Short Call | Bad news may hinder bulls; Zomato, PVR, IIFL Finance in focus; bears aim for JM Financial

Small and mid cap stocks are showing of fatigue even as the Nifty is making fresh record highs.

“The goal is to make good returns with less risk. Risk is not the same as volatility. It’s very hard to measure risk.” - Michael Price

It is a well-known saying that liquidity is the mother's milk of a bull market. And it seems the flow is under threat, looking at the recent actions of regulators and investigative agencies. It started last week with Sebi flagging a froth building up in small and mid caps. A couple of days later the Enforcement Directorate raided a Dubai-based hawala operators and highlighted his dubious dealings in the stock market.

The RBI first rapped IIFL Finance and then JM Financial. The latter action is even more worrying from a market standpoint as the central bank is seen to be clamping down on loans given for investing in the stock market. Murmurs are that more NBFCs could come under the RBI scanner in the days ahead.

Small and mid cap stocks are showing of fatigue even as the Nifty is making fresh record highs. So far, bulls have shown remarkable resolve in the face of so many adverse events. But given that valuations are not in their favour and with the elections not far off, it won’t be easy for them to find buyers in the short term.

Samvardhana Motherson (Rs 126.3, +5.6%)

The stock surged with higher trade volumes. Some 5 crore shares changed hands, compared to the monthly average of 1 crore.

Bull argument: The company is expected to benefit from the premiumisation trend across different segments with a $77-billion order book and a 22 percent EV share.

Bear argument: Sources told CNBC Awaaz that promoter entity Sumitomo Wiring is likely to sell 4.5 percent stake in the company. This could create a

short term overhang in the stock.

IIFL Finance (Rs  477.75, -19%)

Shares of IIFL Finance fell after the RBI directed IIFL Finance to stop sanctioning or disbursing gold loans, with immediate effect.

Bear argument: Duration of the ban could be a concern as gold loans forms a majority of the company’s AUM.

Bull argument: The company expects no near-term impact, denies issues relating to KYC and governance. Rating agency CRISIL says there are different ways of calculating loan-to-value, which could have led to deviation from the RBI norms.

Zomato (Rs 166, -2.3%)

Antfin Singapore Holdings Pte likely to sell 2 percent stake, reports CNBC-TV18.

Bull argument: The company’s profitability has improved significantly over the last few quarters. Blinkit acquisition working well after initial concerns. Most analysts are positive on the stock.

Bear argument: Antfin’s stake likely at a 4 percent discount to market price, indicating low appetite among  institutional investors. Sale could lead to a temporary supply overhang in the stock.

JM Financial (Rs 95, -2%)

The RBI has barred it from giving loans against shares and debentures, including sanction and disbursal of loans against Initial Public Offering (IPO) of shares, with immediate effect.

Bear argument: The RBI has flagged “certain serious deficiencies” in JM’s loan process. It also pointed to “serious governance issue concerns”. The market is worried that this could take a while to clear.

Bull argument: Stock at a reasonable valuable at just about 1-time the book. Earnings have seen a sharp improvement in the last couple of quarters.

Brigade Enterprises (Rs 970, -2.97%)

Brigade Enterprises launched a new project, Dioro, at Brigade El Dorado at a size of around 6.1 million square feet.

Bull argument: The company is shifting its product mix towards premium category.

Bear argument: The company has a potential pipeline for the near term but sustaining the momentum in the coming years would be uncertain due to the decreased volume of upcoming launches, say analysts. The sector is also seeing lower margins.

PVR INOX (Rs 1388.65, +0.46%)

The multiplex chain opened a six-screen cinema at the Mall of Faridabad, Haryana.

Bull argument: The company is hopeful of a demand boost from the new PASSPORT scheme, which encourages movie buffs to drop in more often, thereby lifting occupancy rates. Management is actively opening screens in South India with 150 screens in pipeline.

Bear argument: The line-up of content, which is the main driver of earnings, looks uninspiring for now. This is critical because of the summer holidays ahead, peak season for multiplex firms.