Short Call | Calm before storm on D-St? Tata Steel, Delhivery in focus; a smallcap power stock looks big

FIIs continue to be net sellers but the market looks unfazed.

“Reliance on historical perspectives must be tempered by individual market analysis." - Sam Zell

Holiday mood has set in. Trading volumes and turnover were lower in yesterday's session, despite it being the Nifty expiry day. FIIs have now been sellers for four days in a row, but the broad optimism remains that India is best placed in the emerging markets basket. Bond yields have cooled off and political risks have abated. Domestic economic growth is also in place. But is it simply calm before a storm? A hedge fund manager told Short Call: "When there are no risks to the markets, that's the biggest risk."

Tata Steel (Rs 131.4, +1.27%)

The stock has been gaining on the back of a weak dollar. The dollar and the commodity prices tend to have an inverse relationship.

Bull case: Domestic demand and supportive global trends expected to keep steel prices in an  uptrend. Aims to complete the phase 2 expansion of the Kalinganagar plant by December 2024, becoming one of the lowest-cost producers of steel globally.

Bear case: The Europe business has been a drag on the financials. Remains to be seen how the UK government's financial package helps the bottomline

and the margins. If Chinese steel prices do not go up substantially, India will keep importing steel from China, which is bad news for Tata Steel.

Delhivery (Rs 387.1, +5.95%)

Delhivery operationalised its largest gateway in Bhiwandi, Maharashtra, which has a 1,200,000 sq ft of land area.

Bull case: India is an undersupplied logistics market and the management expects eCommerce parcel volumes to grow at 15-20 percent. The company has increased infrastructure locations and will keep on adding capacities as they see the demand for services.

Bear case: Yet to record annual profits. Several PE funds have exited after the end of lock-in period. Competition in the logistics segment is heated up, so all eyes on execution and scale.

Transformers and Rectifiers (India) (Rs 188.5 | +2.5%)

The stock continued to gain for the second day after being awarded orders of Rs 219 crore from Power Grid Corporation of India. It has given multibagger returns, gaining 237 percent over YTD.

Bull case: Order book has grown to Rs 2,145 crore as of September 2023 from Rs 1,159 crore in March 2020. Transformer demand is on the rise and the company is targeting export markets, too.

Bear case: Promoter holding has declined over the last quarter and the stock is trading at expensive valuations. Peak operating margins were back in 2017. Barely any institutional holding in the stock.