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Below the quote Top Diwali Picks and Quote by Amar Ambani, Group President & Head – Institutional Equities, Yes Securities India Limited

“We embarked on this year with optimism as 55% of the NSE500 market capitalization achieved a remarkable 35% year-on-year (YoY) growth in Annual Profit After Tax (APAT). A closer look reveals a 38% YoY increase in Profit Before Tax (excluding Financials) and a significant 30% YoY growth in EBITDA (excluding Financials). This optimism and resilience continued into Q2, with 240 out of 500 companies (66% of NSE500) delivering a remarkable 42% YoY growth in Adj PAT, an outstanding 46% YoY increase in PBT, and a 30% YoY rise in EBITDA. At the same time, revenue showed only a modest 2% growth. These results can be attributed to increased efficiencies, a decrease in commodity prices, and a steady demand environment.

A noteworthy development is India's inclusion in a major global bond index, a testament to the country's burgeoning economic strength. The process of considering India's inclusion in global bond indices has extended over several years, facing numerous challenges leading to delays. These obstacles encompassed fundamental concerns over increased volatility in global capital exposure, the absence of a suitable government bond pool, and issues related to taxation mechanisms. For a country like India, grappling with a capital deficit and substantial investment requirements, this decision provides access to a substantial and stable pool of benchmark-driven savings allocation, ultimately aiding in the reduction of funding costs over the next 12-18 months.

China also being in a deflationary scenario is supportive as it exports deflation to the world, thereby helping India as money moves in favour of India instead of China. In the Indian context, there is speculation that the rate hike cycle has drawn to a close, with a forecast that 20 out of the 23 companies monitored on Bloomberg envisaging rate reductions in the year 2024. On the liquidity front, domestic liquidity is on a strong footing and FIIs too shall join the party once the near-term global pressure is done with. 

In the near term, it's crucial to monitor unfolding macroeconomic conditions. Rising US yields are impacting various asset classes, driven by the Fed's 'Higher for Longer' policy stance. However, we attribute higher US yields not only to interest rate trends but also to increased US Treasury borrowing and a widening fiscal gap. We anticipate the possibility of the Fed intervening by purchasing US Treasuries or implementing rate cuts to lower yields and mitigate the growing Federal interest burden. 

The world was emerging from one war when we find ourselves in the midst of another. We foresee two potential outcomes in the ongoing Israel-Hamas conflict. Scenario one suggests that hostilities will remain confined to Israel and the Gaza Strip. In contrast, scenario two raises the concern of a major market correction due to a full-scale Middle East conflict. Given the current global economic challenges, including high inflation, rising interest rates, the ongoing Russia-Ukraine war, and a slowing Chinese economy, the world can hardly afford another full-fledged war. This is why many countries are making efforts to prevent further escalation. Qatar has offered to mediate hostage releases on both sides, and the US has stated it lacks specific intelligence or evidence pointing to Iran's direct involvement. Israel is primarily focused on targeting the Gaza Strip and is cautious about directly confronting Iran.

The combination of stable yields and the Indian Rupee (INR), along with limited investment opportunities in sluggish markets like China, is anticipated to channel Foreign Portfolio Investment (FPI) into the Indian market. This optimism extends to the Sensex as well. A range of positive factors, including sustained government capital expenditure (capex), consistent private consumption driven by robust credit demand, and substantial growth in corporate earnings due to enhanced margins resulting from lower input costs and strong banking sector performance, underpin the bullish outlook for the Sensex.

Furthermore, a new growth cycle is on the horizon for small and mid-cap segments. These segments are poised to outperform the broader market in the coming years. Many of the stocks within this space hold leadership positions in their respective sub-segments, boasting extensive and visible track records. This positioning aligns them to benefit from the ongoing formalization and digitalization of the economy, cost advantages stemming from lower input expenses, improved access to credit at favourable terms, and expanding valuation multiples.”

Diwali Top Picks 2023

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