Short Call: Broader market needs to fall more before becoming attractive; Dabur, Five-Star, Skipper in focus

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While the Nifty and Sensex have dipped over 7 percent from record peaks, the broader market has taken a more severe hit. The mid- and small-cap stocks, which have been this year’s favourites, have borne the maximum brunt, as investor interest surged from not only individuals but also mutual funds. Analysts, concerned by sky-high valuations, had been sounding warnings well in advance.

This investor enthusiasm didn’t spring up out of nowhere. It was partly fueled by a blend of global triggers, such as China’s stimulus measures and the recent conflict in the Middle East, which spurred hopes for further economic shifts.

However, in the past few weeks, mid- and small-cap stocks have seen corrections averaging 20–30 percent. And for those wondering if the worst is over, analysts believe the pain may persist. With market sentiment turning increasingly bearish, experts warn that lower-quality stocks might not emerge unscathed, leaving investors with few places to hide.

Skipper (Rs 539, +5%)

Shares gained after the company achieved its best-ever Q2 revenue.

Bull Case: Company has its largest ever orderbook of Rs 6,590 crore. Management expects 25 percent CAGR revenue growth over the next 3 years. Positive macro-outlook anticipated to drive consistent growth in revenue and profits. EBITDA margins projected to increase to 11 percent in 2-3 years.

Bear Case: Potential delays in project execution. Possible slowdowns in transmission infrastructure investments could pose risk to the company's growth.

Dabur India (Rs 546, 1.9%)

Reported 17 percent fall in Q2 net profit.

Bull Case: The firm's management expects a high single digit growth in H2, but that is dependent on strong winters.

Bear Case: Even adjusted for the reduction in inventory, the growth was still weak for Q2 as a result of sharp decline in beverages. Not enough green shoots are being seen in the rural picture currently. The stock has underperformed recently, and according to brokerages, that is likely to continue.

Five-Star Business Finance (Rs 769, -12.3%)

Stock plunged despite in-line Q2 results as the company cut growth guidance to 25% for FY25E from 30 percent earlier.

Bull Case: Five-Star Business Finance stands out with a resilient business model, delivering robust growth and profitability even as other small lenders face significant stress. With stable asset quality and strong fundamentals, Five-Star is well-positioned to outperform peers. Its current earnings trajectory and solid risk management make it an attractive buy.

Bear Case: Despite its strengths, Five-Star Business Finance faces considerable risks, primarily from its customer base of low-income borrowers who may struggle to withstand economic downturns. Increasing competition from banks, which can offer loans at lower yields, could pressure Five-Star's margins. Additionally, the relatively low seasoning of its loan portfolio may expose the company to unexpected credit risks over time.

(With inputs from Harshita, Zoya, and Neeshita)