Short Call: Market warming for rain dance post poll vault; Concor, GR Infra, Metropolis Health, BHEL, BEL in focus

IMD has forecasted an above normal monsoon for 2024, over most of the country except some areas in North and East India: Antique Broking

The market appears to be gearing up for the next trigger once elections are out of the way: monsoon.

From an Antique report:

“IMD has forecasted an above normal monsoon for 2024, over most of the country except some areas in North and East India. Empirical analysis suggest that normal to above normal monsoon lead to lower inflation (helped by food) and higher growth (partly due to agriculture). Our leading indicator analysis suggest that these macro trends provides tailwinds to sectors like banks, capital goods, auto, infrastructure, hotel, and midcaps.”

Short Call’s take: These sectors are among those in which stocks have run up a fair bit. Can hopes of a good monsoon drive additional upsides?

Banking

For investors who are overly bullish on PSU banks, IIFL’s note makes for a sobering read. One, system wide loan growth is expected to slow to 13 percent this year, IIFL analysts say. Also, private banks are making better inroads in semi urban and rural markets. This has led to PSU banks losing 20-50bps of deposit market share in FY24.

“PSU banks saw positive earnings revision, but the cyclical tailwinds (low LDRs, better net interest margin trajectory and low credit costs) should abate in a few quarters,” write IIFL analysts Rikin Shah, Heet Khimawat, and Ryan Daniel.

Short Call take: The story for PSU banks may be good, but be careful of what you pick.

Container Corp (Rs 1082, flat)

Q4 earnings below market expectations

Bull argument: Company’s three-pronged focus on growth, cost efficiencies and profitability, should drive growth says I-Sec. The broker sees RoE improving to a 10-year high of 14.2% by FY26, and has raised valuation multiple to 35x from 28x on volume growth, margin improvement and progressively better RoE.

Bear argument: Stock has rallied around 90 percent from its lows of 2023. Most of the upsides may already be reflecting in the price.

GR Infraprojects (Rs 1615.9, +2.9%)

GR Infraprojects bagged two road projects worth Rs 4,346.14 crore.

Bull argument: Order book of Rs 19,253 crore provides revenue visibility for the next 2.5-3 years. Has diversified into railways, ropeways, multi-modal logistic parks, and power transmission to reduce over dependence on road projects.

Bear argument: The management expects 0-5 percent reduction in revenue this year. Delay in appointed dates for existing projects and new order inflow remains a concern, says Axis Securities.

BHEL (Rs 302, - 5 %)

Lower than expected fourth quarter earnings. Revenues flat, decline in net profit.

Bull argument: Healthy and executable order book and continued momentum in tendering of new projects in a limited competitive environment should lift growth from the December quarter onwards, says JM Financial.

Bear argument: Inability to reduce debtors will result in rising working capital and affect profitability. Delay in thermal projects ordering could impact revenue visibility and profitability, says Nuvama.

Metropolis Health (Rs 1,956.05, +2.8%)

Reported a good set of March quarter earnings.

Bull argument: Expanding footprints in tier-3, tier-4 cities, focussing on vital clusters. Improving product mix to drive volume and revenue growth going ahead.

Bear argument: Increased competition in the sector amidst the foray of new age players into offline channels. While the pricing war has abated for now, pathology is more susceptible to online competition than radiology.

BEL (Rs 283.60, +3.4%)
Strong Q4 earnings, growth prospects.

Bull Argument: Market share of nearly 60% in the highly specialised defence electronics segment. To gain from defence indigenisation potential worth Rs 5 lakh crore orders over the next five years, says MOSL. Sees BEL’s commanding a revenue market share of 12-13 percent.

Bear argument: Slowdown in order inflows from the defence and non-defence segments, increased competition, further delays in finalisation of large tenders, a sharp rise in commodity prices and delays in payments from MoD can hurt margins and cash flows.

(With inputs from Srushti, Anishaa, Vaibhavi and Harshita)