Short Call | Is this correction finally over? Tata Chemicals, Asian Paints in focus

Short Call.

From January 27, the benchmark Nifty 50 index has soared over 4 percent, and settled above the 10 percent correction line. Does this mean the correction is over?

Let's look at the facts.

1.Jefferies noted that in the past decade, 9 times out of 10, Nifty corrected alongside the EM index suggesting high global linkages. The MSCI EM Index corrected by 12 percent from Oct'24 peak thru to Jan bottom but the index is already up ~5 percent from the January bottom.

2. The market correction has been ongoing for 126 days, making it the 2nd longest of the 10 corrections in the last 10 years. Markets have corrected 10 times in the past 10 years.

3. Valuations: The brokerage noted that valuation indicators at 10-year average level now. Nifty is currently trading at 18.8x 1-yr fwd PE, which is still 3-4 percent above its 10-year average, but it has moderated from earlier highs. On a yield gap basis (Bond yield - Earnings yield), the valuation is now at 10-yr avg (145 bps). Historically, this has been a strong indicator of future returns, noted Jefferies.

4. The Indian rupee has been steadily weakening. However, the outlook can change materially to the positive, if DXY traces back to the September 2024 level. President Donald Trump wants a weaker USD and in his first term, DXY declined by 14 percent over the first 14 months, noted Jefferies.

So does this mean the ongoing correction has now come to an end? Well, that, only time and the markets can tell!

Tata Chemical (Rs 918.35, -3%)

Reported underwhelming Q3 numbers.

Bull Case: Soda ash prices are expected to scale a turnaround going ahead. Further, this quarter was hit by a one-time exceptional loss, on account of expenses related to employee termination benefits, decommissioning of plant and machinery, and other closure-related costs following the cessation of soda ash production at the Lostock plant in Northwich, UK.
Bear Case: In the short-term, the current demand-supply adverse situation is likely to persist but should improve and stabilise over the long term driven by growth sectors based on sustainability trend, said the management.

Asian Paints (Rs 2,355, +2.7%)

Net profit of Rs 1,128 cr in Q3, margin and volume beat estimates

Bull case: Despite near-term headwinds, Asian Paints' strong brand equity and leadership position in the decorative paints segment give it a long-term edge. Management anticipates a return to revenue growth in the coming quarters, suggesting that the worst of the slowdown may be behind the company.

Bear case: The company is grappling with its fourth straight quarter of revenue decline, with a deteriorating product mix further exacerbating the issue. Additionally, subdued demand and rising competitive pressure may continue to weigh on margins, making a swift recovery uncertain.

(With inputs from Lovisha.)