Closing Bell: Market ends lower amid high volatility; metals down 5%, banks shine

Markets remained volatile and ended with a cut of nearly half a percent. After the initial downtick, the benchmark hovered in a narrow range for most of the session however selling pressure in the final hour pushed the markets lower. A mixed trend was witnessed amongst the sectoral indices wherein metal, energy and realty were the top losers. The broader markets, midcap and smallcap, continued to underperform which ended lower in the range of 1.3-1.7%.

We reiterate our bearish stance on the markets, in absence of any positive trigger. Participants shouldn’t read much into a single-day rebound and wait for some decisive reversal signal.

Besides, stability on the global front is equally critical for any sustained move. Meanwhile, since most of the sectors are trading under pressure, the focus should be on stock selection and using intermediate rebound to create shorts.

The Indian logistics business is poised for tremendous expansion, and Delhivery, with its focus on the fast-growing e-commerce market, has promising growth potential ahead of it. Although the company's revenues are increasing at a rapid pace, the company's EBITDA and cash flow from operations remains negative.

We expect that the company will continue to experience increasing cost pressures, at least in the short term, due to rising fuel costs. In addition, the issue looks to be sharply valued at a price-to-sales ratio of 5.5x of annualised FY22 revenue, when compared to its listed peers.

Considering the current increasing interest rate environment, where valuations of high growth companies across the globe are taking a beating, Delhivery’s expensive valuation is concerning. So we have an AVOID rating for this IPO.

The resistance of Indian market has started to move in tandem with the world market. The support from DII & retail investors is reducing after the heavy selloff unsteadying their optimism. A fall in financial liquidity is expected to slow down the economy and the pricing of equities.

Oil prices are declining further on worries of Chinese lockdown, rising dollar and risk of recession. Metal stocks are losing its shine as the sector’s outlook is turning negative due to persisting margin pressures.

Investors dumped metal, power and oil & gas stocks amid concerns of a fragile global economic growth prospects that led to a downfall in key benchmark indices. Traders are concerned that central banks of key developed economies could resort to more rate hikes going ahead to temper rising inflation, which could hurt growth and trigger more foreign fund outflows from emerging markets, including India.

Technically, after a muted opening market the Nifty witnessed intraday recovery but one more time it found resistance near 16400 and corrected sharply thereafter. On intraday charts, the index is still holding a lower top formation which is broadly negative for the market.

For the traders, 16200 would be the key level to watch out and below the same there is a strong possibility of a quick intraday correction up to 16100-16050 levels. Above 16300 level, a fresh pullback rally is not ruled out and above the same, the index would retest the level of 16400-16450.

Indian rupee ended 14 paise higher at 77.32 per dollar on Tuesday against Monday's close of 77.46.

A weakening rupee despite forex swaps by the Central Bank failed to lift IT stocks even after good deal wins and management commentary post-earnings. FMCG stocks saw investor interest today as Bulls attempted to halt the famous adage - Sell in May & Go Away.

The Metal index however played spoilsport for the bulls and dropped over 5% today in afternoon trade led by aluminium & steel.

The indices in no way represented the damage done today in the broader markets with the advance-decline ratio describing the weak undertone.

Despite volatility in markets and fear around macros both globally and locally, it is good trend to see continues positive flows in equities.

Though lower than last month which may be due to NFO allotment, SIP flows are holding strong which is also very positive.

It will be interesting to see ongoing investment trends given the intensity of volatility being very high, I do expect positive trend to continue going forward though.

Indian benchmark indices ended on negative note in the highly volatile session on May 10.

At close, the Sensex was down 105.82 points or 0.19% at 54,364.85, and the Nifty was down 61.90 points or 0.38% at 16,240. About 848 shares have advanced, 2428 shares declined, and 132 shares are unchanged.

Coal India, Tata Steel, ONGC, Hindalco Industries and JSW Steel were among the top Nifty losers, while gainers were HUL, Eicher Motors, Asian Paints, UltraTech Cement and IndusInd Bank.

On the sectoral front, metal, power, oil & gas, healthcare, IT and realty indices down 1-5 percent. On the other hand bank index added 0.5 percent.

BSE midcap and smallcap indices fell 2 percent each.

Delhivery is backed by a strong network, technology, and automation. Strong relationship with a diverse customer base is company’s strength. It serves a 23,100 active customer base.

Company has asset-light business model which can be scaled at low costs. Also, it has experienced and highly qualified team with significant investment in training.

On the financial front, for the last three years Delhivery has posted a loss on a consolidated basis to Rs -1,783 cr/-269 cr/-416 cr in FY19/FY20/FY21 respectively. Based on its FY21 revenue, company has been valued at 9.7x P/sales which is higher than the other logistics services companies. We recommend investors to “Avoid’ this issue.

We continue to maintain our positive view on the medium - long-term performance of RIL, which is likely to be driven by 1) expected strong growth in the sales from Retail segment on the back of aggressive expansion plans for stores and strong growth in merchant partnerships and digital commerce 2) Digital (Jio) segment is expected to see strong margins on the back of increased demand for data traffic, FTTH connections and allied services; partially offset by fall in subscribers’ base 3) O2C segment’s margins are expected to move in line with increased oil prices; partially offset by consequently higher feedstock and energy costs and fall in demand for petrochemicals due to economic weakness caused by rise in interest rates.

At a CMP of Rs 2,518 per share, RIL is trading at 19.2x FY23EPS of Rs 131.33 and at 17.1x FY24EPSE of Rs 146.94. On an EV/EBITDA basis, the stock is trading at 12.4x its FY24EBITDA (vs. an average forward EV /EBITDA of 7.0x, the peer set trades at).

We believe the leadership position of Reliance Industries within diversified set of sectors and new energy business currently underway, justify it trading at a premium to market. Using SOTP methodology, we arrive at a target price of Rs 3,045 per share; a potential upside of 20.9% and maintain our “BUY” rating.

Axis Bank has witnessed sequential improvements in its margins on account of steady growth in lending and subsequent reduction in provisions. The bank has maintained impressive credit growth momentum and asset quality continues to improve as well.

Hence, we remain positive on the bank’s performance over the coming quarters and reiterate our buy rating on the stock with a rolled forward target price of Rs 828 based on 1.75x FY24E BVPS.

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