Short Call | Market steadies, but are we truly out of the woods yet? Divi's, Swiggy in focus

Short Call

After a major sell-off that pushed the Sensex and Nifty six percent below their all-time highs, the markets appear to have regained momentum, with both benchmarks rallying for five consecutive sessions. But is the storm truly over?

Sharp corrections in pockets like consumption-related and narrative stocks may have offered some respite, but valuations remain stubbornly elevated. As Kotak Institutional Equities observed, "The price-value disconnect is still large across most sectors and stocks.” While the market has begun questioning the hype around these narratives, many still hover in "extremely frothy" territory.

BofA's outlook for India was equally measured, predicting the Nifty could underperform U.S. equities in 2025 and expecting muted returns in broader markets given their rich valuations. The brokerage highlighted weak FII flows in 2025 on the back of strong US bond yields, with the pace of DII inflows also at risk of moderating. Describing the Nifty as 'expensive on all valuation metrics,' BofA tempered expectations for significant upside, projecting returns of less than 9 percent in 2025.

Adding to the caution, Macquarie's analysis on Asia highlights a deceleration in growth momentum, with 'limited evidence to support earnings upgrades across sectors.'

In essence, analysts suggest the market still carries a hefty price tag and the bargains many are hoping for might still be a long way off.

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Divi's Laboratories (Rs 6,096.20, -2.6%)

Shares fell after Novartis lost its appeal in a US district court a generic variant of its the heart failure drug Entresto, a key drug in Divi's CDMO portfolio.

Bear Case: The ruling of the US district court is set to pave the way for a generic variant of Entresto to enter the market, thereby increasing competition. The drug made up around 8% of Divi’s total sales in FY24 and high competition will likely dent its revenue potential and the drugmaker’s earnings.

Bull Case: Citi views Divi's as structurally and tactically well-positioned. It is anticipated to emerge as one of the largest Indian beneficiaries of the US Biosecure Act, which is expected to amplify the China+1 strategy. The drugmaker's expanding pipeline for its contrast media business can further drive up earnings.

Swiggy (Rs 539 | +4.15%)

Hits new high amid brokerage upgrades

Bull case: Swiggy could capitalise on its early-mover advantage, using its extensive delivery network and brand strength to deepen penetration in emerging markets. Strategic investments in technology, quick commerce, and customer retention initiatives could drive sustainable growth, enabling it to outpace competitors and improve profitability.

Bear case: Mounting competitive pressure from rivals like Zomato and aggressive new entrants could squeeze Swiggy's margins and market share. If scaling profitability proves elusive amidst rising costs and slowing growth, the company might struggle to justify its valuation and sustain investor confidence.

(With inputs from Vaibhavi and Lovisha)