Short Call | HNIs chase mid, small caps, IEX under bear attack, I-Pru Life tumbles, NHPC in focus

HNIs believe in the earnings story in midcaps and smallcaps.

“Current earnings, future prospects, management, marketability are all factors more or less independent of assets which contribute their share to the intrinsic value.” - Benjamin Graham

Sentiment has turned cautious after three successive sessions of fall, but two days of gains could change that. In the past, mid and small caps would take a battering during market corrections and investors would flee to the safety of large caps. But now exactly the opposite is taking place — large caps are sliding harder than second-line stocks when the market falls.

Whispers in market is that many of the mid and small cap companies say they have good earnings visibility for the next few quarters. And that is giving HNIs the comfort to hold on their positions in the stocks. The stock prices so far indicate that the market is willing to believe the earnings story. They would flag when there's still a couple of quarters of earnings growth left.

ICICI Pru Life (Rs 486.30, -5.57%)

Stock saw biggest intraday crash in over one year. Q3 numbers disappointed street

Bull argument: Insurance penetration is growing in the county and the company has good parentage.

Bear argument: ULIPs, which fetch lower margins, are seeing more traction. Non-ICICI Bank channel distribution is growing, which means more commission

Petronet LNG  (Rs 240.20, + 3.2%)

Stock held ground in a bearish market.

Bull argument: Spot LNG prices have softened. Strong demand for LNG across sectors of late, and this trend is likely to strengthen going forward.

Bear argument:  Competition is rising, also domestic gas production is

increasing. The capex on its proposed petrochemicals foray could weigh on margins.

IEX (Rs 137, -7%)

Stock has fallen 16 percent in last couple of trading sessions

Bear argument: Huge build up of speculative positions in F&O segment. Uncertainty over the market coupling policy for power exchanges an overhang on the stock.

Bull argument: Stock has good support in the Rs 120-125 band. Also, concerns about the market coupling have already been priced in.

NHPC (Rs 71.10, -2.6%)

Stock under pressure as government to sell 2.5 percent stake

Bull argument: Seen benefitting from India’s commitment to net-zero as hydro power not polluting like thermal power.  Capacity expected to go up sharply in the coming years.

Bear argument: Increase in floating stock could be an overhang in the short term. Right now, power is a fancied sector and there is unusually high demand for PSU stocks. This could change. Earnings could be volatile because of dependency on monsoon.

ITC (Rs 446.45, flat)

GQG Partners upped its stake in ITC to 2.79 percent from 1.58 percent.

Bull argument: A good defensive bet if the market continues to correct further. Cigarette volumes increased in Q2 and the trend is likely to sustain.

Bear argument: Revenues from agri-business is under stress in FY24 due to a ban on the exports of wheat and rice. Re-rating story is largely over. Further gains will depend on ability to grow earnings.