Share market outlook of the week: All eyes on US Fed as rate cut optimism lift sentiments

• Nifty reclaimed new highs as rate cut hopes and benign inflation expectations helped by good monsoon and lower brent prices weighed on sentiments. As a result, Nifty gained 2% for the week ahead of US Fed meeting next week.
• What to expect: Nifty has retraced seven session corrective phase in faster time. Expect to head towards 25,800 with key support at 24,750.
• Private banks showing signs of strength and with their significant weightage likely to steer Nifty higher.
• Sectorally, BFSI, IT, Metals, Consumption are expected to outperform.
• Brent: Prices continue their down trend after breakdown from one year consolidation. Expect prices to head towards $67 over coming months while upsides capped at $80.
• Liquidity: FIIs have been net buyers in four out of past five sessions. As of September 12, FIIs have invested nearly Rs 14,750 crore in domestic equities, including some block deals. Additionally, they brought in around Rs 7,000 crore in yesterday's session (a provisional figure), hence, amounting to approximately Rs 20,000 crore in total inflows so far this month. This reflects confidence in large-cap stocks and suggests that downside risks are limited.

August Inflation print on expected lines

• India’s CPI inflation in August 2024 came in at 3.65% as against market expectation of around 3.5% and as compared to 3.6% in July 2024. While the print is marginally higher from record low print in July, the print is the second lowest of the series.
• Overall the YoY inflation remain high in items like Vegetables, Pulses, Cereals and Fruits. However, MoM Vegetable prices decline by -2.5%. Cereals continue to saw MoM rise of 0.6%. Overall total CPI print remain flat MoM.
• Overall, CFPI food price inflation for August was marginally higher at 5.66% compared to 5.42% while core inflation was flat at 3.4%.
• Within core, most items remain flat with higher weight items like Fuel and Light (-5.3%)and Transport and communication (2.3%)remain lower.
• The RBI's inflation projection for Q2FY25 is 4.4%. Next month's inflation expectation is around 5.0% which will result in average Q2 print at 4.1%, 30 bps lower than RBI projection.
• Lower crude oil prices and potential price cut in retail prices before state election along with normal monsoons bodes well for inflation outlook.

MF monthly flows remain strong

• Ex-NFOs, inflows in August came at all-time high at Rs 27,200 crore vs Rs 23,400 crore in July 2024. Total equity inflows including NFOs were at marginally higher Rs 38,239 crore vs Rs 37,113 crore. Around 4% decline in the first week of August might have led to higher inflows indicating the “buy on dips” habit which seems well and truly enriched among retail investors.
• Monthly average inflows in CY2024 is 2x at Rs 22,200 crore vs 2023 average of Rs 10,400 crore. Annual run-rate of more than Rs 2.6 lakh crore (22,200*12).
• Sectoral Funds continue to witness higher inflows on the back of continuous NFOs. However, even ex-NFOs flows, the run-rate remain around 8,000-10,000 crore. In August, including NFOs, flows were at Rs 18,120 crore vs Rs 18,400 crore.
• Smallcap funds saw higher inflows at Rs 3,200 crore vs Rs 2,100 crore. Midcap funds saw higher inflows at Rs 3,000 crore vs Rs 1,600 crore. Largecap funds saw change in trend with higher inflows at Rs 2,600 crore (ex-NFO: 1,800 cr) vs Rs 670 crore in July 2024.
• SIP inflows rise marginally at Rs 23,547 crore vs Rs 23,332.
• ETFs inflows were higher at Rs 10,000 crore vs Rs 5,800 crore. 

Cabinet approves PM E-DRIVE scheme (FAME-III)

