Short Call | Bears aim for Glenmark, bulls ignore Info Edge bleak news, Voltas on block deal, and tale of two streets

High interest rate is bad for market and corporate earnings but Dalal Street seems to be least bothered.

I think economists as rule... take for granted they know a lot of things. If they really knew so much, they would have all the money and we would have none. - Bernard Baruch

The commentary around interest rates is slowly turning hawkish. Bank of England has raised rates by 50 basis points, a few days back the US Fed warned of more hikes, and back home, the RBI does not seem to cut rates any time soon. In theory, high interest rate is bad for consumer sentiment and corporate earnings. But for now, that seems to be the least of the concerns of investors on Dalal Street.

Glenmark Pharma

The stock was among the prominent losers on Thursday after a US FDA warning for the company's manufacturing facility in Monroe, United States. The stock has been a star performer in the pharma pack, up 50 percent in 2023 so far, despite most analysts suggesting caution on the stock. The company is in the midst of resolving issues at its Baddi, Goa and Monroe facilities. But the bigger problem, according to some analysts, is the huge gross debt north of Rs 4,500 crore, and the management has not yet been able to give a clear plan of how it intends to reduce it. Derivatives data indicates short positions are being built in the July futures series.

Naukri

Bearish commentary from analysts does not seem to be deterring bulls in

Info Edge. Hiring in the IT sector has slowed down and that is bad news for Info Edge’s recruitment business. From the look of it, and going by management commentary as well, this trend could persist for a while. Analysts expect the matrimony and real estate verticals to burn cash for a while, with operating profits being some way off. Either the bulls haven’t got the memo yet, or have chosen to ignore it. The stock is up 10 percent in June so far. On Thursday, 4,300 puts were the most actively traded options contracts in Info Edge. The writer of a put is betting that the price will not go down.

IDFC First Bank

The stock was among the prominent losers on Thursday, falling around 6 percent. Open short positions in NSE’s Securities Lending and Borrowing window fell around 37 lakh shares, indicating that some bears are using the decline to cover their positions. Open interest in futures declined around 16 percent, indicating unwinding of long positions. Now that the first quarter earnings season is not far, the Street may want to pause before firming up its view on the stock. IDFC First had a fantastic fourth quarter, and that may have set the bar higher, considering the stock has been one of the best performers in the banking space in 2023.

Voltas

A block of 9.64 lakh shares changed hands Rs 780 apiece on Thursday. The stock has been struggling over the last year, as investors are waiting for signs of a sustainable recovery in operating margins. AC sales this summer has been tepid compared to the previous year, and Voltas in particular seems to feeling the heat.

Tale of Two Streets

Yesterday’s profit-booking notwithstanding, Dalal Street is awash with the famed ‘animal spirits’ right now, with participants expecting the benchmarks to gallop to record highs almost every alternate session.

Main Street, however, is standing aloof from the frenzy, bogged down by the lingering effects of inflation and weak consumer sentiment.

A CNBC-TV18 report quoting industry sources say consumer durable companies have suffered sales decline of 25-30 percent in April and May, with North India being the biggest laggard. June may see 15-20 percent growth on low base and delayed monsoons, but the industry may have to cut production by 30-40 percent to balance unsold inventory. As per retail intelligence platform Bizom, sales were down 17.9 percent in April and another 12.1 percent in May.

Water fund

A South African state development bank plans to create an almost $1.5-billion water infrastructure fund and seeks finance from the Green Climate Fund, reports Bloomberg. The fund, known as the Water Reuse Programme, will initially focus on projects, including curbing water losses, treating waste water so that it can be resold for industrial and agricultural use and water desalination plants. Years of neglect have left the country suffering power outages on a daily basis, while the quality of water provision has slumped. At the same time the country is trying to make itself more resilient to climate change with much of its territory expected to become hotter and drier over coming decades.

Turkish Delight

While most of us are losing our hair over paltry 25 bps hikes by the Fed or RBI, here’s a humdinger from Turkey. The Turkish central bank on Thursday delivered a massive 6.5 percentage point hike, taking the benchmark one-week repo rate to 15 percent from 8.5 percent. Not without reason. The country’s inflation stood at nearly 40 percent in May. Last year, retail price rise had soared to an eye-watering 85 percent last year on the back of unconventional economic policies by President Recep Tayyip Erdogan, who won a re-election last month.

In fact, some major global investors were expecting the central bank to hike the rates to 20 percent to douse inflation. The newly appointed central bank governor Hafize Gaye Erkan is a former co-CEO and president of First Republic Bank, which collapsed during the US banking crisis earlier this year. She is also the first female head of the Turkish central bank.

Abhishek Mukherjee contributed to this article