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On its surface growth is appealing, bringing about a number of advantages for the entity undergoing it. But scratch the surface and the growth we chase and admire is usually bundled with a number of downsides. Uncertainty, complexity, risk, pain. Rarely can growth occur without experiencing some of these challenges.

As a country and economy, India is in the midst of a similar journey. As one of the world’s fastest-growing economies, accounting for about 15 percent of global growth, India is enjoying building momentum. The International Monetary Fund expects economic growth to pick up to about 7.3 per cent for fiscal year 2018/19.

However, a recent article from Deloitte states that while domestic fundamentals remain stable, India’s current account is under pressure. Imports have shifted from raw material to capital-intensive sectors, reflecting the needs of a consumption economy. Combined with an under pressure currency, increasing oil consumption and costs and a stronger global economy, India and its policymakers have some of their own growing pains to deal with.

India’s biggest companies are being impacted by this growth in different ways and to varying degrees. Clay Carter, Macrovue’s Head of Investment Committee, takes a look at five of India’s biggest companies.

Infosys (NYSE: INFY)

Infosys’ quarterly results reported on 11 January 2019 were well received by the market. The company generated revenues of US$2.987 billion handily beating consensus estimates of US$2,951 million - the highest quarterly growth in seven years. Annual revenue growth has now crossed 10%. Accompanying this was a structurally higher value of large deals won (average of US$1.57 billion of large deals per quarter, up >2x on FY18), which should attest to Infosys’s improving ability to win large deals

Infosys has also raised its FY19 revenue growth guidance to 8.5-9% in FY19 (up from 6-8%). Its US localisation drive is impressive with 7,600+ local (US) employees hired in the past seven quarters with 2,000+ hired from US campuses, Infosys is well on track to meet its US headcount addition of 10,000 in two years. Digital specialists are now well entrenched in helping sell to key accounts thus allowing Infosys to broaden its penetration of digital services.

Infosys returned +32.53% in the year to 31 December 2018.

Reliance Industries (LSE: RIGD)

Reliance Industries Ltd is considering a plan to boost its oil refining capacity by about 50% according to financial media reports. The proposed plant, to come up at the world’s biggest refining complex in Jamnagar, will be able to process as much as 30 million tonnes of crude a year.  Reliance has begun discussions with global refinery process licensers and equipment vendors for the new refining train at the Jamnagar complex. A plant of the size planned by the company may cost $10 billion.

To industry observers, this is not surprising, given India’s requirement for new refining capacities.  Right now, India’s total refining capacity stands at 247.6MT with Reliance’s capacity at 68MT. India’s total oil product consumption stood at 204MT in FY18 and has been growing in the range of 4-7% a year.

Reliance Industries returned +25.8% in the year to 31 December 2018.


ICICI Bank reported quarterly results on 31 October 2018. The company generated standalone net income of Rs9B, slightly below consensus estimates. Although core pre-provision operating profit (PPOP) grew 17%, overall profits were dragged down by elevated provisions and treasury losses in the quarter and lower dividends from subsidiaries. A key positive in the results was a decline in the stress book (net NPL) to 6.8% vs. 8.1% last quarter and 9.4% in FY18. Guidance of returning to a 15% consolidated ROE by FY21 was maintained.

Loan growth was 13%, driven by 15.7% growth in the domestic loan book and, within that, 20% growth in the retail and SME book (62% of the portfolio). The International book shrank 4%. Within the domestic book, growth in the unsecured loans and business banking segments has been significantly faster at 43% and 45% respectively. Retail NPLs at 1.73% (+7bps) remain under control.

Net Interest Margins (NIM) improved 14bps to 3.3%, aided by improvement in core domestic margins of 17bps (3.7%). Cost of deposits of 4.76% (-5bps) has not shown any pressure in spite of rising rates. Deposit traction was maintained with 12% growth in deposits. The average CASA ratio stood at 47.1% (+190bps), implying 15% growth in average CASA balances. While deposit costs will likely move up, the bank is able to pass these on. Improvement in domestic yields, the roll-down of the international book and the bank’s deposit franchise augur well for margin improvement going forward.

ICICI Bank returned +17.7% in the year to 31 December 2018.

Tata Motors (NYSE: TTM)

Investing in Tata Motors allows shareholders to participate in two distinct themes - the success of Jaguar Land Rover (JLR) in the global prestige vehicle market and a recovery in Tata’s domestic “standalone” commercial vehicle and automotive businesses. While JLR has had some supply and inventory issues in mid-2018, uncertainty in European markets due to new emission standards and a soft Chinese market, recent sales data suggests the business continues to do well particularly in one of the world’s largest markets - the U.S.

In December 2018, JLR US annual retail sales increased nearly 24 per cent. This was driven by Land Rover (LR), which reported nearly 33 per cent growth. Jaguar cars only reported modest 1 per cent growth. Model-wise, in LR, there was a strong show by Range Rover and Range Rover Sport/Evoque, up 108 per cent/85 per cent/27 per cent respectively. JLR has also had better performance in UK/ Europe with volumes up 3%/6% respectively. JLR performance fared well in these markets as it is better placed vs. peers on WLTP (emission) certifications.

While China will remain problematic for the time being, the ramp-up for the new I-Pace and the launch of E-Pace in the Chinese market should lead to a relatively better fourth quarter for JLR. As well, the Indian domestic business continues to thrive with the India turnaround ongoing and seeing strong growth and market share gains across both commercial and personal vehicle segments. The company’s strategic initiatives around network expansion, improved customer/dealer engagement and plugging portfolio gaps have yielded positive results in their home market.

The stock is currently very cheap, trading at the very low end of its historical trading band. While 2018 has been challenging for JLR, potential catalysts include:  positive FCF generation helped by lower inventories, the success of new models leading to much improved volumes, and better cost control leading to margins trending at or above guidance of 4-7 per cent EBIT margins for FY20-21.

Tata Motors returned -58.9% in the year to 31 December 2018.

Vedanta (NYSE: VEDL)

As for Vedanta, a natural resource major with interests in aluminium, zinc, crude oil, iron ore, etc, the company is especially sensitive to changes in global base metal and oil prices.

Overall, 2018 was difficult for Vedanta with the LME metals index declining some 19.5% from mid- year, the aluminium cost of production surged, and oil prices fell 20%. Still analysts remain positive on the stock and we agree. This optimism is based on improving oil prices, rising production in zinc business, and softer input prices offsetting lower aluminium prices in the year ahead.

Vedanta should see a meaningful pickup in earnings given: a sharp pickup in zinc and oil volumes, lower costs, especially in aluminium, as coal availability should improve seasonally into 2H; and continued INR weakness. While the overall macro sentiment and environment remain challenging for metal stocks, VEDL does have an attractive volume growth story across zinc, oil and steel that we believe should support earnings. Also, VEDL has talked about expanding the alumina refinery to 4MT, and this would be a positive if implemented.

Vedanta returned -28.54% in the year to 31 December 2018.

You can invest in these companies directly through Macrovue’s India Vue.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual and does not constitute financial advice. Consider the appropriateness of the information in regards to your circumstances.

Past performance is not a reliable indicator of future performance.

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