Short Call: Bulls at bay, but no kill for bears too; eyes on Kotak Bank, ICICI Bank, Laurus Labs, BSE; and likely leash on loans

If you are rushing to buy BSE just on news of the transaction charges, think again.

Bulls are on the backfoot as the mood in global markets continues to be dour. Nobody is in a hurry to load up on stocks but, at the same time, there seems to be no compelling reason to sell either.

The announcement of a new CEO has done little to cheer analysts tracking the stock, who continue to watch the operating performance hawk-eyed. And, on that front, there does not seem to be much to write home about. Analysts have nice things to say about the asset quality and growth prospects, but are in no hurry to signal a rerating.

This stock seems to be suffering from an excess of positive ratings from analysts. But that has not made much of a difference to the price in 2023. The second quarter performance has been impressive, and bullish analysts have set a price target of Rs 1,225 to Rs 1,350. That suggests an upside of anywhere between 30 percent and 40 percent, depending on which analyst you want to believe.

Banking remains the hot favourite among fund managers and that seems to be part of the problem. If most people have already become believers of the story, finding new faithfuls or converts becomes a tough task.

Bulk drug firm Laurus Labs' second-quarter numbers have been panned by analysts tracking the stock, as the performance has been weak across

segments. Looking at the analyst commentary, one can’t help get a feeling that the stock may nosedive today. But then, the September quarter numbers are not as bad as the June quarter numbers. Gross margins have in fact improved sequentially, and the stock price too has recovered slightly since then.

Interestingly, while net profits have been steadily sliding for four quarters now, the stock price has fallen by barely 20 percent. This is a market where there are plenty of opportunities available. The management is confident of a recovery in the second half of this year. But two things here. One, the recovery it had promised a quarter back did not materialise in Q2. Two, as broker InCred points out, the company has not given any specific guidance even as it has forecast a recovery for H2. A lot of bad news already seems to be priced in, but bulls in the stock could be in for a long haul.

The bourse has announced transaction charges for Sensex options effective November 1. So, any increase in market share hereon will start showing up in the bottomline this quarter onwards. Few expected the BSE to give a meaningful fight to the NSE, but it has managed to do that. Expect NSE to get a bit more aggressive in the days ahead. If you are rushing to buy BSE just on news of the transaction charges, think again. The stock has risen almost four-fold from its March lows. The rerating story appears to have played out for the time being. The early birds in the stock will be looking to cash in on a part of their profits. The earnings will now have to play catch up with the higher PE multiple.

The RBI recently warned financial institutions that unsecured loans could be getting out of hand. Some analysts see the central bank announcing curbs post-festive season, unless banks and NBFCs start cutting back voluntarily. Some lenders already appear to be doing so.

“What sets high quality lenders apart is the willingness to throttle off on lending several quarters before other lenders have woken up to the altered realities. There aren’t too many lenders that exemplify this as much as Bajaj Finance and HDFC Bank do.

Bajaj Finance has cut 8-14 percent of its low-ticket unsecured lending business across products owing to concerns of over leverage amongst these customers and imprudent behaviour on the part of these borrowers. HDFC Bank has pulled back on unsecured loans as well. In Q3 FY23, HDFC Banks unsecured book grew 6.3 percent quarter-on-quarter. In the latest quarter, the corresponding growth rate is down to 1.1 percent.”

Bank of America’s chief investment strategist Michael Hartnett feels this could be a good time to invest in US stocks as BofA’s Bull & Bear Indicator is now in “extreme bearish” territory at 1.9 from a previous 2.2. Hartnett and team say the buy signal comes amid continued outflows from emerging market debt for the 12th consecutive week. Investor money has also been yanked from high-yield bonds and global equity funds, while fund manager cash levels have risen to 5.3 percent.

Bitcoin briefly topped $30,000 twice last week, as crypto supporters are hopeful that a spot bitcoin ETF will soon get SEC’s approval. Besides, uncertainty in US and other global markets are also prompting investors to seek safety in crypto assets.

Shares of Nasdaq-listed Israeli solar inverter manufacturer, SolarEdge Technologies Inc crashed 30 percent on Friday after the company warned of "substantial unexpected cancellations and pushouts of existing backlog from European distributors". Data by Rystad Energy shows some €7 billion ($7.8 billion) worth of solar panels - or 40 gigawatts direct current (GWdc) of capacity - currently sitting unused in European warehouses, reports Oilprice.com. Vast majority of the the solar panels are from China, highlighting the risk of Europe’s over dependence on China for solar panels.

The yen briefly weakened beyond 150 against the dollar again as the wide yield gap between Japan and the US continues to weigh on the Japanese currency. Since US treasury bonds offer a better rate of return, many investors holding assets in the yen may want to switch to US bonds, putting more pressure on the currency. A weak yen is beneficial for carry trade investors. They can borrow in yen, and use that money to invest in any asset offering high returns.

Chinese technology giants including Alibaba  and Tencent  are among backers of artificial intelligence start-up Zhipu, China’s answer to US’s OpenAI, reports CNBC. Zhipu’s statement about its investors comes at a time when the technology battle between the US and China in the AI sphere is heating up.