Short Call: Bargains or falling knives, cement cracks, recovery in chemicals, KEC, TVS, Asian Paints, Tata Power in focus

A near-term concern could be margin-related liquidation

Bargains or falling knives? That is the question for investors with a tidy pile of cash with the market correcting sharply this week. Popular trade remains ‘market-will-rally-post elections’ because liquidity is not an issue. For more than a year now, corrections have been short-lived and that is giving confidence to many investors to buy at these levels. But a near-term concern could be margin-related liquidation. The steep fall in prices means many traders will have to decide between putting up additional margins or square-off their positions. The probability of the latter seems higher considering that a big upswing before the results is unlikely.

News flow remains incrementally negative. Some NBFC stocks took a beating following the RBI directive to NBFCs to restrict cash loans to Rs 20,000.

Cement

Companies had to roll back price hikes taken in April, because of poor demand, says Nuvama. General elections, labour shortage, heatwave and water scarcity are affecting construction work. The good part is that input costs are likely to stay stable, but the not-so-good news for cement bulls is that any substantial price hike in prices is likely only after the election results.

Chemicals

Signs of demand pickup in US, as can be seen from rising capacity utilisation, says SMIFS. European markets have shown positive indications with its chemical business confidence at a 9-month high. Risk: Chinese chemical production has also gone up thereby increasing risks of dumping.

Kalpaturu Projects (Rs 1,189, -4.4%)

Shares fell despite a strong set of Q4 numbers

Bull argument: FY24 order book at Rs 584 with good growth in revenue and net profit. Management guidance and commentary positive.

Bear argument: Much depends on how well the company can execute the orders.

Tata Power (Rs 416, -4.4 %)

Shares of Tata Power fell despite increase in Q4 net profit and revenue.

Bull argument: Demand outlook for power remains robust. Diversified power companies like Tata Power will benefit from it.

Bear case: Analysts at CLSA highlighted weak profitability in the renewable energy business while JM Financial analysts feel the company continues to be overvalued.

TVS Motors (Rs 2,061.60, +3.25 %)

March quarter numbers were slightly better than analyst estimates.

Bull Case: Analysts at Prabhudas Lilladher expect the company to continue growing on sustained demand for its new product launches and consistently improving export geographies.

Bear case: Analysts at Emkay noted that while EBITDA for the reporting period grew YoY, the margin was flat sequentially due to increase in staffing and other expenses.

Asian Paints (Rs 2716, -4.5%)

March quarter numbers were below analyst estimates.

Bull argument: The company expects volume growth to be in double-digits in Q1FY25 and for the whole of FY25 as well. Company on aggressive capex drive, well positioned to withstand competition from Grasim.

Bear argument: Facing challenges in bath and decorative business. While the company can hold ground in a highly competitive market, margins are likely to be capped near term.