• The Cabinet has approved the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) Scheme, allocating Rs 10,900 crore over two years to advance adoption of electric mobility in India.
• This policy will replace the previous FAME II Scheme and aims to facilitate the adoption of 24.79 lakh electric 2-W, 3.16 lakh electric 3-W and 14,028 electric buses.
• Subsidies/Demand incentives worth Rs 3,679 crore have been provided to incentivize e-2Ws, e-3Ws, e-ambulances, e-trucks and other emerging EVs.
• Additionally, Rs 4,391 crore is designated for the procurement of E-buses by state transport undertakings with preference for new buses procurement against scrapped vehicles.
• Also, the scheme allocates Rs 500 crore each for adoption of e-ambulances and E-trucks.
• A total of Rs 2,000 crore is also earmarked for the installation of 22,100 fast chargers for electric 4-W, 1,800 fast chargers for E-buses and 48,400 fast chargers for electric 2/3-W, ensuring robust infrastructure to support the growing electric vehicle market.
• The scheme looks comprehensive as it addresses the need for incentives on the demand side as well as envisages requisite capex on charging infrastructure addressing the issue of range anxiety.
• Continuation of Fame scheme was much awaited for further adoption of EV’s domestically. This policy is certainly positive for the E-mobility players in the 2-W,3-W and Buses segment with clear beneficiaries being Bajaj Auto & TVS Motors on the 2-W side, M&M & Bajaj Auto on the 3-W side and Tata Motors & Ashok Leyland on the E-buses space.
• The subsidy for 2-W is structured at Rs 5,000 per kilowatt hour, capped at Rs 10,000 per vehicle, with a reduced subsidy of Rs 2,500 per kilowatt hour in the second year. Additionally, electric three-wheelers can benefit from a Rs 25,000 subsidy in the first year and Rs 12,500 in the second year. For the L5 category (cargo three-wheelers), they will get a benefit of Rs 50,000 in the first year, and for the second year, it is Rs 25,000.

Cabinet approves Payment Security Mechanism for Electric Buses

• In an important development, the Cabinet has also approved the Rs 3,435 crore PM-eBus Sewa-Payment Security Mechanism (PSM) scheme for procurement and operation of e-buses by Public Transport Authorities (PTAs). 
• This scheme will support deployment of more than 38,000 electric buses (e-Buses) over FY25-29E.
• Public Transport Authorities were placing orders for Electric Buses on Gross Cost Contract (GCC) Basis wherein OEM’s winning tenders in this space were also entrusted upon running these buses for a period of 10-12 years and receive an assured sum every month against their operations vs. outright sale of these buses at one go. This mechanism was facilitated to ease financial burden on PTA’s. However, OEMs demanded some sort of payment guarantee mechanisms considering the long operational period of these contracts as well as tepid financials of most of the PTA’s.
• With this present payment security mechanism, government has largely addressed this issue and it shall accelerate adoption of electric buses domestically. Tata Motors and Ashok Leyland will be the biggest beneficiary of this system.

According to media sources, Union Minister Nitin Gadkari has indicated that the Indian electric vehicle (EV) market is projected to reach a potential value of Rs 20 lakh crore by 2030, with expectations of annual sales hitting 1 crore units. This growth is anticipated across the entire EV ecosystem. Currently, approximately 30 lakh electric vehicles are registered in India, with electric two-wheelers accounting for a substantial share of total sales at ~56%.

Domestic Metal Space: Initial green shoots of better performance that lies ahead

• BSE Metal Index was one of the major gainers and was up 2% during the past week. It was broadly tracking expectations over mortgage interest rate cut in China (of ~80 bps, on outstanding housing loans) and government filing review plea against recent Supreme Court Ruling allowing states to tax minerals mined in the state.
• Government stated that allowing states to tax minerals mined in the state will have a negative macro implication for the country given the growing infrastructure development needs domestically and potential lack of uniformity of tax rates. We expect a relief on this front.
• In a separate development, as per media sources, government has extended anti-subsidy duty by imposing countervailing duty between 12% and 30% on the imports of welded stainless-steel pipes and tubes from China and Vietnam for the period of next five years. This move offers relief to the domestic stainless-steel industry, which has been struggling with low-cost exports from China and Vietnam.
• In a separate development, as per media sources, steel ministry has formulated a plan envisaging $283 billion spend (~Rs 23.7 lakh crore) for decarbonisation of domestic steel industry.
• The steel industry accounts for 10-12% of India’s total emissions. Therefore, the sector’s decarbonisation is imperative for India to meet its climate goals.
• The Indian steel industry is constrained to use coal-based blast furnaces and rotary kilns for steelmaking due to a lack of affordable alternatives including scrap. Consequently, the emission intensity of steel produced in India, at 2.54 T CO2 /T Crude Steel (tCO2 /TCS), is significantly higher than the global average of 1.91.
• As part of decarbonisation efforts, it envisages increase the renewable energy penetration in the sector from 7.2% in FY22 to 43% by FY30 at a capex outlay of ~Rs 74,000 crore ($9 billion). 43% RE penetration in the steel sector by 2030-31 will lead to an emission reduction of 8% from 2.54 to 2.35 tCO2 /tcs.
• Within this it also envisages, USD $150 billion (~Rs 12.6 lakh crores) to be allocated towards process transition cost. With one of the transitions involves shifting from coal-based production to green hydrogen with natural gas as an intermediary fuel. The natural gas-based steel production has ~30% lower emission than coal gasification and rotary kiln-based production processes.

