing from the USA, adding three more VLEC to its existing fleet of six – this will potentially add 1.9mt of ethane-based petchem output by FY27E.
• RIL announced several new initiatives for the home broadband and JIO ecosystem, including a brand-new OS for JIO set-top boxes, which is an easy-to-use system supporting the highest quality audio/video and also has a revamped voice assistant.

Overall outlook: As per the management, Jio and Retail are expected to double their revenues and EBITDA in the next 3-4 years. A bulk of the growth in Telecom segment is likely to be ARPU growth led along with Broadband. 

Viacom18- Star India merger gets conditional approval from CCI

• The Competition Commission of India (CCI) has approved the merger between Reliance Industries-promoted Viacom18 and Walt Disney-owned Star India.  The approval is subject to compliance with voluntary modifications to the merger scheme. The conditions are 1) refraining from unreasonably spiking advertising rates for streamed cricket matches; and 2) a pledge not to bundle and sell advertising slots across different cricket tournaments.
• With CCI approval in place and the National Company Law Tribunal (NCLT) posting the merger scheme for final hearing, integration between the two companies will begin soon.
• RIL will control the merged entity, with a 56% stake. Disney will own 37% of the combined firm, while Bodhi Tree Systems will have the remaining 7% stake. The merged entity will have a valuation of Rs 70,352 crore and a dominant presence in both TV and streaming. It will have over 750 million viewers across the platforms. We believe with media reported Ad market share of over ~40% and viewership market share of ~35%, the combined entity will by far lead the TV and OTT space, going ahead both in the GEC and Sports genre. RIL will infuse Rs 11,500 crore in the merged entity.

HCL Technologies Analyst Meet: Increasing focus on TMT vertical

• Overall: The company in the medium term, expects Industry to witness a high single digit growth and aspires to grow at a double digit and is focusing on delivering industry-leading growth with plans to increase its bookings run rate to US$2.3-2.5 billion from the current US$2 billion levels.
• Demand outlook: The demand environment is seeing a reversal in trend, with the TMT vertical seeing increased discretionary spending, BFS seeing some uptick in demand and the rest of the verticals being driven by cost optimization deals. 
• Margin measures: For medium to long term margins expansion, it has launched Project Ascend which focuses on driving efficiencies to fund future growth and includes measures such as hiring construct, delivery model, G&A optimisation enabled by AI, expanding new products areas etc. to enhance growth and profitability.
• TMT – a core area: TMT vertical is expected to witness strong traction (CQGR over 9 quarters of AMJ’22 – AMJ’24 is 1.8% - industry leading growth) for the next two years on the back of the telecom players' transformation to innovate & monetize their business, and an increased focus in the semiconductor engineering business.
• Near term outlook: The management for FY25 has given revenue growth guidance in the range of 3-5% YoY in CC terms while the margins are expected to be within the previously guided margin band of 18-19%. We expect earnings growth of ~7.3% over FY24-26, HCL diversified portfolio and increased traction for its GenAI platforms remains a key catalyst of its long-term growth.

LTTS Analyst Meet: Mobility and Hitech to drive superior growth

• Overall outlook: LTTS is targeting a US$1.5 billion run rate, with ambitions to reach US$2 billion and a 17-18% EBIT margin in the medium term.
• Strategic Focus: The company has reorganized into Mobility, Sustainability, and Hi-Tech segments, each aiming for US$1 billion revenue with a strong emphasis on AI and Software-Defined Vehicles (SDV). 
• Segment wise growth outlook: Mobility is expected to grow at 20-22% CAGR, focusing on SDVs and has secured significant contracts in auto, aero, and off-highway sectors. The sustainability segment is expected to grow at 14-16% CAGR, driven by process industries, while the tech segment aims for 18-20% CAGR despite current challenges.

Vehicle Scrappage Policy gets new lease of life

• As per media sources, in a meeting held between SIAM officials, industry players and government authorities, Commercial Vehicle (CV) and Passenger Vehicle (PV) OEM’s have agreed to offer discounts to buyers who purchase new vehicles after scrapping their older ones, provided they have a valid Certificate of Deposit. 
• Discounts are expected to be offered in the range of ~1.5-3.5%.
• This is positive for the industry and shall support volume growth in the near to medium term amidst high base limiting organic growth opportunities. 
• It shall also lead to some tangible benefits flowing out of already in force Vehicle Scrappage policy which has not really taken off in the desired manner and promote circular economy by phasing out unfit and polluting vehicles. 
• This is positive for domestic OEM’s especially on the CV front with potential beneficiaries being Ashok Leyland, Tata Motors and Eicher Motors (VECV arm) in our coverage universe.

Introduction of Unified Lending Interface to aid credit flow to SME sector

• Central bank has announced introduction of Unified Lending Interface (ULI) – a consent led digital access to borrowers financial and non-financial data (including land records). Access to financial and non-financial data in a digital medium will boost confidence of lenders as it will enable faster and improved under-writing of borrower’s credit demand. 
• While nation-wide launch of the interface is underway, this interface is expected to enable to benefit various stakeholders in the economy. On one hand, ULI will improve credit flow to agriculture and MSME borrowers thereby increasing financial inclusion while on the other hand it will aid business growth and yields for lenders (banks & NBFCs) along with keeping a tab on asset quality.

Anticipated relaxation on provision on infrastructure exposure

• As per media sources, RBI is mulling to provide some relaxation in lieu of provision buffer to be created on infrastructure exposure. According to the draft, lenders were required to shore up provision on under-construction projects from current 0.4% to 5% in a phased manner in next 3 years.
• However, to ensure availability of credit to infrastructure sector without any substantial impact on lenders profitability, central bank is looking to extend the time period for implementation of the requirement of higher provision. 
• While central bank does not envisage to alter requirement for higher credit cost, extension in implementation will provide breather to the lenders as gradual increase in coverage ratio, without any major impact on profitability, could be undertaken. In listed financial domain, PFC, REC and IREDA remains primary beneficiaries. 

Hidden Gem

Sonata Software: Healthy long term growth outlook (Target Price: Rs 770)

• Sonata Software (Sonata) provides IT services and product licensing services to its clients in BFSI, HLS (Healthcare & Lifesciences), RMD (Retail, Manufacturing, Travel & Distribution & TMT) segments.
• Growth Outlook: Sonata Software expects stronger growth in Q2, with momentum accelerating from the second half of FY25. The company is confident in achieving their $1.5bn target by FY27, albeit delayed by 2-4 quarters. The IITS (IT services) pipeline is healthy, supported by 3 large deals won across Healthcare, Manufacturing, and BFSI. Long-term growth is driven by AI, large deal traction & key client contributions. We expect IT services to grow at a 12.8% CAGR over FY24-26E in dollar terms with ~8.9% growth in FY25.
• Deal Momentum & Margins: The company won 3 large deals in Q1FY25 and is pursuing 49 more. Management anticipates that 20% of revenue will come from AI services within the next three years. While Sonata faces short term margin pressures due to delays and wage hikes, margins are expected to recover by FY26 to the normalised mid-20s levels vs. low 20s likely in FY25.
• Our view: Long-term growth is driven by AI, large deal traction & key client contributions. Overall, the long-term growth outlook remains positive, driven by advancements in AI, a strong pipeline, and continued large deal wins, despite the near-term margin challenges. We have a BUY rating, valuing it at a target price of Rs 770, with a multiple of 28x P/E on FY26E EPS.