Short Call | Bulls have reasons to cheer, Aarti’s new bull, Zee in bear grip, HUL, Shoppers Stop in focus

HDFC Bank’s third-quarter disappointment is weighing on the banking sector.

“Liquidity is a concern of the short-term investor and a minor matter for the long-term investor.” - Peter Bernstein

Sentiment has improved, though one cannot say if Friday’s rebound was a temporary pullback after three straight sessions of loss. Bulls will point to the S&P and Dow Jones indices making fresh record highs as proof that the uptrend in India too is intact. HDFC Bank’s third-quarter disappointment is weighing on the banking sector. Given that it accounts for a little over 25 percent of the Nifty, weakness in banking could keep the index in check.

According to Mahesh Patil of Aditya Birla Sun Life AMC, deposit rates could go higher going forward. That means pressure on net interest margins. The good part is that valuations are reasonable, he says.

Captainspeak:

“Our ability to charge will continue to increase as demand is far higher than supply.” - Puneet Chhatwal, Indian Hotels

Hindustan Unilever (Rs 2,576.80, +0.78%)

The ompany reported Q3 numbers after market hours. Net profit, revenue below street estimates

Bull argument: A long-term compounder. Has been able to expand margins over tough times. Healthy return ratios. Domestic institutions have increased stake in last quarter

Bear argument: Volume growth has been a struggle post COVID. Price growth is also behind with raw material prices falling. Valuations expensive

Zee Entertainment (Rs 232, -5%)

Stock tumbles ahead of announcement of status of the merger deal with

Sony. Market talk about an announcement by Sony today. Zee says not aware of any such development.

Bull argument: Valuations reasonable, company has a strong brand. There could be other suitors should the deal fall through.

Bear argument: Uncertainty over the Sony deal. Sentiment negative should the deal fail to go through. Unwinding of speculative positions built in anticipation of the deal fructifying put further pressure on stock.

Aarti Industries Rs 679 (+11%)

Stock hit a 52-week high. Broker Emkay Global has initiated coverage with buy call, Morgan Stanley remains overweight

Bull argument: Company has won a Rs 6000 crore contract, the second major long term contract win in two months.

Bear argument: Outlook for specialty chemicals globally still hazy. Stock still 30 percent below record high seen in October 2021.  There is skepticism if chemical stocks in general will be able to command the high valuations of 3 years back.

Shoppers Stop (Rs 695, -1.1%)

Q3 net profit down sharply year-on-year

Bull argument: Company plans to add about 300 stores over FY24-26. Transaction value at value fashion store Intune gradually improving.

Bear argument: Valuations expensive considering growth rate has been much slower compared rival Trent.

Tata Communications (Rs 1735, -2%)

Stock saw profit taking after reporting strong Q3 numbers

Bull argument:  Consistent operating performance. Recent acquisition Kaleyra was EBITDA positive in its first quarter.

Bear argument: Near-term pressures continue to impact margins; slow customer acquisition rate is also a concern.

With inputs from Shailaja, Anishaa and Srushti