Short Call | Indian bulls beat global bears on expiry day; power stocks charged up, metals shine

Today’s expiry session will be telling.

The mood is that the global markets continue to be dour, but that is not affecting the mind of investors in India. Today’s expiry session will be telling. But are bulls confident enough to roll over their positions in the face of the deepening gloom in global markets?

The stocks continue to rally relentlessly even as a section of the market feels the risk-reward ratio is no longer attractive. The stocks are now quoting around 1.3 times the book value. In 2011-12, the market was willing to pay as high as 2.5 times book. But then, the loan book was growing at a much faster rate at that point.

“This is quite high, given that their loan books are set to grow at only 10-12 percent compounded over the next three years,” Green Edge Wealth founder Digant Haria told Short Call earlier this week. He says the power sector is set to boom for the next three years, but  even assuming a price-to-book of one time on estimated FY27 earnings, these stocks may have at best around 35-40 percent upside, and that is if all goes well.

The stock has been struggling of late after hitting a 30-month high earlier this month. India’s gas consumption has been rising, and sentiment for

Petronet LNG has improved after the first quarter performance. Yet, Petronet may not be the best vehicle to play this theme, feels Citi, pointing to lower utilisation levels at the company’s Dahej terminal. Citi has a 'sell' rating on the stocks.

Analysts in general have been slow to warm up to the stock, though investors have been chasing the price of late. ICICI Securities feels the company’s decision to get into petchem is not a wise move and Motilal Oswal says volume growth prospects remain bleak due to intensifying competition from the upcoming LNG terminals as well as rising domestic gas supply.

The shares gained 1.6 percent on Wednesday. The near-term outlook on the stock is of caution even as profits have now been climbing for five quarters in a row. Topline has been steady for the last five quarters, but profits got a boost because of a sharp improvement in operating margins (steady crude oil, rubber prices). With oil prices climbing again, the margin expansion theme may no longer work.

The stock closed flat on Thursday. Cummins has been struggling for the last couple of months, after a 36 percent rally between January and July. Gross profit margins have been slipping over the last couple of quarters. UBS feels the best phase of short cycle-led earnings momentum is past, and the field is getting more competitive. Domestic growth should be good, but exports could be a challenge, according to UBS. Next to banks, capex still remains one of the safest bets in this market. If investors run out of ideas, they may not mind bidding capex stocks higher.

The upcoming world could spell a bonanza for aviation companies as it coincides with a seasonally strong third quarter because of the festive season and holidays, says Jefferies. Some airlines would even be looking to add capacity, it says. Spoiler: High crude prices, beyond doubt.

Global metal analysts predict that India’s aluminum appetite will double in the next decade, impacting both the short-term and long-term aluminum price projections, reported MetalMiner.com. Increased consumption in India was a result of initiatives like 'Make in India' and the shift to green energy, especially in transportation. India’s per-capita aluminium consumption is around 3 kg, one-tenth of that of China’s.

The benchmark 10-year US Treasury yield scaled a 15-year high on Wednesday, as investors are worried about inflation and interest rates staying higher for longer. But there is also a section of the market which feels that it should not matter much even if bond yields stay high because share prices have managed to do well so far even as interest rates have been rising.

More signs that the shift to clean energy may take longer than expected. Norway's sovereign wealth fund Norges Bank has said that big oil companies are not transitioning rapidly enough to achieve the net-zero emissions target by 2050, reported Oilprice.com. The statement comes at a time when most oil and gas companies are reaping profits from surging oil and gas prices, again focussing on large-scale oil and gas projects, while simultaneously resisting calls for more ambitious ESG targets and investments in energy transition.

And, there are genuine hurdles in the path as well. Consultancy firm McKinsey & Company feels the transition to clean energy could be delayed because of looming supply gaps for rare earths, lithium, nickel, graphite, cobalt, boron and copper, according to a report in Mining.com. This could lead to higher prices and market volatility, hindering emissions goals.

US markets watchdog Securities and Exchange Commission has charged DWS Investment Management Americas Inc for making misleading claims about its ESG investment procedures and for failing to set up an effective anti-money laundering programme. DIMA made materially misleading statements about its controls for incorporating ESG factors into research and investment recommendations for ESG integrated products, the SEC said.

A record share of Chinese investors plan to cut their allocation in property over the next year, according to a quarterly investor sentiment survey published by the Cheung Kong Graduate School of Business in Beijing, reported Bloomberg. The net share of respondents planning to cut their investment in domestic real estate over the next year rose to a record 31.7 percent. The Chinese government is trying to reflate the property market, and local governments in some districts have even removed the curbs on discounts that developers can offer, so that inventory gets cleared.

Retail chain Costco has added one-ounce gold bars to the list of items that shoppers can buy, though it can only be bought online and if you are a Costco member, reports CNBC.  Plus, a member can only buy two gold bars at the most. Interestingly, the gold bars priced at $1,900 an ounce, are selling like hot cakes, Costco CFO Richard Galanti said on the earnings call.