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

Economic Times Feature: smallcase manager reveals his playing XI stocks in an IPL-flavored portfolio

With the IPL season in full swing, investors can’t help but draw analogies with cricket and Dalal Street. As part of a special series, Economic Times reached out to Divam Sharma, Co-Founder of Green Portfolio to know how they pick their pinch hitters, whether they like specialists or all-rounders and their on-field strategies. Click here to read the article on ET

The Hype around the Chinese Reopening is beginning to fade

In January of this year, when China abruptly announced the relaxation of quarantine and lockdowns, the world economy cheered, markets climbed higher, oil prices found support, commodity prices rose, and the so called ‘macro strategists’ turned sanguine.

As per reports, when China was coming out of COVID, the savings held by Chinese consumers were 5% of the country’s GDP, and optimism was flaring. 

Four months in, lets see what the data suggest, and what impact is this having on Indian markets and the global economy as a whole. 

The data suggests that Exports grew by 15% year-on-year (compared to March 2022) defying gravity. But when you actually break it down, it’s all thanks to Russia. This kind of data might give the perception that export demand is back in China, and it should immediately translate into Indian export growth. However, looking closely, exports to US and EU from China have fallen significantly while to Russia has increased – this doesn’t show a sustainable trend, not something we can count on.

Now coming to a related area, manufacturing. Manufacturing contracted in April despite the reopening. Raw materials bought by the factories, new orders received, and employment in these factories actually fell – which is bad. At the same time, services and construction did well – which is good. What does this mean? Exports are slowing, domestic consumption and infrastructure is doing well. Domestic air travel is back to 90% of pre-covid levels – I consider this as a predictor of consumer demand. All in all, just as China picked up and consumer sentiments revived, the western economies went into a slowdown 🙁

World oil demand is 102 million barrels per day, out of which 16.5 mbpd is consumed by China alone. And 12-15% of oil demand is from their manufacturing/industrials sector. A slowdown in manufacturing because of slowdown in exports will mean comfortable oil prices, and lower oil prices is always beneficial for Indian consumers, inflation index, and most importantly our equity markets.

• Since we are talking about China, why not mention about FDI’s (foreign direct investments). Even though they are trying to attract FDI investments, they have increased scrutiny on US based companies like Micron and Bain, which has further stumped US corporate’s sentiments towards China. 

• We took a look at the FDI data for the last 7 years. China continued to received record FDI inflows, but this will slow down as sentiments change – actions and numbers lag sentiments. The FDI China receives dwarfs that of India’s and the chart isn’t even comparable! But we can be certain about one aspect, FDI in India has been consistently rising, and this should further solidify with time.

• Speaking about FDIs, FII’s in India have been net buyers for the last two month and been bullish on financials, metals, automobile and capital goods. They continue to be bearish on IT stocks which is reasonable.

Important Economic Events

1. US CPI- May 10

Measures inflation and the most important aspect to decide interest rates. After reaching an all time high of 9.1% in June 2022, it has come down to 5% in March 2023, still far from Fed’s target band of 2%.

2. OPEC monthly report- May 11

Covers major issues affecting the world oil market and provides an outlook for crude oil market developments for the coming year. Provides an insight on demand supply trends.

3. US PPI- May 11

Measures a change in input prices of raw, semi-finished or finished goods and services. If input costs rise, some will be absorbed by the producer and some passed on to the consumer.

Company in Focus: Ashoka Buildcon

In the previous newsletter we talked about the infrastructure industry, essentially what mode they operate on. To give you a brief, we discussed three models- EPC, BOT and HAM. While the HAM model is as new as 2016, approximately half of the projects today are HAM based. 

Anyways, let’s move forward with the segment that you all must have been waiting for, i.e., stock story. This week we will be discussing the company which we recently discovered. The stock is part of our portfolio. It’s Ashoka Buildcon Pvt Ltd, a company with a market cap of 2500 crores. 

Ashoka Buildcon is primarily engaged in 3 businesses: 

• Development of Roads and Highways- Operating majorly on HAM and EPC
• Railways and Building
• Power Distributions- On a broader spectrum, company by leveraging expertise in Power and Road sector entered in the railways segment in FY19.

Let’s talk some numbers now. With an order book of approximately Rs. 21,500 crores, Ashoka Buildcon reported revenue growth of 41% YoY over 9MFY23. It has been able to command stable EBITDA margins of 30-31% but were impacted significantly due to inflationary pressures and higher competitive biddings in some of the projects done during the COVID period. 54.48% of the company’s shares are held by the public.

Its DE ratio stands at 2.65, which is pretty high but it might go drastically down with improving numbers and asset monetization. Talking about its peers, J Kumar Infraprojects Ltd, Dilip Buildcon are its few major competitors. 

It wouldn’t be fair to the company if we don’t talk about its milestone achievements. It boasts of building Eastern Peripheral Expressway in 482 working days and India’s first 8 Lane Extradosed Cable Stayed Bridge, part of the famous Delhi Mumbai Expressway was built in 33 months.

Infrastructure companies are not merely about earning profits. It is also about nation building, an act of service to the nation. Profits come automatically when there is a high barrier to entry. That is the reason we see a very few companies in infrastructure making it to the top. 

Anyways, that was it for this week’s stock specifics. See you next week, with a new industry and new stock. 

Green Portfolio is a SEBI Registered (SEBI Registration No. INH100008513) Research Analyst based at Ground Floor, 7/7, Darya Ganj, Ansari Road, New Delhi, 110002. For more information and disclosures, visit our disclosures page here