Short Call: Fed's tune changes -- markets to continue to dance, small-caps may lose their rhythm; bull and bear case for PCBL and Mankind

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If there’s one thing investors have been craving from policymakers, it’s an interest rate cut from the US Fed—the first since the Covid-19 pandemic turned the world upside down. Well, it looks like the moment has finally arrived! Jerome Powell has hinted, "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

So, what’s the ripple effect for India? Market experts are saying the recent consolidation could be coming to an end. With the Nifty currently hovering near the 25,000 mark, it’s poised to reclaim that psychological level and maybe even set a fresh record high.

As the feel-good vibes spread, the broader market might also join the rally and even outperform in the coming sessions. But don’t get too comfortable—this joyride in mid- and small-cap stocks might not last long, and here’s why. First, large-caps are still relatively reasonably priced compared to the mid-caps, where a slew of stocks are trading at multiples that far exceed their growth rates. So next round should legitimately belong to large-caps. Second, when foreign investors inevitably flood back into India (and it looks like that’s finally on the horizon), they’ll likely pour their money into the big-cap blue chips they previously exited.

While mid- and small-caps have surged about 26% year-to-date, leaving the Nifty’s 14% gains in the dust, it might be time for the big dogs to return and dominate the Street once again.

PCBL (Rs 498.80, +10.6%)

Stock surges after management highlighted significant growth opportunities amid a favourable global scenario for India's rubber black industry.

Bull Case: PCBL's dominant market share, focus on specialty carbon black, and leadership in ESG practices position it well to capitalize on India's growing presence as a key exporter, driving robust revenue and margin expansion by FY25.

Bear Case: The company faces risks from high competition, reliance on the automotive industry, potential regulatory challenges regarding carbon black's environmental impact, and threats from substitute materials, which could pressure profitability and growth.

Mankind Pharma (Rs 2,351, +1.4%)

Released annual report, highlighting a strategic roadmap for growth via expansion in innovative product launches in the chronic/consumer segment and transition from sexual wellness to consumer wellness in the OTC space.

Bull case: Improved share of high-margin chronic therapies in the prescription mix, expanding presence in the segment along with the addition of new specialized divisions. New launches to trigger double-digit growth in the consumer healthcare segment. Continued focus on improving its presence across Tier I and metro cities.

Bear case: Debt levels to rise further to complete the acquisition of Bharat Serums and Vaccine and hence, free-cash-flow will only start to improve post the completion of the transaction. Despite stable profit growth, dividend payout remains low.

(With inputs from Harshita and Vaibhavi)