Short Call: Largecaps in vogue, oil stocks strike gold, hotels see brisk business, Adani Ports sails high, REC charged up

Large-cap stocks make a comeback after a long time.

“The best time to get involved with cyclicals is when the economy is at its weakest, earnings are at their lowest, and public sentiment is at its bleakest.” - Peter Lynch

Large-cap stocks were back in demand after a long time on Monday. Will this upswing continue? Possible, says Kotak Institutional Equities. “Mega-caps may now see more interest from the market (specifically FPIs) given (1) their reasonable valuations and (2) lower worries about a sub-optimal outcome (no decisive mandate) in the general elections,” write Kotak strategists Sanjeev Prasad, Anindya Bhowmik and Sunita Baldawa.

HPCL (Rs 377, +9.10%)

The stock is at the highest levels in over five-and-a-half years. Peers Indian Oil and BPCL were also up over 4 percent in trade on December 4. Favourable valuations and oil prices remaining steady despite OPEC production cuts, key drivers. Last week, broking firm HSBC upgraded the OMC stocks. When the OMCs were asked to hold pump prices last year despite a rising crude, their marketing margins were hit. Now the stocks are being upgraded for the same reason. "Unchanged auto fuel prices have been a result of controls during an election year, efforts to manage inflation and OMCs’ attempts to recoup profitability as crude prices fell and margins improved," HSBC noted. It has revised FY24-25 earnings for HPCL by 40 percent to 166 percent.

Adani Ports (Rs 879, +6.1%)

Bulls cheered the November cargo volume rising 42 percent to 36 million tonnes. The stock has faced resistance around the Rs 900 mark over the last year. Domestics funds’ holding increased 0.82 percentage points in Q2. It is now among the better-rated stocks in the Adani pack as far as institutional investors are concerned. Further gains will depend on the medium-term outlook on global trade.

IRCTC (Rs 721, + 2.8%)

The stock is less than 5 percent away from making a 52-week high. Seems to be more of a PE re-rating, considering that operating numbers have been steady at best over the last four quarters. Domestic institutional holding of 10.53 percent is very close to the exposure level in June 2021 just before the stock had peaked.

REC (Rs 390, +4.22%)

The stock continues to make record highs and has been among the biggest beneficiaries of the all things power rally. Sceptics say valuation of 1.5x book value a bit rich, considering that the growth rates of 2010-11 unlikely to be repeated. The management tells CNBC-TV18 that the company is looking to reduce the cost of funds to 7 percent through hedging, and aiming for a net interest margin of 3.5-3.6 percent, FY25 RoA of 22-23 percent. It is also looking to raise funds through multiple sources. If equity dilution is one of the sources, then bulls better beware.

Hotels

HVS Anarock data for October 2023 indicates a pick-up in occupancy of +6 percentage points (pp) YoY and +2pp MoM, thanks to the Cricket World Cup. Can things get better for the hospitality sector? Yes, say analysts at Emkay Global, pointing to Foreign Tourist Arrival (FTA) being still below the pre-Covid levels by around 16 percent. Demand-supply dynamics are still in favour of hotels, says the report. For those planning vacations, don’t expect room rates to come off any time soon.

Honasa Consumer (Rs 383.5, -4%)

Fireside Ventures is likely to sell 61 lakh shares (1.9 percent) worth Rs 230 crore through a block deal, according to CNBC Awaaz. The stock is down for five days in a row and off 21 percent from a record high. Reports of the company pushing excess stock through its offline supply chain ahead of the IPO is weighing on the sentiment. A block deal could increase floating stock at a time when the Street is not exactly hot on the stock.

Delta Corp (Rs 140.45, - 3.8%)

Plans to step up real estate exposure is not helping the sentiment beyond a point. The big overhang is how the company will manage to resolve the case relating to GST violations. Delta plans to invest around Rs 100 crore in Ashok Piramal’s Peninsula Land, in which it already holds stake.

With inputs from Shailaja, Anishaa and Yash. Edited by Santosh Nair