Short Call | IT paints a dull picture ahead of earnings; focus on Colgate, CAMS, Godrej Properties

The market will be disappointed by the demand momentum this year, which should reflect in muted growth guidance.

“The liabilities are always 100 percent good. It’s the assets you have to worry about.” - Charlie Munger

The focus will be on IT shares over the next few couple of weeks as the biggies in the sector start declaring their numbers from next week. IT has been a laggard so far in 2024, and the near-term picture doesn’t look too promising, going by what analysts have to say in their earnings preview report. Of course, there could be a trading opportunity if the market overreacts to tepid numbers and stocks get hammered below their fair value.

Nomura is cautious on the tech sector, as it sees a low probability of a significant turnaround in discretionary demand for IT services. It expects operating performance to vary significantly across companies this year.

IIFL thinks the market will be disappointed by the demand momentum this year, which should reflect in muted growth guidance. Deal win announcements will largely be around cost take-outs, but will not be enough to improve near-term growth. “Limited scope to generate absolute returns in the sector, as slower-than- expected demand will lead to time correction,” says the brokerage.

Colgate Palmolive (Rs 2783, + 2.4%)

The stock continues to make new highs.

Bull argument: Resilient demand in urban markets and gradual recovery in rural in FY25, benign raw material prices key drivers, according to Centrum, which has an add rating on the stock. Consistent marketing investments and better execution to drive oral-care category growth.

Bear argument: Demand may fail to pick up, rising inflation in key raw materials and packaging materials.

CAMS (Rs 3,189.95, +6.61%)

The stock gained on reports that the company would manage the issuance of all digital insurance policies.

Bull argument: Buoyancy in the MF industry to drive growth. Prominent new

entrants to the MF business signing up with CAMS. Investments in its non-mutual-fund businesses on the rise, to pay off before long.

Bear argument: Has lost 580 bps active equity AUM share over FY18–24TD to 66.2 percent, market share has plateaued at 66 percent over FY21–24TD, according to Nuvama. Stock looks slightly expensive compared to peers. Also, client concentration in AAUM is lower for a rival like KFintech.

Godrej Properties (Rs 2,488.05, +4.12%)

Morgan Stanley has upgraded the stock to 'overweight' and hiked the target price based on pre-sales momentum.

Bull argument: The company to have faster growth than peers in terms of pre-sales on year-on-year basis, says Morgan. In Q3, Godrej reported pre-sales figure of Rs Rs 5,700 crore, its highest ever figure.

Bear argument: The company’s operating profit has been negative for three quarters. Net cash flow is also in red due to Rs 1250 crore land capex in Q3.

Aditya Birla Fashion and Retail (Rs 236.15, +11.58%)

The company plans to demerge Madura Fashion and Lifestyle business from ABFRL into a separate listed company

Bull argument: Pantaloons sees a gradual recovery. The company expects a 10-12 percent revenue growth in the medium term.

Bear argument: Most new businesses loss-making or yet to make meaningful profits.

With inputs from Yash, Srushti and Ananthu