Short Call: Bull case for realty stocks, US commercial property market, Asian Paints, Dixon, Coal India, Natco Pharma, Fortis in focus

The Nifty Realty index has gained 44 percent since the start of 2024

Realty bulls are salivating at the prospect of a rate cut in the US now that there appears to be a sustained cooling in inflation. The extrapolation is that if the US Fed cuts interest rates, the RBI will follow soon enough. Low interest rates typically have a direct correlation with demand for residential property, so the Street likes to believe. But do they? After all, demand was strong even when interest rates were high over the last couple of years. So, it is as likely that demand may be tepid even if interest rates were to come off.

History shows that by the time a much-awaited development comes through, the market has already discounted it, and further gains in the short term are muted.

Already, the Nifty Realty index has gained 44 percent since the start of 2024. Property prices too have risen significantly post-COVID. With supply coming in at a fast rate, developers may not have the pricing power as before, barring luxury offerings.

Bulls counter this argument saying that property upcycles need not always have the same life. There are structural forces at play which could result in the current upcycle lasting longer.

US commercial realty

In stark contrast to the scene in India, the commercial real-estate meltdown in the US is getting worse and spilling over into the bond market, reports WSJ. Defaults are rising in category of highly safe mortgage bonds known as single-asset, single-borrower bonds (SASB), issued mainly by private equity firms to purchase commercial property. Rising interest rates have pushed up costs for the issuers, while the rise in rentals earned from these properties have not kept pace.

Dixon Technologies (Rs 2,552, -1.0%)

Continues to make new highs

Bull case: A key beneficiary of the PLI scheme, mobile phone segment continues to see momentum. Deal with HKC Corporation to manufacture display modules increases value addition.

Bear case: Valuations expensive at 75x FY26 EPS following the doubling of prices in the last six months, says HDFC Securities. The brokerage has downgraded its rating on the stock to reduce, citing limited upside.

Coal India (Rs 512, +3%)

Hit a fresh record high on Tuesday

Bull case: Revival in thermal power capex will drive volume growth, according to Phillip Capital. Despite the significant cash outflow towards capex and dividends, Coal India ended FY24 with a strong cash balance of Rs 27, 200 crore.

Bear case: Severe fall in international prices could impact e-auction premiums. Private mines may produce more coal, leading to excess capacity. Also, coal is a sunset industry.

Natco Pharma (Rs 1,281, +6.0%)

Stock hit a fresh record high on Tuesday, and has gained nearly 30 percent over the last month and a half.

Bull Case: Focus on complex generics and specialty compounds could lift revenues 15-20% this year, says StoxBox, which has a buy rating on the stock with a price target of Rs 1392. Consistent performance so far driven by robust formulations, new agro brands, and stable prices in the US.

Bear Case: Natco Pharma faces significant risks including higher price erosion in key products like gRevlimid, potential delays in product approvals and filings, and currency risk.

Asian Paints (Rs 2,968, +0.4%)

Asian Paints's Q1 net profit fell nearly 25 percent on-year
Bear Case: A challenging demand environment could continue, with no rural recovery in sight. Value growth could continue to lag volume growth.
Bull Case: The firm expects the demand to improve shortly on the back of improving rural sentiment and monsoons picking up gradually.

Fortis Healthcare (Rs 489.15, +0.63%)
Gained 6 percent in the past week.

Bull case: Trading at discount to the average valuation for hospitals and diagnostic companies in India, writes Nomura. With industry tailwinds, improving average revenue per occupied bed, divestment of loss making units and capacity expansion, valuation gap may narrow.
Bear case: The diagnostic business continues to remain weak despite being operational for quite some time. Increased investments in the vertical may weigh down on growth prospects.

With inputs from (Harshita, Lovisha, Zoya, Vaibhavi)