Short Call: Local mutual funds play it smart; Ashok Leyland, Cyient, Welspun Living, Chalet Hotels in focus

Last month, domestic mutual funds were aggressive buyers, but this month they have slowed down while foreign funds have taken their place.

The earnings season has been progressing well as far as the bulls are concerned, considering there have not been any nasty surprises so far. The argument over valuations matter little at this point, given the unabated inflows. Till last month, domestic mutual funds were the aggressive buyers. This month, they have shifted into a lower gear, but foreign funds have stepped in to fill the gap. After soaking up around Rs 26,000 crore worth of shares in June, they have added another Rs 15,000 crore worth to their kitty. In stark contrast, domestic funds bought less than Rs 8,900 crore shares in July. This is a smart strategy. Local funds are using the newfound enthusiasm among foreign funds to their advantage by booking profits, which can then be deployed at lower levels. It still does not solve their problem of finding stocks at reasonable valuations, though.

Swimming in an ocean of liquidity, bulls are ignoring cues from the global markets. The hype over AI has faded and valuations of tech majors have corrected. Auto seems to be the next in the firing line, as vehicle makers are grappling with the end of the post-pandemic boom in demand.

Chalet Hotels (Rs 835, +1%)

Best ever Q1 revenue

Bull case: Chalet Hotels reported 15 percent growth in hospitality and 25 percent growth in the commercial realty business. Both these metrics bode well for the stock's upside in the near term. Its tie-up with global hospitality brands and presence in key metro cities may ensure continued high occupancy and healthy average room revenue.

Bear case: Tepid demand, occupancy trends, and inability to expand planned projects can restrict growth of the company, thereby, impacting the stock as well. It plans to construct new hotels in Goa and Kerala, any delay in such activity will dampen the earnings visibility and contribute to the stock's de-rating.

Cyient (Rs 1,790, -5.5%)

Stock tumbles as Q1 results, FY25 guidance disappoints the Street

Bull Case: IT firm is well-positioned to leverage its strong domain knowledge and comprehensive solutions capability in GIS and diversified IT environments. Its strategic investments in technology platforms and a robust deal pipeline drive strong growth potential.

Bear Case: Its sharply lowered guidance and potential challenges from rupee appreciation against major currencies, along with a shortage of skilled manpower, pose significant risks that may hinder its performance and growth prospects.

Welspun Living (Rs 183.40, +2.4%)

Reported rise in consolidated net profit and revenue for Q1 FY25.

Bull Case: Increasing presence in emerging and branded businesses. Structural development in high-margin verticals. Potential UK and Euro FTA Agreements could open new markets. 20 percent YoY export growth surpasses industry trend. Strong Middle East, US, and UK market traction. Capacity expansion on track.

Bear Case: Delays in capacity expansion and utilisation. Global recession and high inflation impacting the US and other export markets. Fluctuations in currency and key commodities.

Ashok Leyland (Rs 246.5, 6.05%)

Shares hit a fresh all-time high despite a 9 percent decline in Q1 net profit.

Bull Case: The management suggests renewed strong demand across all business units, with significant contributions to the top line from segments such as Power Solutions and Aftermarket. Key catalysts for future growth include improved commercial vehicle (CV) growth and double-digit EBITDA growth over FY25-26.

Bear Case: An increase in commodity prices could impact the gross margins of the business. Additionally, slower-than-expected industry growth presents another risk that could hamper the financial health.

(With inputs from Neeshita, Harshita, Lovisha, Veer)