Short Call | IT in a rough patch; Infosys, Tata Motors, Zee, copper to chart market movement

IT stocks could be in for some rough weather in the near term.

“Guessing at the future rate of interest is, in my opinion, one of the most puzzling problems in the world.” -  John Maynard Keynes

Bad news in the IT space continues with Infosys’ underwhelming fourth quarter numbers. IT stocks could be in for some rough weather in the near term, but it is not as if the market did not see it coming. Investors were cautious on the sector even as management commentary was broadly positive through FY23. TCS shares fell less than 2 percent on Thursday despite bearish views from most broking firms. But as the Infosys numbers show, the market needs to brace for a sharp divergence in financial performance among large caps as well.

Infosys

The stock could take a beating today after a rash of rating downgrades and steep cuts in price targets by leading brokers. Nomura, JP Morgan, CLSA and Citi have downgraded their ratings, trimmed target price and earnings per share estimates, while UBS has retained its neutral rating. This could most likely result in fund managers preferring TCS over Infosys near term, as the growth differential between the two has narrowed after the latest quarterly performance.

Tata Motors

The company plans to increase prices of its passenger vehicles from May 1, with the weighted average increase around 0.6 percent. The stock has been on a tear since late March, climbing 17 percent. Strong JLR wholesales for the March quarter has been the key sentiment driver. Consolidated earnings for the December saw a significant improvement with the company reporting a net profit after seven successive quarters of losses. Continuation of that performance will be key to the stock breaking past its peak of Rs 510 seen in January 2022. Broker outlook on the stock at this point is largely positive, with JP Morgan being the notable exception. JPM has a neutral rating on the stock as it remains cautious on demand and pricing for FY24 because of inventory levels normalizing. It has also flagged growth moderation in commercial vehicles as well as passenger vehicles.

Zee Entertainment

CNBCTV18 reports that institutional investor Oppenheimer is looking to sell a 5.65 percent stake through an open market deal for between Rs 200-Rs 208 a share. Oppenheimer has been a vocal critic of Zee management’s corporate governance for a while now, and the deal could come as a relief to both parties. It also removes a key overhang for the stock, which has been struggling for the last six months despite repeated assurances from Zee that the merger deal with Sony is well on track.

SBI

India’s number one lender has said that it will keep lending rates unchanged effective April 15. Banks in general have been steadily cranking up lending rates for the last many months. SBI’s latest move could most likely have to do with the RBI pausing on rate hikes. But the central bank had made it clear that the pause was a one-off and further measures will depend on the inflation trajectory. It may still be early for borrowers for rejoice. From the stock market perspective, the shift money-from equity-to-fixed income trade is pretty much alive and kicking.

Good news and bad

The good news first: US Treasury Secretary Janet Yellen has said that the US Federal Reserve may not have to raise interest rates by much in the days ahead. The bad news: banks are likely to become more cautious and may tighten lending further in the wake of recent bank failures.

In an interview to CNN, Yellen said that a restriction in credit in the economy could be a substitute for further interest rate hikes that the Fed needs to make.

Dr Copper

Copper prices touched a seven-week high of $9,200 a tonne ($4.12 a pound) on Friday, but bulls of the red metal may need to keep their enthusiasm in check.

Despite a rosy demand outlook due to the green energy transition, historically low inventories, and supply growth uncertainty, weakness in China’s building sector has kept medium-term copper price predictions muted, reports website ming.com

Watch out Tesla

Little known Chinese electric car maker BYD could well overtake Tesla as the biggest global seller of pure EVs, according to a report in The Economist newspaper. In China, BYD is already giving Tesla a run for its money.

“Tesla last year reduced its prices in China twice. BYD increased its prices. BYD is so much ahead of Tesla in China ... it’s almost ridiculous,” renowned value investor Munger recently told CNBC. BYD gave a preliminary estimate of its 2022 net profit as $2.4-2.5 billion, a fivefold jump over the previous, which analysts say is an indication that it is now competing with Tesla in the premium category.

Slow EV adoption

The US is lagging behind much of the developed world in electric vehicle (EV) adoption, reports zerohedge.com citing a survey by the Financial Times.

“Only two in 10 Americans are very likely to buy an EV, even with the additional subsidies offered by the Inflation Reduction Act. Cost and charger availability are being cited as the two main reasons people aren't buying EVs. Behind them, price still remains a key factor.”