Short Call: Commodity prices telling a different story, India corporate picture healthy; Bharat Dynamics, Zydus Life, Jubilant Food in focus

"In terms of commodities, the entire asset class is coming under pressure," Rob Ginsberg, managing director at Wolfe Research, told clients in a Friday research note.

"We see this broad decline in commodity prices as yet another warning about the state of the economy."

Copper
Prices of the red metal are down 21 percent from their 2024 highs despite the excitement surrounding electric vehicles, semiconductors and renewable energy

Iron ore/Steel

Prices of iron ore have dropped for the sixth consecutive week, as China's steel sector struggles.

Writes Reuters columnist Clyde Russel:

"Sentiment has shifted away from optimism that Beijing’s efforts to boost the beleaguered construction sector would boost steel demand. Recent price moves and data on China’s steel sector, which accounts for just over half of global output, have been bearish."

Crude

Crude prices have fallen around $10 over the last month on continued weakness in China’s economy and fears that the US may enter recession. Even if not an outright recession, there are visible signs of the US economy slowing. Escalation of hostilities in the Middle East could provide a temporary respite.

India Inc Big picture

Amid concerns of expensive stock market valuations, Emkay Global strategist Seshadri Sen writes that the fundamental picture looks good. Emkay hosted 65 companies at its investor meet and the key takeaways are:

• Overall commentary remains positive across most companies.


• Growth outlook across sectors robust, especially in industrials/capex


• Consumer demand continues to show signs of some recovery, though early days


• No material change in government spending momentum


• No material change in the demand scenario for IT


• Operating margins stable broadly, soft commodity prices helping


• Capex plans continue without any major revisions.


• Loan demand is unaffected, though deposit growth a worry. Slight weaking in asset quality.

  Bharat Dynamics (Rs 1,346, -6.1%)

  Stock tanks as Q1FY25 net profit falls 83% YoY, EBITDA below estimates

  Bull Case: Robust order book and anticipated recovery in H2FY25 position it for strong revenue growth, driven by Akash execution and government defense initiatives.

  Bear Case: Supply chain disruptions and potential margin pressures from high bought-out components could limit near-term growth. Execution risks and delayed recovery may hinder Bharat Dynamics' performance in FY25.

  Zydus Lifesciences (Rs 1,253, -3.68%)

  Profit booking after strong Q1 numbers.

  Bull case: Record high margins. Strong India, specialty assets and US product line-up would help to fend off impact of Revlimid loss of exclusivity in FY27, writes Nuvama. overactive bladder drug Myrbetriq already launched, which will remain a key contributor through FY25.

  Bear case: Sharper than expected price erosion in the US generics space or regulatory action at manufacturing plants can derail the company's growth trajectory.

  Jubilant Foodworks (Rs 651 per share , +8.78%)

  Bull case: Aggressive expansion of Domino's stores, strong dine-in sales of restaurants, demand improvement in quick-service restaurant, and healthy performance of international markets will help re-rating of the stock down the road.

  Bear case: Slow growth in QSR, delay in store expansion, soaring inflation, decline in consumers consumption or income pattern will affect the stock's earnings visibility. Margins can impacted if there is increased investments in technology, supply chain enhancements, and adverse operating leverage.

  (With inputs from Lovish, Vaibhavi, and Harshita)