Expert Analysis of the Global Macro Events & News affecting the Indian Markets

Before moving on to the newsletter, check out Green Portfolio’s newly launched – Ethical smallcase

Flexi-cap portfolio that invests in 15-20 value and growth stocks based on Ethical Investing principles.

Growth Drivers:

• Import substitution beneficiaries.
• Supply chain re-shoring (China Plus One) beneficiaries
• Manufacturing oriented companies, from India and for the World
• Beneficiaries from infrastructure creation and related growth
• Consumption growth beneficiaries from aspirational middle class

Key features:

• Philosophy is to invest in growing ethically strong businesses, having strong management, fundamentals and comfortable valuations.
• If a stock is reported non-compliant, we ensure that the portfolio gets updated in the upcoming rebalance.
• Dividend purification notification sent to all investors on a periodic basis.

Before you invest:

• Keep an investment horizon of 2-3 years for capital appreciation
• Rebalance schedule is quarterly
• Recommended investment amount is Rs. 2-5 lakhs
• Watch the video about this new smallcase

Weekly Synopsys

Two-step backward, one step forward

As much as we hate to see this, the market has been moving in tandem with Adani stocks during the last few weeks – the entire market – including the small and midcaps.

Reasons for the underperformance have been plenty – from interest rate uncertainty, and recessionary fears to FII shorts. During the month of February, there were talks about FII/FPI’s selling India and buying cheaper emerging markets. But what is the definition of ‘cheap’? Is it just based on the price-to-earnings (PE) multiple?

When you look at the future growth prospects, India isn’t the most expensive market, in fact, it is the most discounted market – based on the (price-earnings-growth) ratio.

China’s Two Sessions

• The “Two Sessions” is an annual parliamentary meeting that gathers delegates from across China to discuss and approve national priorities.
• What exactly happens? Delegates meet to give their formal consent on legislation, personnel changes, and government budget. We are looking forward to the third one, Government Budget.
• China is also set to release its annual targets for GDP growth, inflation, and employment. If you ask me, the world’s second-biggest economy recording a mere 3% GDP growth last year doesn’t sound good, expectation on the street is that a sharp hike in GDP target might take place, somewhere around 5 percent.
• The delegates have put forward proposals aimed at tackling China’s declining population, which saw its first drop in 60 years, by suggesting initiatives to address the low birth rate. At first China plus one was the hot topic, now plus one kid will be trending there

Update on the Adani Saga…

• US-based GQG Partners invests $1.87bn in four companies of the Adani Group.
• This is the first major investment made after the Hindenburg report which wiped off around two-thirds of the group’s market value.

News that caught our attention

• State Bank of India has announced that it has successfully conducted its first non-dollar transaction with Sri Lanka, by paying for exports in Sri Lankan rupees. This initiative aims to include countries that lack U.S. dollars in the trade mechanism. This move is particularly significant for Sri Lanka, which is currently facing its worst economic crisis since its independence, triggered by a shortage of dollars.
• The Indian rupee (INR) has made significant gains against the US dollar, reaching a one-month high and even breaking the 82 mark. This increase in the value of INR can be attributed to several factors, including a strong inflow of foreign funds, positive performance of other Asian currencies, and a decrease in the value of the US dollar. Additionally, a strong rally in the Indian equity market has further boosted the positive sentiment surrounding the rupee.
• The S&P Global India Services Purchasing Managers’ Index increased from 57.2 in January to 59.4 in February, reaching its highest level since February 2011, which exceeded all forecasts. It was anticipated that it would decrease to 56.2. The composite index rose to 59.0 in February from 57.5 in January, primarily due to the strong growth in the services sector, despite the manufacturing growth experiencing a decline.

smallcases Performance Outlook

This week we look into the ‘Smallcap Compounders’ smallcase portfolio. Performance in terms of returns and earnings has been exceptional. Despite being heavily skewed towards manufacturing firms, the companies in our portfolio stood the test of cyclicality.

Update on Portfolio Companies: Titagarh Wagons (TWL)

• Titagarh Wagons (TWL) is something we wanted to discuss this week. This is part of Smallcap Compounders smallcase. This is a stock we have been investing in since 2020 in the PMS. As you may know, we never buy a stock in one shot and sell at a glimpse, in fact, we are very comfortable buying at higher prices (higher than our initial purchase price) as and when the fundamentals of the business keep improving. The stock has risen 150% during the last one year, and this remains the most undervalued name in the railway space when we consider order book multiples.

• Recently, L1 and L2 bidder was announced for the manufacturing and maintenance of 200 Vande Bharat trains. The value of the contract is INR 58,000 Crores. The consortium of TWL and Bharat Heavy Electricals (BHEL) was declared as the L2 bidder. This makes them eligible for manufacturing 80 of the 200 trains. When we consider the order book value (along with the maintenance work) that will accrue to TWL, the order book will double. Okay, not precisely double, because a large chunk of value will accrue to maintenance work rather than the supply of these trains, and the maintenance is to be carried out over 35 years.

• TWL and BHEL were the only fully “Indian” bidder. This is aligned with our philosophy of investing in companies contributing and benefitting from Make in India and Atmanirbhar.

• Their current order book is INR 10,130 Crores, and if all goes well, the supply + maintenance of these 80 Vande Bharat trains will add another INR 12,750 Crores. That will take the entire order book to INR 22,880 Crores.

Green Portfolio is a SEBI Registered (SEBI Registration No. INH100008513) Research Analyst Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.