Short Call: 'Hold' is in vogue as war rages, polls near, inflation eases; Infy, HDFC AMC, Hero in focus

Rising bond yields push up the cost of borrowing in the economy and also make fixed income instruments more attractive compared to equity.

“The greatest tragedies occur when people forget about uncertainty.” - Peter Bernstein

Everyone is talking bearish, listing a host of reasons from the war in the Middle East to expensive valuations to rising bond yields, and what not. But nobody seems to be actually selling, so a dealer at a mutual fund told Short Call. At the same time, nobody wants to buy big quantities ahead of the general elections. It is a stalemate situation for now.

Infosys

A quick glance at Infosys Q2 performance based on a cocktail of analyst views:

The good: Highest number of deal wins
The not-so-good: Cautious commentary
The ugly: Cut in guidance

The ADRs have taken a beating on the Nasdaq, so, expect some weakness here as well. But short-term trading bets on the stock in a panic situation have usually paid off well. The stock had tumbled 8 percent in the session following its first-quarter earnings in July after a cut in the revenue guidance. But it gained around 15 percent from those levels in the next couple of months.

Is the disappointment going to be more severe than what was seen at the time of Q1? One clue could be the price targets of most brokerage houses —they are around current market levels, indicating that a lot of bad news could already be in the news. One may not make big profits in Infosys in the near term, but there seems to be no compelling case to go short on the stock either.

HDFC AMC

Strong second-quarter numbers, as a higher share of equity assets and a

buoyant stock market finally appear to be showing up in the bottomline. But how much of it is already priced in the short term, considering that the stock has rallied 75 percent from its 52-week lows in March. Analysts are divided. HSBC and Jefferies have both raised the earnings by 4 percent, but HSBC has a 'hold' rating and Jefferies a 'buy'.

Both agree on one point: the AMC’s equity assets are likely to see good growth hereon.

Hero Motocorp

The stock closed flat on Thursday. CLSA’s upgrade rating is yet to find takers. The broker feels the market is looking at the company’s positioning in the fast-growing premium motorcycle segment, scooter and exports, all of which are weak right now. But there is a 5 percent dividend, and who knows where the stock can go if the company’s premium portfolio does well, is CLSA’s argument.

Oriental Hotels

The stock has risen around 28 percent this month alone. Volumes have been higher than usual over the past week. On Tuesday, around 1.22 crore shares were traded, which works out to nearly 20 percent of the floating stock. High-frequency trading firms too have begun showing up, thanks to the spurt in volumes. A veteran Dalal Street investor-turned-entrepreneur and his close circles are said to be accumulating the stock. Operating numbers are nothing great to write home about at this point.

Bond yields

Yields on the 30-year US government bonds spiked 19 basis points, the sharpest since March 2020 at the height on the pandemic. Higher-than-expected September inflation data and weak demand for a bond auction caused the surge. Rising bond yields push up the cost of borrowing in the economy and also make fixed income instruments more attractive compared to equity.

Crude oil 

The crude oil prices softened on Thursday morning after the Energy Information Administration (EIA) reported an inventory increase of 10.2 million barrels for the week to October 6. According to ING analysts, the “war premium” on crude prices may slowly erode if the conflict remained limited to Israel and Palestine. But if Iran enters the fray and the US responds with sanctions, oil supply could tighten, reports Oilprice.com.

Cure for inflation: recession!

Hot September inflation is making US equity investors all the more edgy because the Fed continues to stick to its goal of 2 percent inflation. At one point, investors were beginning to think that the Fed may raise the bar for inflation, given the changed macro-environment after Covid. But no such luck.  “You need a recession,” Steven Blitz, chief US economist at GlobalData TS Lombard, told CNBC. “You’re not going to magically get down to 2 percent.”

Lithium

Chinese electric vehicle major BYD Co is weighing purchase of lithium mining assets in Brazil as it seeks to lock in raw-material supplies to expand its electric car production outside Asia, reports Bloomberg. BYD’s new EV factory in Brazil will include a unit to process lithium and iron phosphate for the international market and BYD hopes it will be able to finish work in less than two years, the report said.

Copper

The world’s number-one copper producer, Codelco, may be able to extract a premium from its European customers, but not China. Russian copper exports to China and expectations of surpluses have emboldened Chinese buyers to try and dictate how much they will pay to Codelco for the industrial metal next year, reports Reuters. What puts European buyers in a weak spot is that they have shunned Russian copper.