US passes the Biosecure Act

• The US House of Representatives passed the Biosecure Act , which intends to restrict US Pharma companies from doing business with certain Chinese biotech firms with a grandfathering clause of eight years.
• The act mentioned names of five Chinese companies- BGI Genomics, MGI Tech, Complete Genomics, WuXi AppTec and Wuxi Biologics for the regulation.
• The bill will now head to the US Senate for voting and if it becomes law, then it provides an opportunity for Indian CDMO players. Global pharma companies have already started taking action despite the legislation not yet even a law.
• As per F&S report, India CRAMs Industry is currently at USD 7 Billion and is poised to expand at a CAGR of 14% till FY2028 which will be highest amongst other regions. China CRAMs Industry size is USD 25 Billion.
• Most of the players have undergone significant capex expansion in recent years with the combined capex figure for Divi’s, Syngene, Piramal Pharma, Hikal and GLS stood at Rs 9,600 crore during FY21-24. Suffice to say that they are well prepared to cater to the incremental opportunities stemming from Biosecure Act.

Moderation seen in general insurance business led by motor segment

• Indian general insurance industry has witnessed a moderation in business momentum in the month of August 2024, led by slowdown in sales of new vehicles and absence of tariff hike for third party insurance. Industry recorded growth of 4.5% YoY at Rs 22,880 crore in August 2024, though premium growth in April – August 2024, remain steady at 10.6% YoY.
• Among players, ICICI Lombard reported 10.1% YoY growth (YTD growth at 17.5%), thereby gaining market share, while Star Health delivered steady growth of 15% (YTD growth at 16.6%). Bajaj Allianz reported slowdown in momentum (3.5% in Aug’24) while New India Assurance delivered reduction of 12.5% YoY (YTD growth at 1.9%), resulting in market share loss. 
• While moderation in auto segment impacted business momentum, select players have been able to deliver sustained growth gaining market share. Festive season is expected to boost auto sales and continued traction in health segment is expected to aid revival in premium growth.

Continued healthy momentum seen in life insurance business

• Life insurance industry reported healthy growth in business momentum. Industry premium increased 22% YoY for the month of August 2024, while in April to August 2024, the growth was at 20.8% YoY. In terms of APE (Annualised Premium Equivalent), premium growth remains healthy at 10.5% YoY (YTD growth at 15.8%).  
• Among peers, private players delivered 9% YoY growth while LIC reported 13% YoY growth, led by single premium. Growth in group single business (YTD growth at 25.7%) and guarantee & unit linked products in individual segment aids premium accretion.
• On APE basis, Max Life and IPru Life delivered healthy growth at ~16.6% and 20% (Aug’24), HDFC Life witnessed rise of 8% YoY, though SBI Life's APE declined by 2%.
• Business momentum continued to remain robust which induces confidence. However, impact of new surrender guidelines (effective from October 2024) on business growth and margins remains watchful.

Hidden Gem

HG Infra (HGINF): A Beneficiary of strong order inflows CMP: Rs 1,590; TP: Rs 1,885 (19% Upside)

• HG Infra Engineering Ltd is a Jaipur (Rajasthan) based infrastructure company having primary focus on Roads and along with railways and solar sectors. Additionally, the company is actively looking to diversify itself by targeting into water infra segment. It reported 20.6% revenue CAGR over FY19-24 with sustained operating margin driving ~30.3% earnings CAGR over the same period.
• Strong order book: The orderbook as of Q1 stood Rs 15,642 crore (2.9x TTM book to bill). The company expects order inflows of ~Rs 11,000-12,000 crore in FY25, with 60% inflows likely from Road and remaining being non road segments. During Q1, the company has won orders worth ~Rs 4,905 crore and further Rs 1,600+ crore in Q2.
• Healthy Revenue and earnings growth: The company has guided for 18-20% revenue growth in FY25 with stable margins of 15-16%. We have baked in ~18% CAGR in topline over FY24-26E to Rs 7,135 crore. Sustained margins at 15.6-16% would ensure, ~22% CAGR in earnings over FY24-26E.
• Our view: Considering its executable order book position and robust execution, we expect healthy topline and earnings growth over FY24-26. Additionally, strong balance sheet, return ratios and healthy working capital cycle remain key positives ahead.
• We value HG at Rs 1,885 on SoTP basis.