Short Call: In a new world of uncertainty and instability, success hinges on leaders from disruption

Age of disruption

"Nobody knows what the stock market is going to do or even what it ought to do. Hence, the most valuable asset in all business, which is knowledge, is necessarily absent." - Edwin Lefevre

Crystal ball gazing for 2024 has begun in the earnest. UBS Global Wealth Management sees “a new world”,  one characterised by economic uncertainty and geopolitical instability, but also of profound technological change. As the trends of deglobalisation, demographics, digitalisation, decarbonisation, and debt intensify, the key for investment success in 2024 is to spot the “leaders from disruption” in the technology, energy, and healthcare sectors in particular.

Vedanta

The stock is up 11 percent over last month. CRISIL recently downgraded its rating on long-term bank facilities and debt instruments to ‘CRISIL AA-’ from ‘CRISIL AA’. Second quarter net loss stood at Rs 915 crore in Q2 due to

exceptional expenses, while net debt was down 2 percent sequentially. Nuvama has a ‘hold’ rating on the stock, but feels the company will manage its debt. The upswing in stock price seems to suggest that the Street is betting on a big fund raise in the near future.

Growth pangs…

Bajaj Finance shares fell another 2 percent on Monday, as the company has had to suspend fresh EMI card issuances following the RBI’s directive. Outlook on the sector in general has turned cautious after the RBI last week increased the risk weightage on consumer loans. The company sees it as a short-term impact, but the 5 percent drop in the last couple of trading sessions shows that the Street is in a wait-and-watch mode.

… Concerns overdone

Emkay analyst Anand Dama and Avinash Singh expect a down-cycle in industrywide unsecured loans but not a blow up. They see credit standards tightening, growth slowing, rates rising, and credit costs inching up. But ‘blow-up’? No way, considering that the industry managed to survive a much bigger crisis during Covid, they argue. “Comparisons with the 2008 crisis are lazy: We now have functioning credit bureaus, vast digital data pools, and structured collection processes,” the duo wrote.

Mankind Pharma

Shares touched an all-time high on Monday following the stock’s inclusion in the FTSE All-World and All-Cap indices. FII holdings have been unchanged for the last couple of quarters. Will the inclusion in FTSE indices change that? Stock among the most expensive in pharma at 57 times trailing PE. MD Rajeev Juneja says the focus will remain on domestic market, unless they can create a complex, difficult-to-manufacture and differentiated product for the export market.

Nykaa ka mauka?

The stock rallied 15 percent in the last five trading sessions. The Q2 numbers shot past the Street estimates, but analysts remained divided. Adwaita Nayar, CEO of Nykaa Fashion, said the unit plugged leakages which resulted in healthier financials. JM Financials has a ‘buy’ rating as they expect the fashion segment to turn profitable sooner due to growth in transacting customers and Average Order Values (AOV). Dolat Capital has a ‘reduce’ call, citing expensive valuations and increased competition.

Zen Technologies

The combat training solution manufacturer’s stock rose 5 percent on Monday with only buyers for the shares. Big jump in Q2 numbers year-on-year, but stock  around 16 percent below the record highs of August. Current order book around Rs 1500, including a recent a Rs 100 crore defence ministry order. For a company with Rs 161 crore FY23 revenues, the market cap is close to Rs 6400 crore, making valuations look rich. Low trading volumes in stock since August.

Agro chemicals

Sharp decline in revenues across most of the agrochemical industry again in Q2, both in India and internationally as customers continue to destock, says a Kotak report. Commentary from most companies suggests destocking pressures will persist at least through 1QCY24. Recovery thereafter is seen only as modest, and the recent softness in corn prices is a worry in terms of end-demand for CY2024, the report says.

Capex story

Order backlog up 17 percent on-year at India’s top 30+ E&C companies, according to CLSA. The government is awarding multi-billion dollar, multi-decade contracts and Indian companies are winning in the Middle East (ME) as well. Margin outlook has improved as input costs as softening. A good picture on the whole if you are looking to bet on the capex story. At the same, the re-rating of stocks may be over, CLSA cautions.

Home loans

Despite an overall growth in loans, there was a slowdown in mortgage growth across all players, even NFBCs during Q2, says CLSA. “Data from a credit bureau also corroborate this argument, indicating that, home loan disbursements were down 6 percent YoY in 1QFY24,” the note said. Why? Kotak Bank says it is because of lot of customers pre-paying because of high rates, ICICI Bank says too much competition is forcing it to go slow on sales of home loans.

With inputs from Anishaa, Yash, Ananthu, and Srushti.