Short Call: Bulls bet on retail buying power, Tata Comm, HPCL, Mankind, Arvind in focus

The two near term triggers for the market now are the Budget and June quarter earnings.

The party on D-Street continues, but bulls are beginning to show signs of fatigue. The narrative still remains that a rising tide of liquidity will help paper over the problem of expensive valuations. The cabinet portfolio allocation has been a smooth affair on the face of it, and that is giving confidence to the market that the BJP will be able to manage its allies without too many hassles, as was feared earlier. The two near term triggers for the market now are the Budget and June quarter earnings. Fear of a tweak in capital gains tax has reduced, and the Budget is expected to a mixed bag.

From Prabhudas Lilladher’s strategy note:

“We expect NDA govt to sustain focus on capex led growth around PLI, roads, ports, aviation, defence, railways and green energy given 20bps lower fiscal deficit in FY24, normal monsoons and Rs 2.1trln dividend from RBI. However we expect NDA govt to increase focus on farmers, rural, urban poor and middle class to arrest the impact of new social engineering cum freebies led reversal in certain states in recent elections.”
Wealthy investors are still wary of buying, though they are in no mood to book profits either. The broad bet is that retail liquidity—both direct and via mutual funds—should provide a cushion to stock prices.

Consumer durables and electricals

Wires and cables firms have hiked prices by ~7% for the month of May, says Yes Securities. Fans (volumes) have grown in double-digits led by higher demand from premium and decorative fans. Discounting in kitchen and small domestic appliances has reduced considerably, compared to the March quarter.

Life Insurance

IRDAI’s circular raising surrender values for non-linked products will hurt Max Life and HDFC Life the most, according to Nuvama. The broker expects companies to defer commission payouts to manage this change. The implications on distributor behaviour and sales growth is more difficult to assess, it says.

HPCL (Rs 530, +0.8% )

The International Energy Agency (IEA) has lowered its global oil demand estimate for CY24 and CY25.

Bull argument: Better marketing margins, demerger and potential listing of lubricant business; commissioning of its bottom upgrade unit, and start of the Rajasthan refinery in Q4FY25 key catalysts for the stock.

Bear argument: Adverse commodity prices and downstream margins; currency movement; government policies; and project issues.

Mankind Pharma (Rs 2,235, +0.4%)

Broker MOFSL has initiated coverage with a 'buy' call.

Bull argument: Leadership in prescription market and strong presence across tier II and lower cities to help in providing customers for its expanded chronic, prescription and consumer healthcare portfolios. Strong MR network to ensure its presence in untapped markets.

Bear case: Revenue growth heavily dependent on India pharma sales as it contributes the majority of revenue. Heavy reliance on its MR network means their productivity is crucial for the drugmaker's growth, says MOFSL.

Arvind (Rs 379.80, +1.12%)

Santej plant strike called off

Bull argument: Strong Q4 performance should sustain, driven by margin expansion in textiles, controlled debt, and robust denim and garment volume. Management has guided25 percent-plus growth in FY25.

Bear argument: Any uptick in input costs can constrict margin growth. Demand for denim and garments could turn out to be lower. Company has estimated a potential revenue loss of Rs 180-200 crore due to strike at its Santej plant.

Tata Communications (Rs 1,884.55, -0.66%)

Held an analyst meet

Bull argument: A combination of stability of telecom and growth potential of IT services sector. Recent acquisitions should boost near-term growth. Also company is expanding market reach through new customer segments.

Bear argument: Net debt jumped 60 percent year-on-year to Rs 9,000 crore due to the acquisitions.

(With inputs from Harshita, Vaibhavi, Lovisha and Neeshita)