Short Call | Banks see the churn; IDFC Bank, MCX, NMDC steal focus; cement makers seek price hikes

Small-caps and micro-caps continue to be in a parallel universe.

“When you get to these frenzied markets, it drives managements or portions of managements to hanky-panky.” - John Neff

It remains a treadmill market as far as large-cap stocks are concerned, the occasional 100-point-plus rallies in the Nifty notwithstanding. But small-caps and micro-caps continue to be in a parallel universe. Is the day of reckoning at hand?

Kotak Bank

The stock has been struggling for the last three years, despite a steady improvement in its operating performance. Positive ratings from leading brokerages have fallen on deaf ears as far as institutional investors are concerned. Those hopeful of the stock getting re-rated have had a long wait so far. The announcement of the new CEO will be the key trigger for the stock in the short term. Chatter on the street is that investors would be more comfortable with an external candidate who can then rebuild bridges with the regulator.

IDFC Bank

GQG Partners purchase on Friday sent the stock price soaring. Short positions in the stock, as reflected in the Securities Lending and Borrowing window has risen further, now stands at roughly 5.14 crore shares. This has more than doubled over the last week. Traders looking to play the momentum in the stock could do well to have a look at JSW Energy in which GQG had picked up a stake last month. If you plan to ride on the coat tails of a large investor, then be prepared to share that player’s investment horizon as well.

MCX

The stock is on a tear even as earnings for the current financial year are set

to take a knock because of the renewal of the software licensing deal with 63 Moons at an exorbitant fee. Chatter about the stock being a likely takeover candidate has been doing the rounds for the last couple of months. This has been consistently denied by the company. MCX’s market dominance is not in doubt, but traders betting on the outcome of a specific event should note that the stock price is past the point where it can be justified by fundamentals.

NMDC

The stock jumped 6 percent on Friday and was among the prominent gainers of the day. It has been struggling over the last couple of years, but a section of the market feels that things could start looking up now that the company can get back to focussing on its bread-and-butter business: iron ore.

From a Prabhudas Lilladher report:

“NMDC plans to reach its earlier quoted 100 mtpa target by 2030 in-line with growing requirement from domestic steel producers. It has already achieved  around 80 percent capacity utilization since last two years (with current around 50mtpa capacity). Delays in setting up steel unit affected iron ore mining business, however we believe the situation is going to change from hereon as high return ratios of mining business would take precedence.”

Banking churn

Last year, it was IT employees who were getting good deals from their employers. Now it seems to be the turn of bank employees to have their day in the sun. According to a Jefferies analysis of attrition trend across 19 banks, the churn rate is high and has risen by 4 percent points year-on-year. Old private banks and state-owned banks have been largely unscathed, but small private banks and small finance banks have been hit by a spate of resignations as everybody is trying to expand their retail operations.

Cement

Cement companies are attempting at price hike of Rs 10-35 per bag (even more in the eastern states) for this month, according to an Emkay report. The cement manufacturers have seen decent cost savings of late, thanks to lower input prices, and this trend is likely to sustain for the next couple of quarters. But further earnings upgrades will depend on whether the companies are able to push through price hikes, says Emkay cement analyst Dharmesh Shah.

Lithium M&A

The US-based Albemarle Corp, the world’s top producer of lithium, finally appears to have Liontown Resources within its sights. Liontown, a leading Australian lithium miner, has agreed to back a new A$6.6 billion ($4.3 billion) takeover offer from Albemarle, reports Bloomberg. This follows the Albemarle raising its per-share cash offer to A$3 from A$2.50 per share in March. The latest bid is at a 15 percent premium to Friday’s closing price.

Lucky break

Nobel prize winning economist Joseph Stiglitz told CNBC that the economic soft landing the Fed has tried to engineer may materialise, but as the result of another lucky policy “mistake” this time from the government in the form of the Inflation Reduction Act. The IRA, the Biden administration’s landmark legislation targeting manufacturing, infrastructure and climate change, was launched just over a year ago and has spurred more than $500 billion in new investment, according to the Treasury. “That’s a big stimulus to the economy, the Fed had no idea of the effect of the IRA,” he said.

Copper caper

Shares of Europe's top copper producer Aurubis tumbled 17 percent on Friday after the company said it might have fallen victim to a massive theft, potentially leading to losses of several hundred million euros, reported website zerohedge.com. The company said some of its recycling suppliers manipulated details about the raw materials and connived with employees to hide the shortfall.

Mineral thrust

Nigeria plans to set up a state-owned company to help attract investments from multinationals in the the extraction of gold, coal, iron ore, bitumen, lead, limestone and baryte, reports Reuters. Nigeria wants mining to play a much bigger role in its economy by expanding its mineral extraction sector to diversify away from an overreliance on oil exploration, the report added.

Spillover effect

China’s neighbours should not gloat over the ongoing problems in the dragon country, writes Jacky Wong in WSJ. According to a Goldman Sachs report, correlations between China and other markets in the region have risen lately, indicating potential concerns of spillover.

“China is the top trading partner of many countries in the region like Japan and South Korea, and weak demand from China could ripple through to its neighbors. And falling investment in China—especially in the real-estate sector—could weigh on commodity prices.”