Short Call: Bulls chant 'all is well', RBI's rates dilemma, yen carry trade; Cummins, BSE, PB Fintech in focus

The US economy is showing signs of slowing as evidenced by a drop in the pace of hiring.

Followers of the buy-on-dip strategy may have the last laugh after all. Just a few days back, the US seemed to be heading for recession, continued unwinding of yen carry trade would rip through global financial markets, Bank of Japan's decision to raise rates would make it worse and calls for emergency rate cuts were getting louder.

All of a sudden, the US economy is looking strong after the latest jobs report, analysts say much of the yen carry trades may have been unwound, BoJ has said it will not raise rates, and calls for emergency rate cuts by the Fed have died down. For the bulls, the sun is shining bright again.

Still, it won’t hurt to be a bit more cautious this time. The US economy is showing signs of slowing as evidenced by a drop in the pace of hiring. The other question is whether BoJ will altogether give up its plan to hike interest rates just because of fears of yen carry trades causing upheaval in financial markets. The call for emergency rate cuts by the Fed may have eased, some like Wharton's Jeremy Siegel thinks the Fed should still 'cut quickly and aggressively', according to a report in cnbc.com.

While Nifty was a relative outperformer compared to its global peers during the recent market turmoil, Indian shares are a screaming buy like they were till last year when the Indian economy was a clear outperformer. In this interview with Moneycontrol, market expert Devina Mehra has flagged off macro concerns even though she does not see a big crash coming. However, she is of the view that investors are better off taking some money out of their small-cap holdings as these can turn illiquid when sentiment sours.

Quotable

"The reality about the yen carry trade is that nobody exactly knows how big it is, or how much has now unwound. But there is certainly a sense at this stage that some of the shakiest yen shorts that were funding speculative trades have been wiped clean." Benjamin Shatil, currency strategist, JPMorgan (Financial Times)

RBI's monetary policy turned out to be a non-event for the stock market, as high food inflation and a 4 percent plus headline inflation rate held the Monetary Policy Committee from cutting interest rates. RBI says its decision on interest rates will be independent of what the US Fed does. That may not be the case.

If the Fed cuts rates sharply, RBI will have to follow suit quickly enough. Else, it could make the rupee stronger and attract debt capital. That is something the RBI will not want, according to Emkay Global’s Lead Analyst Madhavi Arora.

"Staying relatively hawkish against the global rates tide will only create unwanted INR carry at a time when the RBI is still saddled with managing the problem of plenty led by liquidity and flows, especially in H1FY25," Arora writes in her note.

Reported stellar Q1 numbers.

Bull case: Operating margins at record high. The management does not expect revenues to be hit by uniform transaction charges. Increased retail participation, new product launches, a positive outlook on market should help sustain valuations.

Bear case: Uncertainty over SEBI's regulations over F&O can cause a drop in derivatives volumes and moderate earnings growth.

Reported positive Q1 results

Bull case: The company's dominant 90% market share in online insurance, coupled with investments in customer engagement and claims servicing, positions it for strong growth in digital insurance and margin expansion.

Bear case: It faces risks from slowing insurance sales, intensifying competition, and regulatory changes, which could erode its market share and reduce bargaining power with insurers, impacting profitability.

Reported Q1 numbers.

Bull case: Management remains cautiously optimistic on near-term, also positive over medium/long term outlook as a result of India’s capex growth story.

Bear case: Concerns over volume growth/margins increase on higher-cost and higher-priced products.

(Inputs from Harshita, Zoya, and Lovisha)