Short Call: Global optimism meets domestic caution, bulls load up on banks, ICICI Bank, UltraTech Cement in focus

The speculation now is that the US Fed may cut rates in September, ahead of what most market participants were expecting.

Indices swung wild on Monday as both bulls and bears seem unable to make up their minds. Bulls have the comfort of liquidity, but are also aware that valuations in most cases no longer offer an adequate margin of safety. Bears on their part, know that most stocks are ripe for the picking, but fear being swept away by liquidity, as they have been so often in the past. It seems to be a stalemate for now as the Street awaits critical policy decisions from the US Federal Reserve, Bank of Japan, and Bank of England.

The India VIX, a barometer of market anxiety, surged 5.7 percent to close at 12.9, reflecting uncertainty among the players.

The speculation now is that the US Fed may cut rates in September, ahead of what most market participants were expecting. If that happens, will RBI follow suit? That is the question many are asking, given high food inflation. Also, investors have been indifferent to high interest rates over the last couple of years. So, will lower interest rates be a sufficient catalyst to take the market even higher?

Some of the seasoned players say from experience that a much awaited positive development is usually the trigger for a market top. For the global markets, that event could be the US fed’s decision to cut rates.

Nifty Bank in top gear

Banking stocks are back in demand again. One reason for the renewed enthusiasm could be that banks, unlike some of the other fancied sectors, are not trading at exorbitant valuations. That has given brokerages like Macquarie and Morgan Stanley the confidence to upgrade their target prices for these stocks, in the hope that the growth momentum can sustain. It is not a one-way street through. Despite the positive earnings, banks face margin pressures from rising funding costs and concerns over high loan-to-deposit ratios, though pressures might ease as the rate-cut cycle progresses.

ICICI Bank (CMP: Rs 1,210.55, +0.3%)

Steady Q1FY25 results

Bull case: Valuations reasonable given steady operating performance. asset quality, loan-to-deposit ratio, and margins better compared to most peers.

Bear case: Funding cost, credit cost may stay higher for a while, eating into net interest margins. While credit offtake is robust, there are signs of it moderating.

UltraTech Cement (Rs 11,898.1, up 1.9%)

Acquired 55% stake in India Cements.

Bull Case: India Cements acquisition will help gain market share in the South and East regions. Further capacity additions improve EBIDTA per tonne. Consolidation brings fiscal disciple and bolsters profit in the long-term.

Bear Case: South still a fragmented market. Rivals may acquire smaller players, taking away market share. Cement prices may stay under pressure because of steady capacity addition.

Praj Industries (Rs 707, 1.2%)

Reported a mixed Q1 where the revenue fell, and the profit rose 44%.

Bull Case: The company says there is good interest in its newer offerings. Analysts say long term growth levers intact.

Bear Case: Delays or adverse developments in the government policies and international policy regulations may hamper financial growth. The company's order book has decline for the 4th consecutive quarter and continuation of this could hamper growth.

(With inputs from Lovisha, Zoya and Veer)