Short Call | Bulls bank on govt as poll wave keeps bears at bay; Tata Chemicals, Apollo Tyres, M&M, NLC India in focus

Market sentiment remains bullish in the run-up to the elections.

“We think diversification is only a surrogate, and usually a poor surrogate, for knowledge, control, and price consciousness.” - Marty Whitman

Sentiment has turned cautious, especially for mid-cap, small-cap and micro-cap stocks following the regulatory actions over the last 10 days. And yet, the consensus view is that the market is likely to stay bullish till the elections. Why? The answer you get is that the government will not want to spoil mood in the market ahead of the elections. No doubt, PSU stocks have been doing well, but to pin hopes on the government to keep the market going maybe overly optimistic.

The December quarter earnings have been analysed threadbare, but the general conclusion is that aggregate numbers have been below expectations.

From an Ambit note last week:

“The number of Nifty companies delivering positive earnings surprises in Q3FY24 was the lowest since March 2020. Nifty EPS estimates was cut 4.1 percent in FY24. This can worsen in FY25.”

Apollo Tyres (Rs 517, -3.5%)

The stock features among the prominent losers on Thursday. It has been moving sideways in a rising market over the last month-and-a-half.

Bear argument: The December quarter numbers were tepid. Morgan Stanley and HDFC Securities lowered their ratings on the stock following the earnings. Crude prices have been steadily rising, which spells bad news for margins. The 5, 10 and 20 day moving averages for the stock are giving a bearish signal on the charts.

Bull argument: Valuation cheaper than market leader MRF. Outlook on auto sector remains bullish

Phoenix Mills (Rs 2,795, +3.24)

HSBC maintained its ‘buy’ call on the stock and raised target price to Rs 3,130.

Bull argument: The company’s net profits have been steadily rising over the last four quarters. HSBC says stabilisation of new malls and office portfolio will drive double digit growth.

Bear argument: The company’s return on equity and return on capital

employed has been low. Also, DIIs have reduced stake in the company over the last couple of quarters.

Mahindra and Mahindra (Rs 1,892, -3.99%)

The promoter group entity has sold around 0.9 percent in the company.

Bull argument: The company has a pending UV order book of 226,000 units. In February, company’s total sales figure grew 24 percent.

Bear argument: Domestic tractor sales continue to be weak, declining 18 percent in February. Stock has rallied around 60 percent over the last year. Given it is already widely owned by institutions (around 67 percent), big upsides near term look unlikely

NLC India (Rs 219, -3%)

The government is planning to sell its 7 percent stake through an offer for sale.

Bull argument: Outlook on the power sector as well as PSU stocks very bullish at present. At 11.8 times trailing 12 months earnings, the stock is reasonably priced.

Bear argument:  The OFS will lead to a supply overhang (of shares) in the short term. Earnings growth has not been consistent. Barring the March quarter of 2023, topline has not shown any meaningful growth. Latest quarterly performance was tepid.

Tata Chemicals (Rs 1311.6, +11.3 percent)

The stock has risen nearly 40 percent so far this month on hopes that Tata Sons will come out with an IPO in September 2025. If that happens, Tata Chemicals holds roughly 3 percent in Tata Sons, which at current price is roughly equal to the market cap of Tata Chemicals.

Bull argument: The Tata Sons IPO will most likely happen in September 2025. Also, Tata Chemicals is set to commission a new soda ash plant.

Bear argument: The Tata group may find another way to comply with the RBI requirement without necessarily listing Tata Sons. There are certain short-term challenges in the soda ash demand-supply dynamics due to weak demand in Western Europe. Suppliers, majorly from Turkey are exporting soda ash beyond Europe and this has impacted global prices adversely.

With inputs from Ananthu, Srushti and Anishaa